The economics of Tesco, Starbucks and McDonalds…oh, and dive pricing.
Go into your local branch of Tesco (or large hypermarket, for those of you outside the UK) and you’ll notice the Tesco ‘value’ brand. The Tesco ‘value’ brand has infamously ugly packaging, not because Tesco cannot afford good designers, but because Tesco want to scare away customers from this product.
“Huh?”, I hear you say. “Why would Tesco want customers to not buy their product?”
The reason behind this decision is that the retailer in this instance wants to drive the customer towards a slightly more expensive product (expensive = more profit for the retailer). Only those customers who really cannot afford the mainstream brands (Coke, Kellogg’s and Kleenex as I politely call them) will buy the Tesco ‘value’ range. So Tesco (and Starbucks – we’ll talk about them later) have very cleverly deterred customers with plenty of money from buying the ‘value’ range through deliberately providing a poor brand image, and therefore maximised their profit on more ‘exclusive’ products. As a second sweep, they’ve provided a lower profit product to those not able to afford the mainstream brands (the alternative option would be for the customer to spend nothing) or wish no interest in image and status associated with a mainstream brand.
This practice is hundreds of years old. The French economist Emile Dupuit wrote about the early days of the railways, when third-class carriages were built without roofs, even though roofs were cheap: “What the company is trying to do is prevent the passengers who can pay the second-class fare from traveling third class; it hits the poor, not because it wants to hurt them, but to frighten the rich.” The modern equivalent is the airport departure lounge. If the seats were more comfortable, and the floor cleaner, nobody would pay for club-class departure lounges.
I mentioned Starbucks earlier – for Starbucks are truly the masters of product pricing, and to them we must bow. Next time you are at your local Starbucks ordering your Wet Skinny Tall Latte (I’m not a coffee aficionado!) tilt your head upwards by 45 degrees and count the options on the menu hung behind the counter. How many do you count? (http://www.starbucks.com/retail/beverages.asp) I’ve lost count at 30. Starbucks offer a bewildering array of options for you to drink, and all of them are generally available in at least 3 sizes, and another 3 or 4 flavours can be added. You’d think that this was amazing customer services and choice on Starbucks’ part, and you’d be partly right, however there are far more clever forces at work here.
Imagine the scenario, it’s lunchtime and you head out of the dive centre to grab a coffee at your favourite chain of fresh coffee retailers. As you walk in the door you dig deep into your pocket and find a £2 coin. Immediately your choice is limited, find a drink for £2, or don’t have a drink. Imagine all coffee at Starbucks cost £3.50, espresso, latte, cappuccino, mocha, everything. Large swathes of customers that did not think a cup of coffee was worth £3.50 would not buy coffee at Starbucks, including you with your £2 coin. As soon as the options are expanded, to increase choice and price point, those customer that previously thought £3.50 was too much, may now buy a coffee at the £2.50 price, and those like me who will not pay over £2 a cup will buy the £1.99 option.
The economics of Tesco and Starbucks (and McDonalds – they do the same with their ‘go large’ option) can be applied to both your training and retail sectors. Do you have three different snorkel mask and fin packages at three different price points? No? What happens if your customer does not see the value of a top brand snorkel fin and mask set, or simply cannot afford it, are they going home empty handed? Of course not, you also stock the ‘value brand’ at a slightly lower price, thus ensuring the customer gets what they want, and you make a sale. We also no that divers who own their own equipment will dive more often, double bonus!
Now apply this to your training. Those of you who are fortunate enough to have your own on-site pool will know that is can be a massive drain on cash, but something that is necessary to your business. So you need to create a ‘value range’ for your pool time. Do you conduct PADI Discover Scuba Diving Programmes for those who cannot commit to the price of a PADI Open Water Diver Course? Do you offer individual PADI Adventure Dives to those who cannot commit time or resources to the full PADI Advanced Open Water Diver Course? Are you running Discover Scuba Diving after hours for those customers with inflexible schedules? These are just a few suggestions to get you started, your colleagues and customers will give you more ideas. Ultimately you are trying to avoid your customer from walking out of your store unsatisfied and empty handed…let this happen and you’ve lost. Provide them with something they feel is a great deal, and they’ll love you forever.
Those of you who rent pools, or have limited access to confined water at set times, you’re not alone. Many PADI Dive Centres and Instructors worldwide rely on rented pools, or calm confined open water conditions in order to operate. What you’ll need to achieve is maximum revenue from these limit resources (in this instance the resource is time). This might include running concurrent course (PADI Discover Scuba Diving alongside PADI Open Water Diver on the same night). Introducing confined water training for specialties alongside confined water rescue sessions (Digital Underwater Photography alongside PADI Rescue Diver anyone?).
By making effective use of resources, pricing the products you offer to capture the customers you need, and running courses side-by-side, you’ll increase your profit, sell more kit, and entice students to upgrade to a ‘Large Peppermint White Chocolate Mocha’ without having to lift a finger. If you n
eed further assistance with these or any other business practises, please contact your regional manager Richard Howes (richard.howes@padi.co.uk) or Graham Owen (graham.owen@padi.co.uk).
