Big-business tactics work for small firms


November 05, 1990|By Mark Stevens

When legendary chief executive Alfred Sloan was building General Motors into the behemoth of the automobile business, he noted that three factors contributed to the company's meteoric rise: the advent of the new model year, the availability of consumer credit and the emergence of a used-car market.

What, you may ask, does this have to do with your business? Surprisingly, it can offer a blueprint for building a success story of your own. No matter what business you're in -- manufacturing, retailing or service -- your company can benefit from the critical triumvirate credited with taking General Motors from a fledgling enterprise to a corporate giant. To see how this works, let's review Sloan's "building blocks of success" one at a time:

* The ritual of automobile companies introducing new designs and features on an annual basis has become so much a part of our culture that we think of it as a natural process -- as predictable as the changing of the seasons.

But that's a misconception. Behind the advertising and the dealer hoopla lies a marketing invention designed to spur impulse sales. By changing designs and building in new technical features, car makers give consumers the incentive to trade in their wheels for the most up-to-date models. This is a way to get consumers into the dealerships and to make them receptive to the salesman's pitch.

There's a lesson here for your business: Whether you sell socks, garden hoses or electrical components, seeding the line with the most fashionable, innovative and up-to-date merchandise can prompt consumers to buy replacements before the models they currently own have outlived their useful lives. Whether this updating of the line means searching for new suppliers or spurring your own production people to innovate, the end result can be a powerful catalyst for building and maintaining a high level of sales.

* The way savvy business managers see it, credit is more than a financial instrument -- it is a sales tool. By extending liberal credit terms to their customers, thus putting more purchases within their means, they are building in a catalyst for higher sales. They know that what the automobile loan did for Sloan's General Motors, the wider range of consumer credit can do for a broad cross section of industries.

The question is: Are you using credit as a marketing tool in your business? If so, are you employing all of the credit options available to you?

Certainly, if you've refused to accept credit cards because that means paying card companies a percentage of sales, you're being pound wise and penny foolish. In today's market, the refusal to offer customers credit options throws them into the arms of your competitors. By holding out for full price sales you are artificially limiting sales and depriving the business of one of the great catalysts of continued growth.

With this in mind, why not offer customers a wide variety of credit terms including national charge cards, house accounts and leasing plans? The goal is to turn creditworthy prospects into customers, even when they don't have the cash on hand to make a purchase. Where credit will tip them into the "buy" column, without forcing the business to assume undue risk, the option to pay for the purchase over time should be offered.

* The emergence of a used-car market propelled automobile sales in the U.S. because it gave consumers the opportunity to trade in used models for cash. In a similar fashion, a secondary market can spur sales of your company's products. Although creating an industrywide secondary market may be too tall an order for any one company, you can accomplish similar objectives by encouraging customers to trade in existing models for credit toward new purchases.

Assume, for example, that you sell typewriters. Any one of the following techniques can prompt customers to trade in existing units:

Offer a fixed dollar amount for every used typewriter traded in toward the purchase of a new one. If razor-thin margins make it difficult to offer trade-in allowances, arrange with a charitable organization to accept the trade-ins as tax-deductible donations.

There are no magic formulas for business success. But attention to these critical building blocks can go a long way toward making your business the next giant in the making.

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