Clorox, Price Discrimination, and Line Segmentation

Take a look at the above: Both product lines are within the Clorox family of products – one is branded Clorox and the other is branded Green Works.  Although the image of Green Works does not show it, Green Works also offers disinfectant wipes and detergent.  Essentially, the Green Works line has the same product types as the Clorox line.  This is an example of both price discrimination and line segmentation.  Below I will walk through both price discrimination and line segmentation in action so that you can learn and hopefully develop creative ways to utilize the same strategies in your small business marketing strategy.

Price Discrimination:

  • Clorox Bathroom Spray is $4.49 vs. Green Works Bathroom Spray at $5.79
  • Clorox Toilet Cleaner is $3.79 vs. Green Works Toilet Cleaner at $5.49
  • Clorox Disinfecting Wipes is $2.99 vs. Green Works Disinfecting Wipes at $5.99
  • Clorox Stain Fighter & Color Booster is $5.79 vs. Green Works Detergents at $5.99
Each of the compares in the above is an apples to apples analysis – same oz., similar product.  And as you can see, Clorox clearly marks up the price of its Green Works line vs. its generic brand.  Why is this?  There is a different value proposition behind the Green Works line – it is natural, and because of this, they believe that natural-seeking consumers are willing to pay the premium for better-for-you products.
Through the Green Works line, Clorox reaches a new set of consumers and potentially cannibalizes its own sales on its existing Clorox brand.  However, this cannibalization is positive cannibalization since the consumers are pricing up to a more expensive line.

Line Segmentation:

Clorox manages its cleaning products portfolio by segmenting the market into mainstream and natural and leveraging different brands, that are relevant to each market, within each market.  This benefit of creating two distinct brands is that Clorox has the ability to develop two distinct and targeted marketing plans.  It would be difficult for Clorox to develop a marketing plan to natural consumers without impacting its brand positioning within the mainstream channel (which is Clorox’ bread and butter).  Likewise, it would be difficult for Clorox to maintain its brand positioning in mainstream while also trying to effectively market to natural consumers.  There are also financial reasons for such a segmentation:  For example, since the Green Works line is premium priced, the financials behind a couponing or promotional campaign will look differently than that of the mainstream Clorox line.

Conclusion and Implications:

As a small business owner developing a marketing strategy, if you find a new need within your market that you would like to market against to generate incremental sales, consider a price discrimination and line segmentation strategy if the new need is a different type of consumers.  By following this rule, you will be sure to not impact your existing brand, products, or sales while taking advantage and capturing the new market opportunity.  This rule implies for both product, retail, or service driven companies.

Going From Small to Big Business: What You Need to Know as a Manufacturer

So you have a product that you sell locally, for now.  Whether it is a local cupcake business, bread producer, toy manufacturer, etc. this will apply to you because your goal is success and the more success, the better…right?

Growing your business requires incremental dollar sales month over month, year over year.  Holding everything constant (product, price, distribution, placement, etc.) there is no reason to believe that the customers that you currently sell to or the shop that you currently sell at  will produce more sales one year over the next.  Therefore, the only way to grow when holding everything constant is to increase the number of stores that you are selling to.

There are two ways to go about this: continue to sell locally or expand into national or regional accounts such as Costco, Target, Toys R Us, etc.  In either scenario from the above and similar to what you require for growth,what retail is looking for when deciding to take on new products in their finite space is also incremental dollar sales.  What I mean by this is the following:

If you sell locally your famous mustard recipe, why would a retailer want to replace an item on their shelf that is already profitable for an item that has yet to be proven?  The answer is this: you need to demonstrate to the retailers why your product will drive incrementality to their mustard category.

Incrementality within manufacturing is typically achieved through innovation or differentiation/unique characteristics of your product vs. the competitor.  Perhaps for mustard, it could be that your mustard is Kosher Certified and USDA Organic whereas Grey Poupon or Boar’s Head is not.  Also, maybe your mustard is incremental due to the unique packaging that doesn’t leave crustiness on the rim after closing the cap and storing in the refrigerator (I hate this!).  Whatever the differentiation is, you must prove that it is valuable differentiation and therefore, incremental in dollar sales because existing mustard consumers will switch to your product for whatever that added value is.

Now there are two ways to get in on shelf at bigger accounts:

  1. Analyze the competitors within the space that you want to compete in and recommend to the retailer a competitor that you would like to “pick-off” because it is slow moving, but nutritional label, etc.
  2. Present to the retailer via research (surveys, customer testimonials, consumer needs, etc.) why your product deserves a slot on shelf

Developing these stories is the tricky part.  Adam and myself have the experience of selling-in to national retailers over various industries and would love to hear your story and how we can help, if needed.

Service Industry: The Job is Not Done Once Complete

A few weeks ago, I wrote about 3 Keys for a Service-Driven Small Business.  These 3 keys are most important before and during a job.  However, today I want to expand upon how to succeed as a service-driven small business by discussing one of the most important thing to do after the job.  Similar to sales or selling, the job is not done and the relationship is not locked-in once contact information is exchanged.  Likewise, your job as a service small business company is not complete once the job is done.  You must continue to follow-up after the job multiple times to check that everything is still good, everything has gone as planned, etc.

Following up on a completed job is one of the most important things that you can do to solidify word-of-mouth referrals by taking your company/brand from ordinary to extraordinary.  Furthermore, aside from checking to make sure that the work you performed is still holding up as transacted, you will also be showing your customers that you are invested and take pride in the work that you do.  This ensures consistency, quality, and a level of satisfaction that one day you might be able to charge a premium for since your brand/company will become known as one of the best in your local market.

Below are three things that you will be guaranteed to see when implementing a plan of following-up:

Positive Brand / Company Perception:  Your customers will begin to view your business as “the step above” within your industry and even so far as among local service companies.  Word-of-mouth referrals is one of the biggest drivers for service driven companies and therefore, positive attitudes toward your company will without a doubt lead to more customers.

Quality Improvement:  Let’s face it, there are always errors, faults, things that go unplanned, etc.  Mitigate your own risk of failure or not fully meeting your customer’s expectations by following-up and addressing any concerns or problems after the fact.  This might wind up taking time away from another site to spend potentially hours fixing the site that was already paid for, however, you will never leave a customer unhappy.

Ability to Increase Price in the Long-term:  As you gain more customers via word-of mouth and as your quality becomes unmatchable, you will then gain leverage to charge a premium for your services since you offer proven outstanding services.

Is there a right number of times you should follow-up with individual customers?  I don’t think so.  Your customers paid a lot for the services that you performed and with that, they expect outstanding service.

Quality Assurance and 3 Small Business Solutions to Improve Quality

Here me out for a second: quality assurance is one of the greatest challenges of small businesses.  I know that some of you might not agree with this statement because small business owners take pride and ownership in their business and are producing their products/services in a much smaller quantity than any large business would therefore, you assume that lower volume equals higher quantity.  However, my argument is that this is not the case.  Although lower volume should equal higher quality, the issue that small businesses have is a limitation of resources, which impacts quality.

Take the example of a bagel shop in New York City – on a few occasions, if you ordered a bagel with egg, cheese, salt, pepper, and ketchup, they might forget the cheese.  For the amount of volume that a small bagel shop does vs. a large scale breakfast egg sandwich manufacturer (a product that you might find in the frozen aisle of your grocery store), the small bagel shop has a much higher % error than the large scale manufacturer.  This is so because a large manufacturer has the capital to invest in labor and systems to provide higher quality and assurance than a small business.

So what can you do as a small business owner to ensure quality assurance if you do not have the money to invest in systems or additional labor?  Below are my solutions for you:

Attention to detail:  This is the most obvious of solutions.  However, one that many small business owners forget as they get entrenched in a busy workday where the goal might be to produce “x” amount of product or finish “z” jobs.  In everything that you do, ensure that your T’s are crossed and I’s are dotted.  Don’t release product or finish a service without properly inspecting your product.  Although you might think that this will slow down your business and make you less efficient, in the long-run, your unprecedented quality assurance is a point of differentiation for your marketing strategy that you can charge a premium for or that you will receive more business for through word-or-mouth and referrals.

Kaizen: Japanese for “improvement”, the moment you or anyone that works for you comes across a problem, stop the service work or production immediately.  This will allow you to track back the source of any problem before you are too far along where you will never be able to find the source!  Finding the source of a problem will enable you to prevent future occurrences of a similar problem.

Check-ins: Enable a staging process in your production or service so that at the completion of each stage, you can review your work to ensure quality assurance (as well as anything else for that matter).  For example, review random samples of every 200 units that you produce.  Or if you are a service company such as gutter installation company, don’t focus on banging out your job and moving on to the next, stage your installation in 2 or 3 stages (old gutter removal = 1, new gutter sizing = 2, gutter installation = 3) to make sure that everything is still good after each stage.

Again, although you might think that the above quality assurance solutions will slow down your efficiency, the long-term benefits will lead to increased positive referrals and word-of-mouth, ability to use the quality assurance as a point of differentiation for your marketing strategy, or the ability to price your product/service at a premium due to the quality that you provide vs. any competitors.