Say you are a stay-at-home mom swapping used clothing with other parents and realize the effort is taking so much time you should be doing it for a living. Next thing you know, you own a consignment shop in a strip-mall next to a grocery store. This was the story told to me last month by Sheryl M., the owner, who said me she doing such a brisk business that another consignment shop opened across the street and cut her revenues by a quarter in the first thirty days. She asked me for some advice, and in turn, I asked some questions, and then informed her she had an obvious partner right next door.
Like Customers, Unique Products-Great Business
Turns out many of her customers buy not for themselves, but for friends or relatives. They don´t want to spend the time or the money going "all the way into town´ forty five minutes away, nor do they want to go to the effort to have the recipient complain about styles or sizes. With the average purchase price about 6 bucks for a great used piece of clothing, her customers will purchase three or four pieces on average. Now for context, I´ve never purchased children´s clothes from consignment for fear of the disgusting associated smells. But in this store, no such second hand smells exist. Trolling through the merchandise, I found used Oilily clothing that sells for sixty-five retail and picked it up for twelve bucks, and that was the most expensive thing on the rack.
But back to the Sheryl´s dilemna. The customers would buy the clothes, but complain about shipping, and Sheryl didn´t have the time, energy or systems to ship out products to customers. I suggested she approach the owner of the franchised mail stop next door and pitch a shipping partnership. She´d use their service if they would cut her a deal on every package. This would provide her customers better in-store service, and ensure that the mail stop got all the business and provide her a differentiator to her new competitor.
At first, the mail stop owner argued over pricing, suggesting that the customers would go to her shop anyway. So Sheryl informally tested this theory for a week. She catalogued every customer that she knew was going to ship the products out of town, and each day, asked her next door neighbor how many stopped by to ship the products. Granted, neither was going to share their customer list, but it was clear to both of them that Sheryl had many more customers shipping products than were going through the mail-stops service.
Customer Satisfaction and Revenue Numbers Up
The stop owner provided her with a basic schedule of rates for different regions in the US, a standard size box rate and then Sheryl decided to go with the lowest cost ground shipping. She then knew the volume she needed to achieve to include Free shipping. Once armed with this information, she immediately started promoting her "Shipping Service", attaching the word FREE for purchases over a certain dollar amount, where her margins would cover the cost. The first day, she shipped two boxes, and averaged 4 the rest of the week. Three weeks into her new program, she ran the numbers and realized her gross sales were considerably higher than before her competition moved in.
"Once the customers realized they could get "FREE shipping" if they spent twenty five bucks, they´d buy just enough to hit the amount, but since it was an uneven number, it was over that every time. Sometimes a few bucks, sometimes a lot more than that."
Consider the Partner Next Door Attributes
1) Do you share a common customer?
2) If not, do your products or services compliment one another?
3) Can the products/services be used independently of one another (such as consignment and shipping) or are they used together? (One company services ice cream, another peanuts and together, you have a peanut buster parfiait?)-dumb example, but I love Dairy Queen and had to get that in"?¦
4) Can the partnership be tested with limited risk and exposure to both firms?
5) Does the partnership need to be formalized, or can it continue informally?
"?¢ On this note, Sheryl´s informal partnership is risk-free, since she takes the information, packages and pays for the shipping directly to her partner next door. Neither has any requirement for trust-it´s all black and white. Not all information partnership enjoy this situation, so be sure to evaluate the risk factors of your own partnership, particularly when money is changing hands.
Sheryl´s informal partnership will likely never be consummated by an agreement. And it doesn´t have to be. It´s working just fine with the two owners as the point contacts. The downside is it´s not exclusive. Sheryl knows her competitor will get wise at some point, and offer a similar service. But now Sheryl is thinking like all small business owners-how can she use partners to stay ahead of the competition, and keep her customers happy and loyal.