SHOULD YOU GIVE away repairs to bring in more sales? When I was learning the trade in my father’s shop in the 1960s, giving away a repair was okay … if you had already received keystone on a carat diamond. But too many retailers today are giving away their services, with no conditions, in an effort to win and influence new potential customers.
If your gross profit margin on product is typically 44-47%, then you’ll have a tough time justifying giving away another product or service and then make a profit.
Of course, everybody wants to be known as providing “good customer service.” But make sure it’s paying off for you. Are those freebies you’re giving away bringing in enough customer sales to justify your generosity? Or could you have just taken the money and the customer would have been just as happy? Remember my oft-repeated axiom: “Repairs are trust-sensitive, not price-sensitive.” Sure, even in my former store we gave away some freebies, but they tended to be things we could do without the assistance of the jeweler.
And be very sure exactly what it is you’re giving away. Did you know that if you give away a $15 freebie, assuming an average 6% net profit in your store, you have to sell an extra $250 to make that $15 back? Having any second thoughts yet?
I visited a $1 million-plus selling store which heavily advertised its free watch battery replacement service. The owner fervently believed his promotion brought him new diamond customers and gave away 200-250 free batteries a week. (Don’t you wish you had that traffic?) But don’t wish too much. He later did a marketing study and found that 60% of the free watch battery customers were over 60 and were discount-store type customers. His staff had no time to sell – they were busy giving away and installing freebies. When he cancelled the free battery program, the staff applauded. Since he had more time to concentrate on “selling”, his sales increased, as did his profits from the actual sale of watch batteries.
If he had charged $10 for even a third of the batteries he was bringing in each week, that would have earned him an extra $42,900 a year! That’s serious money. In fact, at 6% net profit, he would have had to do an additional $715,000 in sales to earn that money back!
I know a very large two-store chain in the Midwest that gives away a piece of crystal to customers after purchases. (The more expensive the piece of jewelry you buy, the better the crystal.) Some people buy at the store just to add to their crystal collections. The store doesn’t sell the crystal — it’s only available as a gift-with-purchase. But there are two important differences here:
- The store considers these crystal giveaways as part of their advertising budget, and
- They’re giving away the items after customers have made purchases, not in the hopes that they will eventually purchase something. It’s a reward system.
If you’re giving away freebies and can pay all of your bills on time, then I’d say more power to you. But if you’re still struggling, then instead of giving away profitable repairs and justifying it as “good will”, charge the customer, make some money, and then sit down and write a thank-you note to him. You’ll get much more p.r. from that than a free repair. Want to be nice? Put in the thank you note a $25 gift certificate on a future product purchase.
Now that’s customer service.
This story is from the April 2006 edition of INSTORE.