Here’s what I mean:

Motorboaters need to have all the fuel on board necessary to reach their destination before they start off.
Sailors only have to have the tools and knowledge to take advantage of what they find along the way and stay out of serious trouble.

• Motorboater businesses worry about moving forward without a clear view of how they are going to get there and confidence that they have enough “fuel” to make it without problem.
• Sailor businesses move forward with the confidence that they can navigate to the resources they need, as long as they are creating sufficient demand which “floats” their vessel.

Motorboaters expect to take a straight line path to their destination.
Sailors expect to take a constantly changing course to reach their destination.

• Motorboater businesses believe that they should somehow get to their destination smoothly and predictably.
• Sailors know better and count on using the surprises along the way to help them.

A motorboater expects to get to his destination as quickly as possible, with the fewest detours, and is upset if he misses the cocktail hour at the other end.
A sailor enjoys the trip and doesn’t need the cocktail hour to have enjoyed the journey, because the joy was in the process of getting there.

• Motorboater businesses hold on to an entitlement attitude.
• Sailors enjoy the ups and downs and the detours along the way without the need for further gratification.  Look at the offices in sailor companies: they are trim, minimal, and functional.

Motorboaters get extremely worried and begin to panic when their boat tips and water is rushing along one of the the gunwale.
A sailor knows he has the opportunity to go faster and gain more ground when his boat tips and water is rushing along one of the gunwale.

• Motorboater businesses panic easily and start “bailing” persons necessary to their future success as soon as they see difficulties ahead.
• Sailor businesses make sure everyone knows their job and helps them work together to gain success.

When a motorboater believes his fuel to reach his destination is below the minimum required, he starts to call for help, slows things down, and wallows in the sea.
When a sailor starts to lose the wind he needs, he moves to where better wind is or simply waits patiently for the wind to come back, as it always does.

• Motorboater businesses are victims of the economy.
• Sailor businesses are opportunists.

A motorboat must maintain power to sustain itself in a heavy storm, otherwise it wallows and is soon capsized.
A sailboat can maintain itself in a storm without any sails and choose to either run before the storm under “bare poles” or turn bow into the wind and ride it out using a “sea anchor” to make it go slightly slower than the oncoming seas.

• Motorboater businesses require too much investment to sustain themselves during economic downturns.
• Sailor businesses can keep moving or just survive with far less investment.

When the seas get a bit rough and the boat begins to rock, a motorboater will most often either run for port or just hold position, get seasick, and wait until things get better.
When the seas get a bit rough and the boat begins to rock, sailors know they can make even better speed; they just shorten sail a bit.

• Motorboater businesses require far more exaggerated responses to difficulties in order to survive.
• Sailor businesses can reduce their response and still move faster.

Most large businesses act like “motorboaters.”  That’s why they have to cut people and budgets as soon as they see potential trouble ahead.  They head for port and ride out the difficulties.  They are victims of the economy, not drivers of it.

The most successful entrepreneurs are “sailors.”  They know how to spot new wind, how to take advantage of changing tides and currents, and they drie their businesses based upon what they come across.  They are the drivers of a new economy, because they are the ones out front discovering what’s ahead.

Sadly, far too many small businesses try to emulate large “motorboater” organizations.  During tough economic times, they make the same mistakes, but they don’t have the resources to survive as long while doing the wrong things.

The secret is to make your organization more of a “sailor” organization.  Watch for the wind.  Move to where it is.  Don’t panic when things look tough, but recognize the opportunity to accelerate while others founder or run for port.

Wes Ball is the author of The Alpha Factor.  He has sailed for more than 30 years in both cruising and racing boats on both coasts and in the great lakes.  He is also a business owner, executive coach, and business turnaround consultant.  He has created growth for businesses in three recessions, even while their competitors are foundering.

Mistake #1:  Believing that price discounting will overcome the problem

Discounting only makes things worse.  Every time you discount your product, you prove that it really wasn’t worth what you originally said it was worth.  It takes a lot longer and requires a lot more investment to raise your prices than it does to lower them.  So it is worth finding ways to sell why you are worth more rather than taking what looks like the easy way out and cutting prices to try to attract customers.

Mistake #2:  Following big companies

I continually wonder why small to medium-sized companies are so infatuated with large companies.  Perhaps the fact that I have worked as an employee in two of the largest and have consulted with more than 50 of the Fortune 500 on creating growth helps me keep a more rational view.

The fact is that larger companies are not as profitable, not as flexible, not as nice to work for, and not as capable of creating dramatic growth as smaller companies are.  So why do so many smaller companies try to emulate what big companies do?

During tough times most big companies hide out.  They cut costs, often eliminating the very things they need to create future growth.  They make their employees miserable and demoralized.  They make suppliers dislike them.  And they generally behave like angry pouting children.

Don’t follow that.  Use your strengths to be aggressive and visible, while the big guys are hiding.  Invest wisely in the things that will make you stronger and more attractive when things turn around.  (These things will also make you more attractive now.)  Make employees glad they work for you.  Make suppliers so happy to work with you that they will turn down calls from larger companies to help you instead.  And act like an Alpha – confident, calm, and controlled no matter what the marketplace seems to be doing.

Companies that follow this model invariably take share from their larger competitors.

Mistake #3:  Following competitors

Leading is the key to long-term success and greater profitability.  Every time you follow what a competitor does, you make that competitor look better than you.  You should be looking for something different that you can do that makes you look smarter and better.

Finding that “something different” requires an understanding of what customers really want to buy, not just what they have been forced to buy.  You need to discover what will make people feel better about themselves (smarter, more knowledgeable, more appreciated, more powerful, etc.) and what will make them believe that other people think better of them (envied, more attractive, smarter than they, etc.).

Mistake #4:  Believing that leadership during tough times comes from the top of the company

Contrary to popular belief, success does not come from the top.  Great leadership at the top may make it easier for a company to thrive and grow, but long-term, self-sustaining success comes from much further down the corporate ladder.

The most successful companies of any size know that it is much easier to be successful and to create growth when every employee becomes a leader of positive innovation and growth.  The best thing a manager can do is to engender a “leadership” and “innovation” attitude among all employees.  They should believe that you want new ideas to lead the company into a leadership position and they should be rewarded for helping that be accomplished.

While other companies are trying to get more out of terrified, demoralized employees during tough times, you should be engendering a more positive attitude of teamwork to move forward.

Mistake #5:  Believing that you can’t affect change until the new market defines itself

Right now is the best time to invest in growth… before things get better.  Why?  Because while almost everyone else is holding back, the companies that confidently define what the market will become will be the leaders coming out.

It happens in every recession.  But in this one, this may be more true than ever before.  Large companies may never be the same after the government has terrified both corporate boards and stock holders with their heavy-handed tactics of government control.  Many smaller companies have the opportunity to make huge, sustainable strides right now, while larger competitors are wondering how to even run their companies in the future.

Don’t miss this opportunity.  Become the definer of the future and you can be its leader.

Mistake #6:  Believing that product or technology innovation is the secret to success

Products and technology are the things that you may sell, but they are not what people buy… except when there is no better alternative offered.  People want to feel better about themselves.  They also want other people to think better of them.  You can innovate in these areas for far less investment and greater return on investment than you can with any product or technology innovation.

New products or technology drive entire new markets or business models.  These can occasionally create dramatic growth, if sufficient investment in made.  Innovation in helping people feel better about themselves and better about how others think of them is far less cost intensive and drives far greater ROI more consistently.

Mistake #7:  Believing that you must improve on product quality or performance to demand a higher price

Actually, most of the highest-priced products in the world are not superior in either quality or performance.  People prefer to buy ego-satisfaction above function. In fact, in my 15 years of research into how to create dramatic, self-sustaining success, I discovered that people will pay almost anything to feel better about themselves and to make other people think better of them… even when the product or service being offered is of lower quality or performance than competitive products.  At least as long as “minimum” functionality is provided.

Harley-Davidson, Victoria’s Secret, Mercedes, Tiffany’s, and John Deere are just a few of the Alpha companies I studied that sell more for higher prices despite lower quality or performance than many competitors.

You can sell more by innovating to provide greater ego-satisfaction than by innovating to create greater functionality.

Mistake #8:  Believing that cost-side management alone can save you from trouble in a tough economy

You can’t “save” your way to sustainable success or growth.  Cost-side management has created many spectacular failures, but revenue-side management has always been the key to real growth.

If you wish to grow (especially with sustainable growth), you must focus upon the revenue-generation side.  And right now is a better opportunity for revenue-side growth than there was two years ago.  Customers still have needs, even if they may be looking for things to put off until later.  The winners will be those who address the most burning needs with believable promises of ego AND functional needs satisfaction.

Mistake #9:  Believing that growth cannot occur during tough economic times

While the press and other media focus upon the failures and the reasons for fear, there are a few companies in almost every product or service category that will create sustainable growth without discounting during a recession.  There is no better time for significant, sustainable changes to occur in markets and product categories than during an economic downturn.

This is your chance, so take advantage of it.

When the marketplace gets tough, all that means is that someone has a chance to define a new future for the category.  If it’s not you, then it’s someone else who you will end up having to follow once things get better.  If you’re happy with following behind someone else, picking up whatever is left over, then ignore everything I’ve said.  However, if you want to take control of your market or category and make others follow your lead, then avoid these nine mistakes and watch yourself grow.

If you would like to understand how to overcome these nine mistakes and grow your business no matter what the economy is doing, you need to read my book, The Alpha Factor – a revolutionary new look at what really creates market dominance and self-sustaining success. You can get your copy for just $24.95 at www.ballgroup.com, or you can buy it through any online bookstore.

“There has always been an unjustifiable admiration of large companies by smaller ones.  Simply because it appears that large companies MUST be smarter (due to their success at getting large), smaller companies fall into the terrible trap of following their example…”

See the entire post at… alphadomination.blogspot.com/

Growing in a recession is often the LAST thing corporate managers are thinking about, yet it is the best time to take growth steps.  The real secret is in recognizing how to apply Alpha thinking in order to attract the customer demand that still exists during a downturn.

Many managers forget that demand is not “dead” in a recession.  In fact, some businesses are UP this year (a fact that the news media seems to keep missing).  Surprisingly, generating gains can actually be cheaper in this type of economy.  But there are some secrets that help make growth a lot easier when things get tough.  

Here are some Alpha principles that create growth when everyone else is hiding:

Leadership comes from the entire company, not just the top person

Top managers tend to forget the real source of growth ideas, when times get tough.  In an effort to manage costs (a necessary activity), they often close off creative thinking among the ranks (a dangerous result).  By over-managing processes and by making it clear to employees that the company is in a “holding” pattern, the possibility of creating growth is significantly reduced.  It becomes a self-fulfilling prophesy of stagnation or decline.

The typical reaction among employees to recessionary management tactics is to become fearful about job security or even about the economy in general.  This kind of stress reduces risk tolerance (even among persons who are not directly at risk), which directly affects the ability of a person to think creatively. 

The greatest value of an employee is that he (or she) is not directly at risk of loss at the level the company might be, so he is more likely to be able to think creatively than top managers who are more closely linked to company losses.  It is critical for top managers to use these creative assets fully and wisely.

Managers don’t have to accept all the creative thinking that comes up from the ranks, but it is unwise to close off that source of potential growth.

Fear is the real enemy – it makes for really stupid decisions

In much the same way, the more fear that exists in an organization, the dumber the decisions it makes.  Anyone who has gone through tough times at an organization that was fearful rather than confident has seen this at work.

We have all seen the very employees who had the experience to carry the organization through the tough times fired, because they had the largest salaries.  Many of us have seen cost cutting that took away the very things the company needed to create strong profitability coming out of the recession.  Anyone in any larger organization has experienced many examples of really stupid decisions being made all due to the fear among middle or upper managers.

It is healthy to recognize danger.  It is unhealthy to allow fear to overcome recognition of opportunity to the point that the future of the company is undermined.  Far too many publicly held companies are being run by managers who are fearful, because they believe their futures are at serious risk (and they usually are).

It takes an Alpha manager to be able to manage well in a climate of fear, because it takes great self-confidence to be able to continually spot the opportunities available in the midst of what others see as chaos and collapse.  The Alpha manager maintains calm assertiveness (as Cesar Milan, “The Dog Whisperer,” would say) that allows others around him to function more effectively and more creatively.  The result is that movement is possible, where the fearful manager creates a fear of any movement.  And we all know that a moving truck without brakes (which is what the economy is) almost always hits an unmoving pedestrian.

No matter how “down” things get, an Alpha does better

While few companies are “doing well” right now, a few are doing much better than their competitors.  Just look at the current Alphas, and you can see how resilient they are. 

Apple is one of the newest Alphas to emerge.  Their sales are finally down slightly, but not nearly as far down as their competitors.  They continue to defy market logic, as they sell more product at significantly higher prices than their competitors.

Mercedes and BMW have both faired far better than even top dog Toyota (who is still not a true Alpha, but has the potential to become one soon).  And it’s not only because the very wealthy are buying from them.  Actually much of their strength has been at the low end of their lines, and from people who are trading up.

Wal-Mart continues to outstrip its discount competitors (many of whom regularly are priced lower).  Although hated by unions, Wal-Mart delivers more of what customers want to buy in terms of Alpha ego-satisfaction than any of its competitors.

Even John Deere, which is one of the few Alphas right now in a growth sector, continues to grow at levels that dwarf its competitors.

Even the worst hit areas of the U.S. still have 90% of employable persons working.  Yes, we are in a short period where the government’s actions are frightening more than half of the population to significantly slow their spending.  That cannot last unless the government completely destroys our economy and puts everyone on the street, which did not even happen during the 1930s.  

Following Alpha principles, any company can do better in a recession.  I have proven over three previous recessions that most grow dramatically at the expense of their more fearful competitors, and with less cost to generate that growth.  It just takes knowledge of the Alpha model and the confidence to stay focused upon that model to find the success most managers believe is impossible during tough economic times.

Check out this post on Dominate Your World – becoming an Alpha company in a world of followers.  You might be surprised to see how the Alpha model works.

Here’s the link:  http://alphadomination.blogspot.com/

Have you wondered why advertising to young persons is so consistently outrageous (and often all but pornographic), yet seldom drives long-term sales success?  Wouldn’t you think the companies buying these ads would recognize their mistake, when Alpha companies continually beat them?

“Madison Avenue” obviously doesn’t know how to make you an Alpha… no matter what they say works.  The problem is that most ad agencies have recognized the power of “emotional” marketing; but they have missed the fact that pandering to low-level drivers of decisions (most often meaning “sex” or “abuse of others”) has little long-term benefit.  In fact, it makes them vulnerable to competitors who don’t use such tactics.

This mythology about how younger persons make buying decisions is creating great harm to the marketplace.

Someone recently asked me if what they saw as the “ego-satisfaction” focus of most of the TV commercials on the Super Bowl is an example of the Alpha Factor model applied to advertising.  What we saw was breasts being bared, people being hit in the crotch with glass “snow balls,” and a series of people making themselves feel better than someone else by being mean or coarse or both. 

The answer is, “NO.”  What we saw was a lack of any understanding of the Alpha model and how to create long-term self-sustaining success.  These commercials were more like something high school boys come up with at two in the morning after chugging six-packs of cheap beer followed by vodka chasers.    

The real ego-satisfaction elements

The Alpha model that is at the root of Alpha-dominant company thinking has at its core two elements of ego-satisfaction (“self-satisfaction” and “personal significance”).  These are the core benefits customers are buying, even though functional product attributes are often cited as the competitive differentiators.   

These two ego-satisfaction elements are played out by helping people feel… 

• smart, 
• appreciated, 
• empowered, 
• knowledgeable, 
• cared for, 
• envied (in a positive and healthy way), and 
• more in control of themselves or their environment (without the aspect of harming others in the process).  

The kind of advertising we saw in the Super Bowl commercials pointed to none of those.  

Correlation of function and ego-satisfaction

Beyond that, these commercials missed a critical factor in successful marketing:  a correlation between function and promised benefit.  

The key to successful Alpha marketing is the clear correlation of ego-satisfaction and functional attributes.  Function (product attributes or product performance) proves that the ego-satisfaction being promised will be fulfilled.  

Consistency of buying process

Obviously, many otherwise smart marketers have become more than a little confused.  The truth is that there is little difference in the buying process that leads to loyal purchasing behavior, whether you are talking about persons in their early 20s or in their late 50s.  The kinds of things they buy may differ, but young people want ego-satisfaction proven by functionality eery bit as much as do older buyers.

Apple’s line of products is a great example of how a company following the Alpha innovation model attracts both young and old.  It has never pandered.  It has instead designed a line of products that fulfill ego-satisfaction through their design, functionality, and communications.  The young were the first to embrace it, but older purchasers have made it the success it is.  They were not alienated by wrong-headed communications, and the result has been that Apple has finally become the Alpha it always had the potential to become.  

In reality, there is far more similarity between even the types of things the young and old buy now than there was even 25 years ago.  They like generally the same kinds of music.  They are familiar with most of the same cultural media and content.  Food tastes are very similar.  And, most importantly, they make buying decisions in basically the same way.

Study after study (even with audiences in their late teens to mid-20s) shows that persons under 30 are far more motivated to loyal purchasing behavior by Alpha-style marketing communications rather than this kind of pandering.  For anyone older than 30, Alpha-style advertising is even more effective in motivating long-term purchase loyalty.

In fact, there is so little difference in core thinking between persons born in the 50s or 60s and today’s youth that differences have had to be created.  For instance, the so-called “post-modern” thinking of youth today is nothing but a new name for exactly what the 60s were all about. Before that it was in the twenties.  Before that, it was in the late 1800s.  And so on, back as far as recorded history can take us.  

In the buying process, it is and always will be a process of finding something that meets at least minimum functional performance and then weighing how much various qualifying products provide “self-satisfaction” (how I feel about myself) and “personal significance” (how I think others perceive me).  That is the essence of the Alpha model for marketing and innovation.  

The only noticeable difference in buying process is in the level of influence peers have upon decisions.  Younger persons are far more likely to be swayed by peer pressure (especially in things that are purposely designed to seem “weird” or “wacky” to anyone older) than are older persons.  The trouble for marketers is that the things that create interest among younger persons only seldom translate into long-term loyalty, while marketers who recognize the universally common Alpha principles are able to attract both young and old (albeit at different points in the life of the product).  

I feel sincerely sad for those leaders who have cheapened their products with the money they could have used to strengthen them and to give them sustainable success by understanding the Alpha model.  I hope that some of those advertisers might discover the real path to success in creating self-sustaining loyalty, because some of the products being advertised were viable ones.  They just got lost in the mythology of how people buy things.

Your staff is second only to what you sell in defining how successful you will be at growing your business.  As an employer, I have had great teams; I have had almost great teams; and I have had mediocre teams (thankfully, only in my early days as a business owner).  The difference in results was dramatic, as a focus upon hiring excellence increased. 

Employee teams who are committed, talented, persistent, and ready to do whatever is needed can accomplish almost anything.  Employee teams that have to make up for even a few weak members have a much harder time even accomplishing the minimum.  Any company aspiring to become an Alpha has to address this issue early and with a commitment to not give up even after your entire team is superstars.

I was at a conference a week ago, and I heard John Bisnar, a very successful “Alpha” attorney in California, describe how he gets and keeps the best employees.  His process for getting and keeping “superstar” employees is a worthwhile model for any aspiring Alpha to look at.  It’s certainly a strategy that has merit for any business of any size.  In fact, a version of this is used by Andy Grove at Intel, one of the few long-term Alpha’s still maintaining its Alpha position today.

The strategy is pretty simple in concept, but, like most things that really work, it is hard to stick to and implement consistently.  Here’s how John’s version could be applied to your company:

Start with a clear definition of what a “superstar” employee would look like in your company.  Write a list of the specific attributes and behaviors you would expect from someone you would consider an “outstanding” performer you would not want to lose to someone else.  This is not a job description.  This is a description of how a superstar employee works and acts.

For instance, your list might include things like…

• extraordinarily skilled
• anticipates needs
• arrives early and is already working at “start” time
• works well as a team participant
• never says, “That’s not my job”
• thinks creatively “outside the box”
• models how all employees should behave
• extremely productive
• understands and is committed to the company’s mission

John Bisnar’s team came up with 25 attributes that they believed describe a “superstar” employee in their company, no matter what specific job title they hold.  When they hire, they only hire someone they believe will become a superstar, as defined in that list.  They look beyond just how much experience the person has or what success they have created in the past.  They look for signs that this person has what it takes to become a superstar.  

That means that they look at how the person is motivated, and how that matches with the company’s environment and motivational system.  It means they look at potential as much as past experience, as long as the skill sets are already in place for the job being filled.  It also means that they are weighing how a person likes to please others and how well that fits within the model the company follows with its customers and other employees. 

If they don’t see a clear indication of a superstar, the person doesn’t get hired.  There is no hiring for a “B” team.  

Everyone is held to the same standard of excellence.  When a person proves that he is not going to become a superstar, he is gone as quickly as is practical.

Why this obsession with excellence?  Because in order to become and stay an Alpha, you have to be absolutely committed to having the right team driving your company.  The difference is not just how much people enjoy coming to work and working with each other.  It is also a matter of how much horsepower you are efficiently putting to the wheels of your daily efforts.

More gets done with more effectiveness and greater return on investment, because every great employee spurs on every other great employee.

How many times do you hear employees complain about how another employee is not contributing as much to the team as should be expected.  Certainly, as the employer or manager, you don’t hear it as often as they are telling it to others.  Mediocre or lazy employees are a drag on the entire organization, both in direct efficiency an in poor morale created.

So how do you implement such a process, when you already have “B” or “C” team employees on staff?  John Bisnar’s plan is a good one.  When he instituted this, he divided all employees into three groups:  

• those who were already superstars
• those who might become superstars
• those who would obviously never become superstars

The last group was replaced as quickly as possible.  The second group was challenged to become superstars and given a clear definition of what that looks like (that’s where the list of superstar attributes really comes in handy).  If they didn’t make it in a short period of time, they too were replaced.

Then, here is the most important part:  How do you keep your superstars?  Certainly, every other employer out there would love to have more superstars.  So, the superstars you have need to be continually “loved.”  That simply means that they want to recognize that the company (and especially top management) sincerely appreciates what they are doing and the effort they are making to help the company reach its goals.  You want them to not even consider an offer from a competitor.

That doesn’t have to mean money, although that might be the motivation for some.  Actually, many research studies over the years have shown that being valued as an employee is demonstrated by being clearly noticed by top management and by being included in hearing what is going on, what the company is planning to do, and being invited to participate in that process.  

As the Alpha model has proven over and over again, money is never as big an incentive as is feeling “successful” in what you are doing and knowing that others notice and care about you.  Those are the employee versions of the “self-satisfaction” and “personal significance” factors of the model.

Can you succeed without following a superstar-only model?  Certainly.  It just takes longer and costs more.  

There are Alpha companies now and in the past who did not have superstar teams.  But that typically became more of a problem after they became Alpha’s, because once a company gets comfortable, it often loses sight of what got it there.  

What I have seen is that having a “B” team staff makes it a longer and more expensive process than having an “A” team.  There are just too many stumbles and too much pressure on the superstars that are on staff to enable the kind of sustainable success that should be anticipated as you move toward Alpha status.

You can become an Alpha.  If you are an aspiring Alpha and don’t already have a copy of The Alpha Factor – a revolutionary new look at how to really create market dominance and self-sustaining success, you can get a copy at www.thealphafactor.com or at almost any online bookstore.

If you would like to know more about John Bisnar, visit his website at www.bestattorney.com.

Unlike the longer articles I publish here on The Alpha Factor and The Ball Group websites, the new blog will be shorter posts that focus upon the process of becoming an Alpha in your category. 

Why would you want to subscribe to “Dominate Your World?”  This gets beyond the theory.  It will be providing far more of the nitty-gritty that so many of my Alpha Factor subscribers regularly request.

If you are serious about learning how to become an Alpha, this is the place to be.  And I will be answering questions in far more detail than I do on the the regular website.

Come join me for some interesting discussion, and you will be on your way to Dominating Your World.

If you still don’t have a copy of The Alpha Factor, you really need one.  Without understanding the science and psychology behind customer decision processes, you really don’t have much hope of becoming an Alpha.  You can get your copy either at www.ballgroup.com or through any of the online bookstores.

Best wishes for even greater profit in 2009,

Wes Ball

How much benefit has discounting had for all the marketers using it to save themselves from the current slow economy?  Not much.  Sales are down, profits are REALLY down, and the future of those who discounted has been significantly harmed.  

Retail sales are down 2.7% according to a recent Wall Street Journal article.  That’s not really all that bad in the bigger scheme of things.  But net profits are down over 20% in many cases.  Discounting may have slowed the total dollar volume decline, but at a terrible cost.  And not just short-term, but also long-term, as well.

But this is no big surprise.  It’s what happens whenever discounting is the strategy over value-based demand creation.

The problem

Our long-term research into the use of discounting and coupons repeatedly showed that neither has any positive net effect (even in good times), except as a tie-breaker between two or more products that end-users cannot clearly differentiate.  It never seems to lead to long-term loyalty growth, even among the most price-conscious end-users.  It never seems to lead to an increase in profitability. In fact, it only increases totalprofit, if sales geometrically increase to make up for the lower margins.  

What discounting always does, however, is undermine the value end-users put on your product or service.  The long-term result of the almost hysterical discounting we are seeing right now will be to undermine the ability of most marketers to get a fair price for their products in the near future.  This is already starting to happen. 

Auto dealers are finding customers expecting 20%-25% discounts off of sticker prices.  The heavy discounting being offered by a few manufacturers and dealers has many people believing that they have been cheated by all car dealers for years, and they won’t accept anything but a “steal” right now.  Grocery consumers are doing similar things.  They are allowing their pantries to be depleted as they wait for prices to go even lower. Corporate buyers are feeling the same kind of price empowerment.  They are expecting their suppliers to provide them with products and services at no profitability, simply because someone might actually do that.

And the problem is not that customers don’t have money to spend.  After all 93% of employable Americans are still employed.  (And that’s not that much different from the normal 96% employment rate we have experienced for the past two decades.) Most employees also have not even experienced a reduction in income.  The problem is that marketers have grown to believe that they have to maintain total dollar volume without regard to either short-term profitability or long-term ramifications.  So, instead of recognizing that periodic slowdowns happen and the real trick is to not harm yourself during them, they use discounting to artificially maintain gross dollar volume.  The result is that they harm their current and future price leverage.

Just how easy will it be to raise prices again back to “normal” profitability when things get better?  It will really depend upon how you respond right now.

The answer

So, what’s the answer to survive the downturn and not harm yourself long-term? The Alpha model points the way.  The answer is not in reducing price to match a lower perceived value.  Rather it is in increasing perceived value to the price point you wish to achieve.  Increasing perceived value is most easily achieved through fulfilling ego-satisfaction needs.

My wife just ran into this a few days ago.  It is a simple example, but it shows how easily Alpha thinking works even in tough economic times.

My wife hates to spend more than necessary for anything.  She is the person most marketers fear, because she says she wants to lowest price on everything.  In this case, she needed some paint for a remodeling project. She planned to just run over to the large local warehouse home improvement center to get what she thought would be the lowest price, even though she really hates going there.  She would rather have gone to a specialty paint store she used once before, but she feared that she would pay more for essentially the same thing.

At the last minute she decided to pull into the specialty paint store.  The person there helped her so thoroughly, even to the point of offering to carry the paint out to her car for her, that she didn’t stop talking about it for 20 minutes after arriving back home.  Then she called a friend to tell her.

This was much more than good “customer service.”  Tis retailer helped her feel smart, knowledgeable, appreciated, empowered, in control, more capable of doing the job, and thoroughly cared for.  The large home center would have made her only feel “smart” for buying what she believed would have been the lowest priced product.  

The only problem for this retailer is that he is not letting more people know about the great experience customers will have when they shop there.  Word of mouth is a slow marketing mechanism, especially when times are already tough.  The best part is that he now has a much more loyal customer, simply because he did not lower prices.  If he does this with every customer, he will not have to work nearly as hard coming out of this recession to raise prices, as the home center will.

This specialty retailer did not lower its price to what it feared might be the lower expectations of a customer in tough economic times.  Rather, it helped raise expectations so high that the home center will have to lower its prices even more in order to attract my wife. 

The rule of thumb has always been that every dollar discounted requires at least three additional dollars in sales to just break even short-term.  Long-term, the loss is closer to hundreds or thousands of dollars for every dollar discounted. 

The vision

This economic downturn is a unique opportunity that most of us will never experience again to leap-frog past much stronger competitors.  The largest and most fearsome competitors in almost every category are pulling back, pulling in, and hiding out until things get better.  That leaves lots of room for smart Alpha thinkers to make significant gains.

The secret is in understanding the basics of the Alpha model:  Satisfy ego-satisfaction over function (or price). Ego-satisfaction will overcome inferior product performance (as long as it still meets the minimum expectations of performance), higher price, lack of availability, or just about any other factor you have learned is critical to marketing success.

People will pay almost anything to fulfill their ego-satisfaction needs.   You just need to be the one discovering what those needs are, and how customers want you to fulfill them.  Once you have that, you have the key to owning your category and becoming the sustainable Alpha that everyone else follows.

Stop assuming that people only want the lowest price.  Start assuming that they want to feel appreciated, cared for, smart, knowledgeable, empowered, in control, more capable, and generally ego-satisfied and that they will pay more to get that.  Also assume that they will remain more loyal through good times and bad times, because that is almost always the case.  Customers really want to be loyal.  Most marketers just don’t make it easy for them to do so.  

Also assume that you need to let potential customers know what you are doing to satisfy their ego needs. Assuming that others will do the sales job for you is always a mistake.  Word of mouth is grossly over-rated, because it almost always under-delivers.

The result of following the Alpha model will be that you will come out of this downturn more appreciated, more cared for, appearing more knowledgeable, more powerful, more dominant, and a whole lot happier than your competitors who believed discounting would save them.

Throughout the Alpha Factor Project research, we discovered that many product categories are actually dominated by smaller competitors.  No, that’s not contradictory.  Dominance does not always correlate with dollar volume.  Dominance is how much influence a company or product has in controlling 1) buying decisions among customers and 2) business decisions among competitors.

Much of the reason for this dominance driven by smaller companies is the fact that most larger companies have a hard time innovating in any meaningful way.  Even though many larger companies have product lines and distribution that are the envy of smaller competitors, their innovation is heavily skewed toward “function” – meaning product features, performance, and quality. 

Smaller companies often combine some functional innovation with innovation in the areas of ego-satisfaction: the two critical Alpha Factors of self-satisfaction (how we feel about ourselves when we buy or use a product) and personal significance (how we believe others perceive us when we buy or use that product).  Where larger companies typically focus most heavily upon functional innovation, smaller competitors (perhaps out of desperation with their inability to compete on functional innovation alone) often do exactly what the market really wants by innovating with ego-satisfaction.  

That’s how Ben & Jerry’s ice cream became the Alpha of the ice cream category in the 1990s.  It’s how Harley-Davidson took back the motorcycle industry in the mid-1980s, making their product the most desired product in the world according to some research done in the mid-1990s.  It’s how Apple has finally increased its influence in the personal computer category and how it has made its iPod and iPhone the products that people aspire to own.  

There is so much focus upon large businesses in the business press that it is no wonder that few marketers recognize the real power of smaller businesses to create dominant influence, which translates into greater price leverage, more competitive control, and greater ability to weather tough times or bad mistakes.  There is all too little recognition, however, of the great weaknesses of these large companies, who have become more interested in what is going on inside of their walls than what is needed outside of them.

The real weakness of larger companies – 1) their inability to innovate sustainably or meaningfully and 2) their internal focus upon perfecting process rather than fulfilling customer needs – is what creates the tremendous opportunity available to smaller competitors right now.  These weaknesses are only exacerbated and magnified, when times get tough.  

For instance, here’s what I have been seeing more and more among larger companies:

1. Isolation from the help they desperately need: It has become more and more difficult for an outside supplier to find their way in to help a larger company.  Many larger companies actually won’t give employee names or even connect a salesperson with the person whose responsibility it is to buy what they offer.  That means that employees in that company who are facion from the largest marketer in any given category.  The design aspects of new products from larger companies seem to lack any inspiration.  The differentiation being created by these innovations is all but non-existent.  Even their functionality is only minimally superior to existing products.  It’s as though they are just throwing things out there because they believe they have to without regard to the damage such weak introductions might do to the credibility of the company they have worked so hard to build.

Smaller competitors have typically been the source of innovations that drive new and higher customer expectations (a critical strategy in creating Alpha dominance).  Small companies have always been the real lifeblood of American business.  In good times, larger competitors often play off of those inspired innovations and intimidate the smaller company into submission.  

Since times have gotten a lot tougher, the process just got a lot easier for smaller innovators.  While the giants sleep, the real innovators have much more room to play unencumbered.  Customers are no less in need of having their functional and ego-satisfaction needs fulfilled.  But now the confusing clutter has been reduced to give smaller, more innovative innovators a real chance to drive dramatic growth.

What’s your excuse for holding back?

If you don’t already have your copy of The Alpha Factor, you are missing the secret to creating dramatic, sustainable growth even when the economy is as slow as it is today.  You will learn what took 15 years of research and testing with real companies to uncover:  the secrets that turn even small companies into dominant Alpha companies who generate more profit, greater sales, and more marketplace influence than they ever expected.  Your can get a copy today at www.ballgroup.com or www.thealphafactor.com.