SCIENTIFIC ANALYSIS OF THE MARKETPLACE

Sociologists have been studying the buying habits of American 
consumers for more than four decades. During this time period, 
study after study has shown that American consumers tend to 
follow certain patterns in their shopping behavior.

One such pattern that has been noted many times is what is 
often referred to as the "20-60-20 rule." There is no better 
way to describe this than to use an example of one test that 
was done to prove this rule. 


THE TESTING STAGE

The sociologists had set up a stage to test the buying behavior 
of consumers in a busy department store. What they did was 
rather fiendish once you step back to take a look at the test.

In the department store, they had set up a small stage with 
three stoves side-by-side. On each machine, they put a tag, 
which the customer was to take to the cash register for 
completion of their purchase. Next, they trained their hidden 
cameras to focus on the stoves and the activities of those 
folks who contemplated purchasing any of the machines. 
Additional hidden cameras were stationed at the checkout 
stand to correlate the purchaser to the purchase.

At the end of one month, the sociologists gathered the tags 
that were taken to the cash register to make the determination 
as to which stoves were actually purchased.

This is where we expose the fiendish scheme of these 
sociologists and the purpose of their test. Each of the three 
stoves was exactly the same! The only difference between the 
three machines were the price differences on the stoves!

One was priced low, one was priced mid-range, and the other was 
priced expensive. 

Without fail, 20% of all customers purchased the most expensive 
machine shown. For these people, few took the time to examine 
the differences between the units. Again without fail, another 
20% spent little time studying the differences between the 
stoves, and then opted to buy the cheapest one shown.

The people who conducted the test were astonished to note that 
most people studied the stoves with extreme care as if to learn 
the difference between the machines. Even after taking a long 
time to study the three machines, a full 60% of customers bought 
the mid-priced range!

The sociologists drew two conclusions from their test. 

1. They decided that the majority of the 20% of consumers who 
would buy the most expensive item, and the majority of the 20% 
of consumers who would buy the cheapest item, cared only about 
price.
2. They decided that the remainder were more interested in 
buying based on their perceived value of the product. It was 
also determined that most of those who bought based on the 
perceived value of the product, felt price was a factor in 
helping determine the value of a given product. They decided 
that the customer felt that the higher price was indicative 
of better value.


THE LESSONS LEARNED FROM THE TEST

The lesson for us is that price is the ONLY factor in a 
purchasing decision 40% of the time --- half of those people 
will always choose the cheapest product, and the other half 
will always choose the most expensive. 

The remaining 60% of the consumers in the marketplace are more 
interested in determining the value of a particular product and 
making their decision based upon how they perceive the value of 
the product they are considering.

As a businessperson, slash salesperson, you must learn to build 
value into your product offerings. The more value your customers 
perceive, the more they will be willing to pay for your products. 

Sure, you could decide to cater to the 20% who want to buy the 
cheapest every time, or to cater to the 20% who want to buy the 
most expensive. The decision is your own. But by building value 
into your product, you can cater to the 60% and pick up a few 
more from the upper and lower extremes.


BREAKING THE 20-60-20 RULE

Amazingly, one city in America defies the "20-60-20 rule!" In 
this city there is a manager of a retail store, whom I know 
personally. 

According to him, the "20-60-20 rule" does not apply to his 
city. According to him, every person in his city buys the 
cheapest product every time. So, in his delusion, he believes 
he must low book every product in his inventory!

No wonder his store sales average is dropping every year! He 
is giving away his profits because he believes that his city 
is different from every other city in America. 

He is in fact wielding a two-edged sword. By teaching his 
customers that his store is a low-cost merchandiser, he is 
condemning himself to having to continue to compete only on 
price! By competing only on price, he is backing himself into 
a corner that assures that he has to compete with Wal-Mart. 

The truth is that no small store can compete with Wal-Mart on 
price alone. The only way to defeat Wal-Mart is to beat them 
on value, since the small business cannot buy products in the 
quantity needed to get Wal-Mart prices!


A FOOL AND HIS MONEY ARE SOON PARTED

The fool who decides that they must compete with the big 
merchandisers on price alone has sown the seeds of their own 
destruction. 

In deciding to be a low-cost merchandiser, one has ignored the 
fact that the big boys can offer those low prices only because 
they turn a much higher volume than their competitors. 

By forgetting this important lesson, the little guy who wants to 
compete with the big boys on price alone is doomed to business 
failure, because he will not be able to cover his costs of 
operation and he will end up foregoing all profit. 

Don't be a fool. Cater to the 60% instead of the 40%, so that 
you can joyfully count your profits rather than your losses.