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Today were going to discuss the power of Adding On. And the part of adding on is more than just a financial impact, it’s getting your sales team custom to recommend the appropriate items that go along with any given sale. We’re going to discuss an American Express case study and most importantly were going to discuss what items are actually not considered add-ons but rather a part of the sale itself.

Justin: Welcome back everyone. Today we are going to talk about the power of adding on to the sale. And it may not always be obvious when something is actually being added onto a sale. And I want to bring in Harry Friedman to talk about a couple of things; one, the importance of adding on. But two, some examples of industries in which add-on selling is occurring but you may not always realize it is not always in the traditional retail selling. So Harry, welcome back, thanks for joining us.

Harry: Justin, so happy to be here.

Justin: I’m glad you’re here too.. talk to us. Talk to us about adding on.

Harry: Okay, I do love the subject very very much. First of all let’s talk about the financial impact of adding on because where it all really starts. So let’s say a set up retail store and I sell products of course or I’m a dentist. It doesn’t really matter the business. Lots of businesses have logical things, you know, this goes with that. Peanut butter, my goodness, goes with the jelly. There are certain things like that but let’s take a look at the financial implications first. Let’s talk about a tennis racket, I don’t know why, I just picked a tennis racket. So I am a store that sells all sorts of sporting goods stuff and I sell a tennis racket. Well, there’s a cost associated with the tennis racket. There is not only the cost of goods [C.O. G.]. And let’s say that tennis racket cost $100 and the tennis racket cost me $50. I’m just making simple mathematical numbers here. So what I have is a $50 or 50% margin. That’s not profit, it’s gross profit, it’s just margin. With the $50 remaining, that $50 that I have is gross profit, I have to pay the rent of the store, advertising, labor, all the main office personnel, warehouse; all the stuff that I have to pay for when I sell the tennis racket. And I might only make 10%, a lot of people would love to make 10%. 10% of the gross margin. So I have $50, I might make $5 or $10 on the gross, depending on how you look at it. But it’s a very very small amount that’s left over for profit when you consider all the expenses. Now when I sell that tennis racket, I’ve taken out all the expenses to make the sale. If I were to add on a cover, or let’s get real crazy and add-on tennis balls, which makes no sense at all. That’s not an add-on, and I’ll talk to you about that a little bit later on. Let’s talk about a carrying case, that’s a little bit more deluxe. And let’s say the carrying case is $40. With the cost of the carrying case on the $40, let’s once again just keystone and call it $20. Now the question is, do I take all the expenses as I did on the tennis racket on the second item? And the answer is, no. You only take it out psychologically once every transaction. So in a sense, gross profit equals net profit when you add on additional merchandise. So all the real money that’s made in the sale is on the additional items that you add to the sale.

So that’s kind of interesting. You would never get the accounting department to agree to any of this as they are not necessarily thinking the way we think but if you really look at what I just said you will see that add-ons are essential in any company’s ability to grow. So gross profit equals net profit, add-ons are absolutely essential.

And now let’s talk about what an add-on is. I think there’s a lot of misunderstandings in the world of adding on. Justin, we didn’t talk about this before but I’m going to give an exam right now. If I am in a men’s clothing store and I’m buying a brand-new suit, what’s the add-on?

Justin: A tie

Harry: Just a tie?

Justin: A shirt.

Harry: Shirt and tie. Yes. Of course. Now I would like to share this with you because your nice young man and you need to know things. 90% of all the guys that buy a brand-new suit, buy a shirt and tie to go along with it. Is it an add-on or is it the suit?

Justin: Sounds like it is a part of the suit.

Harry: It is the suit. And so we have this ridiculous thought to that certain add-ons are more than what they are. Like for example, if you’re going to buy a tennis racket, you would buy tennis balls, you would want to brand-new tennis balls. I don’t believe that’s an add-on at all. I believe that if you’re going to play tennis you should have tennis balls and it’s part of the mix. It’s just absolutely a part of it. The psychology of all this is all those things that are essential are not really add-ons. They are, what I call must haves. So if you buy some electronic item that requires batteries, battery is an add-on. Why would we even think it’s an add-on, you need the batteries to operate the thing. It makes no sense that we look at it in terms of an add-on.

Add-ons can be, should be and should be thought of as important items that complete a transaction. If I buy a gorgeous tennis racket for $100 and not have a cover for it, it puts a tennis racket at risk. It needs to be protected.

When you talk about a beautiful pair of shoes that perfectly match your suit, your completing your outfit. Can you imagine buying a brand-new suit; shirt and tie and have ugly shoes. It completes the outfit and shoes are an additional part of the purchase as opposed to a shirt and tie.

Justin: So you’re blowing my mind right now and I’m trying to think of every industry or environment that I’ve been in where I would assume that this is an add-on but it’s actually not. It is just a part of what I was going in there to get anyway.

Harry: Yes, of course. If salespeople were sloppy about the presentation of this add-on then it becomes nattering and it’s like they’re pecking at you. All the must have add-ons, really should be a part of the demonstration and not looked at as some sort of ‘you need this and you need this and you need that, it doesn’t make any sense’. Say I grab this electronic item that requires a battery, I just grab the battery as a part of the demonstration and say something simple like, “I personally recommend these batteries to go with this unit” who would argue with that? I personally recommend… These are kind of the things that are just really simple.

I’ll give you an interesting story, I went to buy a car a couple of years ago and when you’re in the finance department, I actually leased the car and in the finance department these guys are responsible for the extended warranty and the LoJack, which is a homing device for a stolen car and all that. And to me is always been nattering, I have in my head what the price of the car is, I have in my head what the monthly payment is and all of a sudden this guy wants to add on all these is a dinky things. And I’ve always thought that extended warranty should be talked about by the salesperson, at least peripherally to set up this environment. In the end, I’m not a big fan of certain kinds of warranties, I didn’t want the LoJack. If someone stole my car I would feel so violated, you can have it. I don’t want it back. That’s just my personal thing, some people won their car back. Certainly if it’s a classic or something like that. But in any event, since it was a lease I did need the extended warranty beyond the three years in the lease. But he said, I would recommend a warranty on your tires and wheels. And I went…that just sounds like, I don’t know. So I said no.

I did the transaction, we wrote the contract, I signed it. I’m about out the door and I decided on my own to turn back and say to the finance guy was there anything I missed in this transaction? And he said yes. And I said what’s that? And he said I completely disagree you with the tire and wheel warranty. And I said come on, it’s a bunch of money. He said yeah, but you’re failing to really appreciate a couple of things. First of all, the tires on the car are performance tires and they cannot be repaired, they have to be replaced. So you can’t fix these tires. If you get this wild puncture which is not such an unusual idea for three years, I am going to have to buy a new tire. And he says, you don’t think about the cost of a wheel, these are fancy wheels blah blah blah blah and let me just tell you the cost of a wheel that’s not covered by warranty. That’s a big exposure. And frankly or make a decision between six dollars a month, which you won’t even think about and thousands of dollars if this stuff goes wrong.

Anyway, I walked back and he was happy, which I appreciate, to rip the contract and do a new one because I bought the warranty.

You know the story, I was on my way to, at the time we had a training session in Las Vegas and I was driving there and I got a flat tire. And the car had to be towed and the tire had to be replaced and the tire itself was very expensive. I was very very thankful. There’s all sorts of little things that make sense to go along with this, that and the other.

And there’s a couple of things historically about add-ons that I just need to share with you. First of all, if a customer walks into a store and they say they want to spend $600 on something and that’s all they have, I only have $600, this is the only amount of money I have. And you show them something for $600, what’s your likelihood that you’re going to add on to that? Well, they got to over a barrel. Psychologically they’re saying, I am at my max, and the salesperson is afraid to add on to that, don’t you think? That puts the salesperson in a rough situation.

So let’s talk about this for example, I’m selling a bicycle and the guy says I want to spend $800, the salesperson shows them something for $900 which is $100 over the guys but it and the guy says alright alright alright, what’s the chance that the salesperson is going to add-on? Not very likely. But the question I have for you is this, does the $900 that he is spending on the bicycle have anything to do with the fact that he needs a helmet?

Justin: No.

Harry: Does it have anything to do with the fact that he needs a pump to pump up the tires?

Justin: Do.

Harry: So this guy is backing off all this and they are so logical to me. They are so logical to me.

Let’s take women for example and I say this with all due respect; a woman who buys a brand-new outfit, clothing outfit. This has nothing to do with her shirt, shoes or her handbag; you’re not to be confused. A woman’s shoe budget is a separate sanctimonious line item that has nothing to do with her handbag budget which has nothing to do with her clothing budget and yet we confuse these things all the time.

So just even without any technique of how to add-on better, psychologically we already know that we’re making mistakes when we confuse value or budget or limitations that are self-imposed by these salespersons.

Justin: So Harry, just to recap on some of the things that you’ve touched on, what can a retailer do because obviously adding on is part of salesmanship, it’s part of the training program for any good retailer, any good small business or big business, it doesn’t matter. But using the examples that you said, how do businesses who are listening to this right now identify within their business the items that are just the no-brainers, that they may have traditionally thought were an add-on? Like okay, on women were adding on this but the fact of the matter is that it is part of the purchasing process?

Harry: Well, you don’t need me to identify it. Every business knows what the logical additional items are. I think we start, it’s certainly great for rookies and those people who choose not to go the extra mile but there’s nothing wrong with highlighting four or five items a week, and the packages that we would like to see sold. And you could create a name, you could call it a bingo, you could call it whatever you want; a home run, a grand slam and it could be little acknowledgments to people that sell these things. I always believe that contests, games, incentives; things like that on new behaviors or behaviors that you really want to highlight are such a great idea. If somebody got something every time they sold a bingo, you know what I mean by a bingo, that’s a tennis racket with the balls and the protective covers, there should be some recognition.

Cute story, years and years and years ago, I mean a long time ago, maybe 25 years ago I can’t remember. In the Philippines, the wife of the great dictator, his name was Emile DaMarcus and she was famous. I know you are too young but they were all in the newspapers in photographs, she got busted with 2000 pairs of shoes in her closet. So she had a little shoe thing going on, a little shoe fetish. In any event I was working with a chain of food stores at the time and we decided that we would have the Emile DaMarcus cup. And it was a matter of how many items per sale transaction and that item being a pair of shoes. So we had this ridiculous contest and we put her picture of her in the closet with all the shoes. We talked about all the people that were shoe fanatics. Anyway, the end result was that we increase the average sale by a ridiculous amount. But that’s fine. And we give the money away and all that was great. But where it settled in, after the contest was over was a significantly higher items per sale then prior to the contest.

So we just incentivize people, we made fun out of the whole process, people got used to it and that’s one of the way that retailers can start getting people to add on a logical amount or the logical sequential items. It’s a matter of belief and core values. Does the company believe that this goes with that? Does the company believe that? There’s all these things that make sense, it’s a matter of courage and salespeople knowing that this is their responsibility.

Justin: Awesome Harry. I do have one question because I’ve been thinking about all these profound things you are throwing my way. Why is, in your example of the bike, why is the bike pump not a logical purchase with the bike? That would be considered an add-on, in that specific example?

Harry: It depends on the price of the pump. But I actually, would never think of that as an add-on. I would always think of that as part of the requirements to ride the bicycle. You need a helmet, you need a pump; those are requirements to just get out and go riding.

Where it gets fun, is integrating things like a computer so that you can track the amount of miles that you do, your average riding speed. And some of them are so sophisticated today. As you know I’m a bicycle fanatic, I have a computer for my bicycle that has GPS on it, it gives me directions if I get lost, it gives me my heart rate, average speed and it’s a wonderful tool that I utilize every time I go riding to not only give me information on my riding but it also makes my ride more enjoyable. I love it, I stare it all the time and there’s not a bicycle guy in the world that has one of these computers that would ever give it up. It’s that important. That’s an add-on to me and that’s something really special.

Justin: Yeah, it’s actually kind of funny you mentioned that example, I also ride. I haven’t ridden in a while, I like to consider myself a rider. And it’s actually kind of funny, I was in a bike shop getting some tubes for my bike and I’m listening to the sales rep. There’s a local place in San Diego and this guy is talking about one of the Garmins 560 or something like that, I don’t remember. But the guy at the counter said, you know your phone does all the stuff that you’re talking about. You can just download a free app and you can just use your phone. And the guy goes, really? I can just give you an attachment to your bike and you can use your phone. And I’m sitting there and was saying my gosh, I wish the owner was here and listen to this conversation. The guy was so interested and the guy goes no no no just use your phone. But the reality is that your phone, if you are a serious rider your phone is not on the front of your bike.

Harry: No, they actually have mounts for it.

Justin: Oh yeah, he sold the guy the mount.

Harry: But if there are some basic truths to, and I don’t want to get in to the whole details but let me answer that question for you. If you are to buy a nice Garmin as opposed to using an app or some of these other devices that can be downloaded, I know that for example RPM and speed and all that, that’s attached to a magnet on my back wheel and is actually physically counting the revolutions and the speed of the revolutions and giving me very very accurate data on my performance. When you download an app, that is GPS based. So that GPS is responsible for tracking your speed but it’s not giving you RPM’s. So unless there’s something mechanically attached to the bike, it is completely an inferior product. So I feel bad that the salesperson didn’t really tell the story, how serious of a customer was this and how serious as a rider. I certainly think it’s a very cool thing if you’re beginning as a rider as you learn to ride a bicycle and you start to fall in love with the idea of it being one of your activities, then school because it gives you some data as opposed to no data. And it’s cool. But the minute you become serious about riding, you’re going to want something that is very accurate and gives you some targets to get to to improve your performance.

Justin: Well thank you Harry, thanks for your insights on adding on and we would be talking next week with some more interesting conversation.

Harry: I have one final thought, it’s my Colombo moment, one more thing. There was a study done in the Midwest and I think the time it was sponsored by American Express and the University of Michigan did one also, and they were talking about who quits first. So what they found, without even a doubt that salespeople quit selling way in advance of customers quit buying. So American Express did a thing where they gave some of the students American Express Gold cards and they send them into retail stores and they said if a salesperson suggest you buy this additional item, just buy it. You have no limit, just buy it. And if they sell you an additional item and then they suggest something else, just bite. Just say yes to everything. And so the result was there were five people, one person bought three items, one but two and three bought one. And know, there was no limitation on this. So what does this tell us? It tells us that salespeople gave up well in advance of the customer.

The University of Michigan was interested and they gave a whole bunch of kids $100 and said to go shopping in the mall and anytime somebody asked you to buy something, buy it. So the sales man actually came out and said so you want to go for it, shall I wrap it up, or whatever the closing line was, go for it, and they can spend all of the hundred dollars. And it was a timed event. And my question to you Justin is how much came back with change?

Justin: All of them.

Harry: You are right. They all came back with change. So this is really kind of interesting, when I do some very advanced training I look at salespeople dead in the eye and say at what point do your knees shake? And this is a little bit about winning too. It’s a little bit about winning. Can you win? Do you have the stomach to win? Do you have the will to win? Do you have the desire to win? Because people just keep quitting way in advance of the finish line. So if someone bought at $800 bicycle that we talked about and he spent a $900 for it and we go for the helmet, and we go for the pump and the customer says yeah, what the hell, I’ll take it. At what point did he say all right I’ll take it up to the register and wrap this up because you are so fearful that the sale is meant to get so big that it’s going to take nothing, that you quit: that’s not winning.

I have an expression and I think we can leave the podcast off with the thought that you were never hired to say yes or no for customer. You are always hired to present and let them say yes, let’s them say no until you heard the words “enough already, stop, you are killing me”…until you hear that, it’s your job, you’re actually being paid to present.

So I will leave you with one of my famous expressions and is famous because I just said is famous and many people who know me know what it is, and is simply this “show show show until they say no.”

You have been listening to retail revisited. If our conversation today inspired you please be sure to rate us on iTunes or shares with your friends. You can see a full list of all our episodes at www.thefriedmangroup.com. And for more information on how the Friedman Group can transform your business, you can contact us at [email protected]

A special thanks to Harry J. Freidman for sharing his thirty five years of unbelievable experience for all of us to hear.