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Real Deal

Real Deal: The Case of the Referral Rejection

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BY KATE PETERSON

Editor’s Note: Real Deal scenarios are inspired by true stories, but are changed to sharpen the dilemmas involved. The names of the characters and stores have been changed and should not be confused with real people or places.

In the 25 years since she and her husband Jim opened the doors of Gems & Treasures, Liz Barlow had rolled with all of the business model trends. The store was opened at the time when every store — from the mall giants to the other small independents near their downtown, Main Street location were advertising “50% off gold.” It seemed pretty silly to mark an entire department up just to mark it down, but Liz learned quickly that consumer perception drove sales — so she priced — and marketed her gold jewelry accordingly. She came to realize that while she had to have the signs like everyone else if she wanted to draw traffic, talking about the product as “competitively priced” and “best value” (rather than as a half-off bargain) made the discount game almost palatable. It was never comfortable for her, however — and she was happy when that trend finally passed.

Over the years, and through various pricing strategies, business at Gems & Treasures grew slowly and steadily. Liz and Jim’s firm commitment to quality product, exceptional value and uncompromising integrity eventually led them to the forefront of their community. Liz’s sharp eye for up-and-coming trends made the store a fashion destination in town, and Jim’s talent at the bench helped build their reputation throughout the region for expert repair service and well-crafted custom designs. Five years ago, though, their sales hit a plateau that they just couldn’t seem to rise above.

Despite the store’s strengths, the Barlows seemed to find themselves in an ongoing struggle to formulate a consistent brand message, and to capture a reasonable share of the rapidly expanding bridal market in the area. After many years of trial and error, they finally decided to hire an expert marketing firm to help move them back onto a solid growth path. The well-respected firm determined that the two areas on which the Barlows needed to focus were the establishment of a consistent value pricing message and the development of a client loyalty program that included a proactive approach to capturing referral business. The marketing firm crafted a strong web and local media campaign, while Liz, Jim and the whole Gems & Treasures team worked tirelessly over the ensuing year to implement the policies, procedures and selling strategies that would make it all come together in the store. Converting to a “one price” strategy presented a bit of a challenge for the sales team, but with a strong, fair pricing structure in place and a good amount of training, they all learned that they could easily overcome price objections by focusing on real client needs and personal value.

Sales at Gems & Treasures jumped 11 percent in the first full year after the launch of the new brand development message, much to the delight of the team. As they entered the second year of their effort, the marketing firm suggested that the store introduce a “referral reward” specifically focused on further encouraging bridal clients to mention their experience with the store to like-minded friends. They settled on a certificate that would be part of the “delivery package” included with every engagement-ring purchase. The certificate would entitle both the client and a buying friend to a $100 Gems & Treasures gift card.

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Several weeks after the program went into effect, Liz sold a diamond solitaire to an especially difficult client. On his first visit to the store (in search of a half-carat solitaire), he shared with Liz that he was “very well aware of the outrageous markup on jewelry,” and that he’d planned to shop until he was convinced that he’d found the very best price for his ring. Liz took a good deal of time during that visit and two subsequent ones explaining Gems & Treasures “fair pricing and extraordinary value” position, and she dug deep to find a diamond that met both his quality and budget parameters as closely as possible without having to offer a discount. During his fourth time in the store, the client finally decided to buy the diamond Liz had presented to him, along with a simple solitaire mounting, taking advantage of the store’s 12-month, interest-free financing. When he came to pick up his ring, Liz made sure that she reviewed his delivery package in detail: the diamond report, insurance replacement document, store guarantee, and the certificate for his referral bonus.

Two days later, Liz got an email from the client, telling her that the referral offer really put him off. He said he felt that she had lied to him about Gems & Treasures pricing and no-discount policies, and that obviously, her prices were marked up enough to give money off when it suited her. Liz asked for some time to think about what he had said. Surprised and bothered by the message, Liz sent this reply:

While I apologize for any misunderstanding or miscommunication regarding our pricing structure, I want to reiterate at Gems & Treasures, we are honest and straightforward in our pricing. The prices we offer our clients reflect our cost of goods and sufficient margin to cover the expenses associated with doing business, as well as the fair profit that has kept us in business for 25 years.

Referrals have always been a very important part of our business, and we know that clients who have purchased from Gems & Treasures often become our greatest advocates in the community. For that reason, we choose to reward those who bring a new client to us, both by extending a special gift card to you, and by allowing you to do something nice for a friend who becomes a new client of our store.

Our reputation for quality, value and integrity mean everything to us. We very much appreciate your business, and I am certain that both you and your fiancée will be very well cared for by the Gems & Treasures team over the years. If you are not completely confident in the value we’ve provided, however, please feel free to return the ring. We will refund your $200.00 down payment and will close the 12-month, interest-free credit account you opened with us.

About an hour after sending her note, Liz got this reply:

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Thanks for getting back to me, Liz. I don’t have a problem with the pricing or
the rewards program, but I just felt like it isn’t fair that if I give this card to a friend, he could come in and buy the same ring for $100 less than I did. To me, that shows that you could have gone lower in the price, and leaves me feeling that what people say about the jewelry industry markups is true.

It’s nothing towards you. I felt that you were great and I do like the ring.

The BIG Questions
Should Liz pursue the situation any further with this client? If so, how should she proceed? Is a referral reward compatible with a “one price” strategy? Is there a better solution to the need to protect margins and integrity while encouraging referrals and going after new business?
Comment below (please leave your name and store) or at [email protected]

ANSWER VIA EMAIL

 

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