The More Things Change… The More Your Turns Stay the Same

By Jeffrey Barman | Apr 27, 2009

This month’s column will focus on the fourth of my five profitable pricing strategies, Consistent Price Promoter. Based on my observations while traveling to many of the country’s largest laundromat markets, Consistent Price Promoter is the least utilized of the five strategies.

While this pricing strategy is extremely common in the national retail marketplace, it is extremely uncommon in the laundry industry today. There are some very good reasons for this anomaly. Although I have so far commenced my review of each strategy by looking at their pros before their cons, I will begin my investigation of Consistent Price Promoter by examining why it may be highly rational for you to disregard this strategy.

First, most owners have equipment which they either cannot modify, do not know how to modify, or can modify only with significant expenditures of effort, time and money. A message to those owners who do not fit this category: You may skip ahead to the part of my column as to why this strategy does work.

Second, most owners have washers, which even if they can be modified, are designed so that they may only be promoted with pricing differentials of one quarter at a time, severely limiting an owner’s ability to modify pricing and to offer creative pricing promotions. Even most parking meters accept dimes and nickels.

Third, due to our lack of variable costs, the service we provide as laundry owners does not lend itself naturally to variable pricing. Our highest operating expenses, such as occupancy, labor and debt service, are each largely fixed.

Meanwhile, our largest variable expense comes from utilities, over which we have little to no control since the per-unit cost of sourcing the water, gas and electricity is supplied by regulated monopolies. Additionally, though we may be able to implement utility saving measures in our own store, once completed, our utility usage, and thus cost, will not vary per turn.

As a result, our expenses on a day-to-day basis are essentially the same over the short-term. Whether we charge our customers one or one hundred dollars for a wash, our direct and indirect costs of providing that wash do not significantly fluctuate. This is an important concept to understand as you consider any pricing strategy.

Fourth, we carry no inventory. To be technically correct, I shall add the qualifier “almost” before “no.” With the exception of the occasional slow-moving snack or small box of soap, there is no need to offer a promotional price due to inventory. Contrast this with a retailer of cars, or computers, or shoes, who have no choice but to consistently offer promotional pricing to move aging, expensive inventory.

Fifth, we have difficulty identifying, qualifying, reaching and tracking our customers, both new and old. Our customers use cash, have no need to identify themselves, and usually do not interact with an employee of the laundromat, even if there happens to be one on duty.

Sophisticated retailers today maintain comprehensive lists for direct mail, email and telephone solicitations to their customers, whose purchasing habits are monitored to the most finite degree. Consequently, local businesses are learning they must embrace hands-on customer service to compete. My wife recently received a call at home from the local kid’s clothing boutique to inform her personally about their sale the following weekend

When was the last time you called one of your customers at home, or sent them an email blast, to tell them about your current promotion? How many of your customers can you even name? Do you know where your customers live, or if they have children, or how often they visit? Of course not.

In order to be a Consistent Price Promoter it is essential to be a creative and forward-thinking marketer. The main idea is not about cutting prices, it is about promoting those prices. Anyone can lower prices and lower their income, but only a savvy owner can lower prices, spend money on advertising, and generate higher profits.

I will end with the sixth and most important reason to consider choosing an alternative pricing strategy: A large number of your customers don’t care, and won’t change their behavior one way or another. My good friend William, a true veteran of the laundry industry, believes that it is a huge error to utilize any long-term pricing strategy or short-term promotion that relies on lowered prices for any reason.

If you agree, this strategy is not for you. Recall that when surveyed as to why they chose to use a specific laundromat, only half of all customers even mentioned price as a determining factor, and that these customers rated seven other factors to be more important.

So if there are no less than six compelling structural barriers to adopting Consistent Price Promoter as your own, who should embrace this strategy?

The answer is that this strategy is custom-built for owners of card stores. Only card stores offer the simultaneous ability to both effortlessly change (often remotely) prices on any machine and to price to the penny, rather than to the quarter. Card stores also, when managed correctly, register their customers’ personal information and home address.

I am pleased to report that many major manufacturers have recently made noticeable improvements in their frontloaders to provide flexibility in changing vend pricing, be it manually, through a customized wireless device or your PDA. However, card stores maintain a strong upper hand in this regard, and they retain exclusivity over penny pricing, and they will do so for some time to come.

Unfortunately, the expense and effort to retrofit a store into a card laundry is still prohibitive, though one day that too shall change. For today, if you have a store with equipment, card or otherwise, that allows you to easily modify your pricing, you can consider using the Consistent Price Promoter strategy.

This strategy works best for larger stores, with a good mix of equipment. You need to be located in a densely populated, competitive marketplace, with a few stores within your trade area using a variety of different pricing strategies. It is important that you have a large enough potential customer base whom you can entice to sample your store over their regular laundromat with each promotion. The local apartment renters having an above-average rate of transiency is also a major plus for this strategy, as the turnover provides you with recurring sets of potential new customers.

A prototypical Consistent Price Promoter laundry is a card store that is a few years old or has somewhat recently gone through a renovation. It is located in a big town or any city, with a number of competitors of varying size and age. The store is usually owned by an experienced operator. Alternatively, the owner may be on her first store, but she has pertinent job experience, talent and background in marketing.

The strategy will be further additive to the store’s net income if the store has existing alternative profit centers. Even as simple an example as offering an extensive variety of vending machine options will yield greater profits to the store from the extra customers generated by the promotions.

Taking a highly proactive approach to your marketing is the key to being successful as a Consistent Price Promoter. If you are the kind of owner who has internal barriers to marketing success, be it issues with language, creativity, free time, or just an emotional distaste for marketing, then this strategy is not for you.

Of course, outsourcing to third-party experts is an option, but it is expensive. While I encourage you to use consultants and independent contractors for a variety of marketing-related tasks, such as design or distribution, a single laundry’s revenues are not high enough to support much extraneous expense. You will need to be your own Chief Marketing Officer.

Putting up a hand-made banner and leaving it up for nine months does not count as “consistent” or “highly proactive.” There’s no hard and fast rule on the required frequency, but I suggest you run a new promotion for 30 to 60 days three to four times a year if you are taking this strategy seriously.

As is the case for the Low Price Leader and Mixed Prices for Mixed Machines strategies, you are not just lowering prices for the sake of it; you are striving to raise turns and increase net income overall. You can only overcome the cash cost of your marketing program, while also absorbing the opportunity cost of your machines turning at a reduced profit margin, by bringing new customers into the store and then retaining them for all their future washing needs.

There are five specific areas where you can target your promotions over the course of the year: By machine; by time of day; by day of the week; by month or season; and by ancillary service or product sold, if applicable. I will discuss these in turn.

Using price to target a machine type is the most common form of promotion, usually for either the smallest or largest washers in the store. If this is the only expected impact from your promotion, you are better off choosing the strategy I reviewed in last month’s column, Mixed Prices for Mixed Machines.

That strategy uses significant pricing differentials within the store to manipulate turns per day per machine type. While you also should certainly include such considerations when using the Consistent Price Promoter strategy, it differs from Mixed Prices for Mixed Machines in its frequency of promotion and its overarching goal of driving new foot traffic into the store, regardless of what machine type the customer ultimately uses.

Promoting the machines in your store that naturally turn less than others obviously makes good sense, but Mixed Prices for Mixed Machines is used in an effort to modify your current customers’ behavior so that they will choose one machine over another for your benefit.

A Consistent Price Promoter’s objective is to bring in new customers, period. You are going to use your excellent operational skills to provide a superior store experience to these customers, and they in turn will then regularly frequent your store, regardless of that day’s vend pricing for any particular machine type.

Promoting by time of day and/or by day of the week - and these are often done in combination - will likely produce the highest response rate from among the five categories.

Your turns per day are almost always going to be highest on weekend afternoons and lowest on mid-week mornings. The only way to change that is to either solicit new customers to the store during your lowest volume time periods, convert existing customers’ behavior such that they change when they wash, or grow a new horizontal line of business, such as wash-dry-fold or commercial accounts, specifically to utilize your excess capacity.

An empty laundromat is very much like an empty hotel room. Once the night has passed without a registered guest, the hotel owner’s opportunity to monetize his offered service is lost forever. Yet the hotelier’s high fixed costs, such as occupancy and labor, are incurred nonetheless.

While you may rightfully revel that you are not carrying inventory, the liquor stores and gas stations of the world can always sell their product tomorrow if they don’t sell it today. Every hour that one of your machines does not turn is an hour of lost revenue opportunity that you will never recapture.

The hotelier invariably charges a higher price for his rooms during periods of the greatest demand and highest occupancy rates. Promoting lower prices for your washers on Tuesday mornings than on Sunday afternoons makes equally perfect sense.

The number one danger of the Consistent Price Promoter strategy is that your promotions and your pricing structure ultimately rewards your existing customers alone. Just as is the case for the Low Price Leader strategy, if you do offer lower prices on Tuesday mornings, but the only people who take advantage of the promotion are the same customers who would have used your store at that time on that day regardless, you will have a negative return on investment on your promotion. If your pricing is not sufficient to change your customer’s behavior then you will be rewarding existing customers with a price break that they would otherwise not require to patronize your store.

Without enticing new customers into the store and motivating new behavior from existing customers, such that they shift their washing from the weekend to the weekday, the time and day promotion will be a big bust. This is the reason my friend William does not approve of this strategy. “They will wash when it’s convenient for them to do so, regardless of your pricing promotion,” goes William’s theory of customer behavior, and there’s much truth to that. Recall my sixth reason against using this strategy, namely that many of your customers simply don’t care about price.

But there’s a strong counter-argument which makes Consistent Price Promoter worth trying if your store otherwise qualifies as a candidate. Namely, that if you don’t have many customers washing during set days and/or times, you only need a small improvement in your turns from new customers during the targeted low-volume periods to show a positive ROI from the promotion.

Just because some customers don’t care to, or just aren’t able to, change their schedules from weekends to weekdays or from night to daytime, does not mean that all of them are incapable of doing so. Further, because you will be monitoring your turns so carefully, which is exceedingly simple to do in a card store, you will be able to correct your pricing if necessary.

The fourth area of the five promotional categories is by month or season. For Consistent Price Promoters, this category is one of the more popular options for owners and customers alike. An example would be “Spring cleaning time for all your blankets and comforters; $2 off our 80 pound washers.”

The holiday season at the end of the year is certainly an option, or “back to school” or anything else you can create. You should also consider your customers’ background, and a holiday of their preference is always worth celebrating, and thus promoting, in your store.

For marketplaces that fit the profile for this strategy but that are also highly impacted by seasonal trends, you should be promoting your store to the locals out of season. Just keep in mind that if your local, year-round customers have nowhere else to wash, you need not lower your prices just for their benefit. If you are not in a competitive trade area, then you do not need to use price to drive usage.

You can consider using this form of promotion from time to time for your store almost regardless of what underlying pricing strategy you choose, but not necessarily to showcase lower prices while doing so.

The last promotional category to consider is for your ancillary goods and services. You may choose to promote wash and fold discounts during the summer, for example. If you normally sell coffee inside, offer it for free on those same quiet Tuesday mornings discussed earlier, but keep the price of your washers the same. The goal of the Consistent Price Promoter is to bring new customers into the store, and you should be trying with each promotion to appeal to different segments of your marketplace.

This strategy is a proven winner for a small number of store owners. It can definitely be profitable for you if your store, marketplace and your personal talents as an owner are a fit. As you now understand, the pitfall to the Consistent Price Promoter strategy is if its implementation results in having only your existing base being offered discounts they did not need to receive.

In next month’s column, I will discuss the last of my five pricing strategies, High Price Leader. As a sneak preview, I can tell you now that my friend William will be in favor.