National Clothesline

I recently had a conversation with Gary Dawson who owns Belleaire Bluffs Cleaners in Belleaire Bluffs, FL. He ’s well known throughout the industry as the Chairman of the International Fabricare Institute Board of Directors and as a very sharp operator.

Gary is also a long-time Golomb Group member and, like many other members, sends in quarterly reports indicating whether his sales are increasing or decreasing and, generally, which way the wind is blowing concerning their businesses. That information is then filtered through me and sent out to our other members. What intrigued me about Gary ’s report was that he indicated he had increased his net profit by 69.5 percent for all of 2006!

How did he do it?

Back in June of 2006, Gary was analyzing his services to see which were truly profitable and which were merely boosting sales but not contributing to his bottom line. He realized that his extensive hotel valet work was a huge source of revenue but, for the most part, was unprofitable. He eliminated this portion of his business altogether and watched his net profits go through the roof!

After our conversation it dawned on me that many drycleaners never take the time to review what are the true profit centers of their businesses and what services they offer that could be discontinued to the betterment of their financial situations.

Here’s another tactic you may want to consider: Give your customers, and your company, more in 2007 by giving your customers less. Surgically trim your value proposition and reduce your costs by cutting nonessential features and benefits to customers who opt for them. Give them just what they really want at a lower price without the frills and fancy stuff. You ’re likely to catch your competitors flatfooted.

Let’s examine why this idea — right-sizing value and price — can expand advantages all the way around, for drycleaners and customers alike.

Slimming down to serve specific market niches can boost profit when your cost reductions outpace your price reductions. Although this might seem counterintuitive to most marketing strategies and not appropriate for every dry-cleaner, less-is-more marketing can tap previously unrealized business in many markets.

Giving customers exactly what they want at the best possible price isn’t anything new, of course. Michael Porter of Harvard wrote about it in his book, Competitive Strategy, and management professors James Anderson and James Narus called it their “naked solution.”

Feedback from your counter and route sales forces, as well as customers’ own comments, can help you identify which service enhancements no-frills buyers are willing to forgo in return for lower prices. You might consider using a focus group of non-customers only. They could actually become a profitable source of new business.

Because you’ll be selling to your new customers at lower prices, your competitors will have difficulty understanding how you ’re achieving this. By the time they realize that you are offering a completely different service to a completely different market, you will have already built a new, loyal customer base, in addition to your full-priced, deluxe-service clientele.

It’s important to keep your costs of serving these no-frills customers low, by limiting the services offered at those rates and, for example, reducing the quality of packaging being used. A huge problem in this industry is that many drycleaners don ’t apply enough discipline when granting price concessions.

Encountering customer price-cut demands, usually brought on by discount competitors, they quickly acquiesce to keep the business. They give away their superior value for less compensation. It never occurs to them to ask the customer what current benefits they ’re willing to sacrifice in order to receive the lower pricing their hearts so desire. These volume-driven reactions to competition erode a drycleaner ’s profits and don’t really increase long-term customer loyalty.

As I’ve said for the last couple of years, those drycleaners stuck in the middle between the market ’s bottom-feeders and the top-shelf competitors — and that’s most players in this industry — get stuck because they haven’t analyzed the marketplace wisely and identified the value-driven niches they can most profitably serve and dominate. With their outdated operations design and production methods and “churn and burn” attitudes towards customer acquisition, most drycleaners aren’t coordinating cost reduction with perceived market value.

The trick is in knowing which of your services and amenities, particularly the ones expensive to provide, enough customers will be willing to give up in return for a lower price — but not a price so low that it erodes your overall net profit.

For example, some customers will be willing to accept a longer garment processing time in exchange for lower pricing. These garments can then be processed at off-peak times or even on off-peak days.

A precise costing system and closely controlled operations are essential to making this strategy work. Not all drycleaners possess the operational savvy to cut costs surgically, the marketing discipline to find and nurture low-price customers profitably and the management determination to orchestrate this “naked solution.” But for those drycleaners with that combination, the opportunities can be rewarding.