But we had made an even bigger mistake with our product mix. When the price of paper went up, we raised the average price of our merchandise. Essentially, we said to ourselves, "Let's sell more expensive items because our overhead has gone up." But again, listening to customers set us straight. People look to us for practical, hands-on "happiness" items. They can't find good household goods that easily, but we have them. In fact, that's the guts of our business. People were always really excited about our less expensive items, anything from $40 down to $10 in price. They would say again and again, "It's the little extras that make me happy."
That's not to say that everything in our catalog has to be value priced. But those items that are, are our most popular things. In listening in on customer phone orders, I got the sense that our catalog had gone too high-end. The strategy we followed when the price of paper went up was wrong, and we've completely reverted since then.
The Lillian Vernon Catalogs is a $250-million specialty on-line and catalog retailer based in Rye, N.Y.
THE QUOTABLE ENTREPRENEUR
"Hiring senior managers for a small company is a heinous process. My advice: at the outset, make managers put up blood money to cover their first year of salary. This serves as a down payment on a share of ownership in the future. If you do that, you won't have to worry about a person's motivation."
--Steve Wald, President of Naturally Knits, an $11-million manufacturer of knitted fabrics based in Gastonia, N.C.
In a former life
MARK WATTLES, 39
CEO of Hollywood Video
Present life: CEO of Hollywood Video, a $757-million chain of 1,322 video stores headquartered in Wilsonville, Oreg.
Former life: Mormon missionary. Wattles became a missionary at the age of 19. "It required self-discipline," he says. "Once in the field, you wanted to make wise use of the Lord's time, so you never sat back and relaxed."
Lessons learned: "It taught me self-motivation and perseverance in a challenging, unstructured environment. It also taught me how to hear 'no' and stay positive.
"That was useful--years later--in 1993, when I was trying to go public. I knew I needed the cash to grow fast or I'd end up having to sell to Blockbuster. But we had only 15 stores. We were wondering how to get underwriters to return our phone calls."
Wattles did complete an IPO in July 1993. "People are rejecting you left and right, but you go on saying 'I've got a job to do' to yourself. When I was a missionary, I might spend two weeks knocking on doors before I got a yes, yet it would just seem so great when it happened. It's been almost 20 years, and I could still tell you the story of every single yes I heard." -- I. M.
Feed back the feedback
Walk into the Rhode Island gift shop called OOP and you will be dazzled--if owners Jennifer Neuguth and David Riordan have done their job well. "The whole store is designed around the idea of good clean fun," Neuguth says.
Plenty of gift stores are fun, but their novelty soon wears thin. OOP is an exception, as its 10 straight years of revenue growth-- from $200,000 in 1990 to $1.3 million today--have shown. Location is part of the equation: the gift store sits just down the street from Brown University and the Rhode Island School of Design, in Providence. But an equal part of the store's success can be attributed to its ability to predict what will charm customers. To that end, Neuguth and Riordan aggressively solicit customer feedback, and they continually use the information to fuel growth and change.
The process starts with a 30-question customer survey that is passed out in the store. "We do tons and tons of surveys," Neuguth explains.
The motivation for customers' participation is cold, hard cash. "I'll send customers a $5 gift certificate to thank them for sending a survey back to the office," Neuguth says. But she exacts a price for her generosity. "We won't just hand the gift certificate to them," she says. "They have to give us their address so we can mail it to them. That way, I can also send them propaganda later on."
OOP's ever-growing database now contains 9,000 names, a good portion of which came from the surveys. Every person whose name is added quickly hears from the store. "We try to show customers that we provide great customer service, even with this," Neuguth explains. "We think it works as a marketing tool for us." And to mitigate direct-mail sterility, Neuguth includes a handwritten note, a newsletter, and a small gift. "The survey people usually become really great repeat customers," she says.
But more than providing material for a database, the surveys tell Neuguth and Riordan how to keep their store new and exciting. "We learned from the surveys that our customers' least favorite thing was anything low-end," Neuguth says. "We used to have a lot of chocolates and candy and tchotchkes in the store, but we took a whole unit of 40 jars off the floor because of the survey results. We're now selling product more quickly--in terms of dollars per square foot."
Neuguth has also figured out a unique way of using survey feedback as testimonial advertising. She prints the best customer kudos on tissue paper, which her sales associates use to wrap gifts. Current wrapping-paper comments include:
- "The men who work here are so cute."
- "I used to have one of those when I was a kid."
- "I don't need any of this stuff, but I want it."
The promotional tissue amuses customers and reinforces the fun, lively vibe the owners want to create. "People like to talk about a store," Neuguth asserts. "They like to communicate. And the tissue encourages them to do this." --M. H.
