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|Letting Accessories Out of the Cage |
Changing your perceptions about accessory sales could boost your bottom line.
by Edmond H. Legum
In Ellen Langer's book on thinking, Mindfulness, she makes a point about how dependent our perceptions are on context. For example, she says that if we see a lion in a cage we would feel and think one way, and if we see that same lion in our living room, we have a totally different view and reaction. A pleasant experience in the zoo turns into fear in the home. Yet the subject is the same; it is the context that changes.*
With this in mind, here are three ways of approaching accessories that we've observed. Each gives a different context of how accessory inventory is managed in the wireless communications industry. To gain a new awareness of how to gain productivity from your management of accessory inventory read the stories, and then think about the questions that follow them.
1. Accessories, as seen in the context of expense items
In one of our retail workshops, we asked how our client managed their accessory inventory. One in the group said this: "We zero out our accessories. As soon as the shipment comes in, it's charged to our P&L as an expense. We don't want to carry too much because as soon as it hits the store, it immediately forces our CPGA up." When we asked upper management why they chose to treat inventory as an expense they said, "We don't want our people in the field to over-order."
2. Accessories, as seen in the context of under-the-counter parts
In another retail workshop with another carrier, we asked why the stores were not displaying their inventory of accessories. Here's what one in the group said: "If we display them, we sell out, so we keep them in the back so we can have them when a customer wants them." When we asked why they just didn't order more accessories, display them, and then sell more of them, we were told, "We can only carry a one-week on hand quantity."
3. Accessories, as seen in the context of "not for sale here"
We put on a program for one of our clients that gave Indirect Distribution Account Managers the tools they needed to influence how their retail dealers sold wireless communications. One of the participants identified an objection that he said he heard quite often. He said, "Our dealers tell us they can't get accessories. They tell us their buyers won't buy them. Or won't send them enough inventory." Many of the other members of the group chimed in, and said they heard the same thing. So, you might wonder, where do their customers find the accessories they need?
* Ellen Langer, Mindfulness, (Reading, 1989), 175.
What makes sense?
Keeping an eye on context, consider these questions.
How do you feel about the way the three companies approached the management of accessory inventory?
Which of the above would provide their retail operations with the greatest return on their investment in inventory?
Which of the above merchandising and inventory control methods do you think would be the most difficult to implement? Why? How could you make the inventory management process easier? more productive?
Under what conditions would it make sense to approach accessory inventory management and visual merchandising differently?
Changing the context
Instead of thinking of accessory inventory as something to be discouraged, hidden, or avoided altogether, perhaps it may be more constructive to think of accessories as one controllable way to reduce a carrier's CPGA or increase a retailers net profit. For a concrete way to look at accessories in this context, please read these statements carefully:
1. For carriers: For every dollar of new gross profit created through the sale of an accessory, you reduce your CPGA by one dollar.
2. For retailers: For every dollar of new gross profit created through the sale of an accessory, you increase your net profit by one dollar.*
* Accountants that I've met in the industry tell me these statements are valid. In fact, they can be disproven. If you reward your salespeople for selling accessories those incremental commission dollars would lessen, marginally, the impact of the new gross profit on CPGA and net profits.
No single inventory strategy works perfectly for every business situation. Still you may find the example that follows can produce results for your retail operations as well.
We worked with one of our clients' markets for a month, teaching their salespeople how to sell accessories and working with their stores to display accessories and manage their inventory. At the completion of the month we went back and counted every accessory sold, and calculated the new gross profit. In one month the test market reduced its CPGA in their stores by $30. Think hard: Can you think of a more direct way to impact the profitability of every activation?
We ask groups that we talk to a few questions: How many here have a phone with them?
All hands go up. How many have an extra battery with you? Most of the hands go up. What percent of your phone sales leave your stores with an extra battery? Under 5%. 10%.
What would it be worth to the profitability of your business, in hard dollars, if you could get your phone-to-accessory ratio up to a point where 80% of your phones left your stores with extra batteries? How would it impact your net profits? your CPGA? Now, add to this opportunity the other key accessories: carrying cases, auto adapters and chargers, and handsfree kits. Imagine increasing your ratio, so the average phone went out with two accessories.
What would it take to make this happen in your stores? Consider this plan:
1. Project and buy enough inventory, so your people can actively promote accessories.
2. Display prominently all accessory inventory.
3. Teach your people how to sell accessories
4. Reward salespeople for selling accessories.
One wireless retail salesperson that we know makes $500 a month selling accessories. For $500 in commission, this salesperson created accessory sales of $10,000 in a month. At 40% gross margin this added $4000 in gross profit to his sales. If you subtract his commission of $500 you have a net gain of $3500. If he activates 100 phones, he reduces his personal CPGA by $35. To help you decide if this makes sense for your stores you may want to ask yourself this question: Is this kind of contribution worth $500?