How Not To Make A Profit
by Travis Miller
Last weekend I did something I very rarely do...
I went to to the video store. I know, I know...why go to a video store when there's pay per view, netflix, etc, etc...
Sometimes I like to go just to browse the wall and see what's new. This time I went because a friend had recommended a TV series to watch back seasons of on DVD. And I knew that wasn't on pay per view.
The video store in my neighborhood has been the only video store I would step foot in for many years. You know that video store with the blue and yellow movie ticket logo? Yeah, well I don't go there. Last time I did (which was 8 years ago) the trip ended with them fast pitching my membership card and ID at me. How nice.
My neighborhood store is very nice -- and when you return the movie late, they only charge $1 a day instead of hitting you with the full $4 as soon as the clock rolls past 11pm on the day it's due. I like that too.
But now, they have done something incredibly stupid. And I'll bet other small business owners are doing something similar...and I think it's going to cost them customers, which they can scarcely afford right now as alternative sources for movies become the mainstream.
Here's what they did...as I was checking out, I noticed a sign that said $5 minimum on all credit/debit card transactions. But...the movie is only $4. So this means, a person can't come in and get 1 movie (which is what I would normally do) and pay with their card. I don't even know how to spend $5. 2 movies is $8!
I suppose their logic goes something like this...our merchant account fees just raised by $.10 per transaction. We just can't afford for people to swipe their cards for less than $5 anymore. Besides...maybe this will motivate people to get more than 1 movie. So, we'll make more profit because we'll pay less in fees, and rent more movies at once. Great idea!
Well, I think that's a real bad plan. I doubt it's going to motivate many people to get more than one movie -- in fact, I think it will cause people to choose to just "skip it" all together. If it were me (and it probably won't be, now that I know their new policy), I'd be ticked off, out of principle. And I very rarely carry cash. I would probably leave. For me, crappy credit card policies cause me not to do business with places. (Especially, when I can rent a movie on my TV and have it added to my monthly bill...that's convenient!)
These days, Visa is doing massive marketing making the use of check cards seem cache or cool. Should the local video store try to combat that? I think not.
I see two alternative solutions that would be better than this.
1. Create a package that's $5. Get 1 new release, and 1 old movie. Or 1 new release and a two liter of soda or package of candy or something. Somehow make the package for $5 far more appealing than the $4 movie. If someone wants to just rent a movie, let them. But make the $5 offer so appealing, that a lot of people take that instead. You basically accomplish the same thing, without driving your customers away. You incentivize them to spend more instead of forcing them to spend more.
2. A little more complicated...allow customers to pre buy a certain number of rental credits, at a discount. Say, 6 movies for $20. Now you run $20 transactions instead of $4 transactions, you advance cash flow, customer gets a deal, you effectively turn a single rental into the profit of 5 rentals. Lots good about this. I would take this deal and be glad for it, personally.
So, my appeal to you is not to create stupid, nickel and dime policies and expect them to help you increase your profit. Instead of trying to shave your way to a profit with a penny here and there, try adding more value to the transaction for your customer in some way, and encourage them to do business with you more often...
