December 14, 2013
Sales 101: If A Product Is Selling Well, Never Lower The Price
I presented the challenges Square faces with the Square Stand on September 1, 2013 here on Quora. I tried my best to state the case of the Practical and Pragmatic merchant and how this may very well doom the Square Stand.
I was asked to answer this question privately by a good friend that works at Square. Here is an excerpt of what I wrote in September, 2013:
In 2013 Cash Registers Still Out Number POS Systems 1000 to 1 At Small And Medium Businesses
Almost 25 years ago I was excited to sell what I thought would be the most revolutionary thing small and medium sized merchants could ever want, a computer set up as a full Point Of Sale system with an integrated credit card processing system. It had features that any small business would hope to ever want or need. I was absolutely convinced that the ugly and old cash registers and credit card machines would disappear the moment any merchant could see just how useful this system would be. This was the flash point of my education.
One only needs to visit the majority of the 25 million small merchants to see how successful I and about 1,000 other companies were in persuading these merchants to move to a POS system over the decades.
The Highest Adoption Of POS Systems: Restaurants
The only significant in roads has been in restaurants. It took the better part of 30 years for any POS company to beat the old cash register at small and medium, non chain restaurants. The very nature of how a restaurant uses a POS system has motivated higher adoption rates. Even so, over 20% still use the most basic cash register systems.
Chart showing the relative market share of the major POS companies in small and medium sized restaurants.
The Practical And Pragmatic Merchant
I have just presented an overview of the empirical facts. So how is one to resolve this rather startling situation. Great technology is all around these merchants for decades but there has been only single digit desire (outside of restaurants) to replace the simple cash register.
The Square Register app has been available since May, 2011 and almost three year later, the Practical and Pragmatic merchant has failed to respond to the product in a meaningful way. These merchants did not lack the correct holder or stand for their iPad. Clearly there have been dozens of companies that made rather nice Square Register based iPad stands.
This is quite a problem. It is not at all an uncommon problem when the ideas and ambitions we in tech produce run counter to the mindset and philosophies of the people that will purchase and use our greatest creations.
Can Square Be Successful With This Project? Absolutely!
Back in early 2011 I saw about 40 things that Square needed to do, However the window is closing rather rapidly. There are still about 30 things that need to be addressed today, it is critical. The simple issue I presented in this posting is really not one of them. It is just an over reaching issue that the company has not successfully addressed.
The majesty of the Square Stand is outstanding, Square just needs to find empirical praxis. They can spend the time to try and try again, for perhaps decades or they can find empirical praxis in people that have already done this. The profound difference is time and time is the one luxury no company has…
Sometimes You Can Not Give Away A Business Technology Product For Free
The challenges I presented for the Square Stand in the US with small and medium sized merchants has already started to impact Square. The heartbreaking issue is that this is not really a problem with pricing. The $99 price point may marginally help the sales slump, but not enough to save the ultimate demise of the Square Stand. In fact, they may even try to give the Square Stand away for free to some merchants and still this will not really materially impact adoption.
As I presented in the September, 2013 the adoption of computerized POS systems have been staggeringly low. POS systems have been available for these merchants since the 1980s yet over 80% merchant today still use a simple $160 cash register with a freely supplied credit card terminal. There are a multitude of reasons for this and unfortunately Square has not addressed even a single primary reason with the Square Stand and to some degree with the Square Register app.
Selling A Business Product At Retail Stores
Over the last few months I have conducted empirical research on the merchant adoption of the Square Stand and the results of the retail sales of the Square Stand at locations like Office Depot and the Apple retail store. I will be able to present the final results, in limited form soon. What I can say at this point is that at over 97 of 100 locations the original inventory had not moved during the first 30 days. In some cases the very expensive Square Stand retail display was moved from a priority location to the back of the store near the discontinued items in the space of 30 days. This is likely not what Square paid for and certainly did impact sales at those locations.
This result was not at all a surprise to me as I have researched 100s of business products over the last 30 years. In particular Square would have done well to understand why Intuit’s Quickbooks POS retail display failed so spectacularly at some of the very same stores and strangely enough on the very same shelf space 8 years earlier. They are making exactly the same mistakes as Intuit 8 years earlier and are getting the same results. I say this a lot, Square would do well to hire people with empirical praxis and to study history.
The Flat Fee Price Betrayal Of A Very Loyal Square Merchant
To add even more complications is the very real and direct impact of Square removing the $275 per month fixed monthly pricing. I predicted on the day Square announced this flawed price model that they would at some point have to retract it. The fall out would have a huge impact on the company. This is exactly what happened. I addressed this recently on November, 2013 and the damage done to Square by allowing a flawed price model to lure in merchants only to inevitably retract the offer has had a deep and lasting impact with some of Square’s most loyal supporters.
Janet Yurcik was a very loyal Square merchant so much so that she purchased sight unseen a Square Stand with the receipt printer and cash drawer. This was an over $1,000 investment location and was a very large investment for her small bakeshop. Janet was dealt a double blow now that Square has reduced the price of the Square stand by $200. She not only overpaid, the entire premise of why she purchased the Square Stand was the fixed $275 price model. That was quietly removed. This is a small excerpt of what she posted in mid November, 2013:
….It seemed like the gates of financial heaven opened up when they debuted their Square Register Stand system earlier this year. I, like so many other small businesses, were in awe of the sleek design, the free register app, the ability to operate like a POS system, but on an affordable scale. We watched their commercial on the website showing small businesses throwing out their old credit card processors, and using their old registers for storage as they switched out their outdated systems that were costing them a ton of money, to the new, sleek Square Stand. How easy it would now be to accept credit cards, put in orders, and keep track of business. The best part-for those of us that had not already made the switch to monthly pricing beforehand, for reasons previously mentioned, this was THE thing we had been waiting for.
I figured the cost of what the total new system would cost. For most people, we are talking right around $1,000.00 or so to get started (iPad, cash drawer, printers, Square stand, etc.). Not a huge chunk of change, but still a significant investment for a small business. $1,000.00, as many of us know, goes a very long way, and it's not just paid into something without knowing what we are getting out of it. What were we getting? A promise. A promise from Jack Dorsey and Square. A company that was built on the backs (and blood, sweat, and tears) of small business owners and stood by us. A company that seemed to really understand us, and was delivering a product and credit card processing service tailored to our needs, to help us to grow and thrive in the dog-eat-dog business world. We trusted them. We loved them. We told everyone about them.
I, like so many other small business owners, knew this was just what we were looking for. I pre-ordered the system (even though later, I found that I actually could have purchased it at Best Buy earlier than I even received my pre-order), bought all of the components (over a period of a few months-again, this was a significant investment), and made the switch to Square. I signed up for the flat rate fee of $275. I should note that I still have to pay my old credit card processor a $30 a month fee for another year due to being in contract-but even with that fee, I was still going to be saving money...that is, once the system was 'paid off' in a sense. You figure that the money you are saving each month by using the flat-rate plan, pretty much goes into the cost of the system, and after a few months, we would be reaping the benefits of our amazing pricing plan, and seeing where it could take us.
In the meantime, I sung the praises of Square to any small businesses owner that would listen. Customers who owned businesses were so impressed by our new system, and I would do whatever I could to tell them about how much we loved it, and what a difference it had and was going to make for our store. Other businesses would contact us online, and ask what we thought so far of Square and the new system. Every time, I told them nothing but good things about this company. I posted pictures of our shop on the Square Facebook page, showing how great it looked, and tell them how much we loved it. We were in love with Square.
But alas, every good love affair must come to an end. Usually, the facade of one partner in the relationship is exposed for all of the ugliness that it truly is, and then, often without warning, seemingly in the blink of an eye, it's over.That end came on Friday, November 8, when I, along with thousands of Square merchants across the country, received an email from our beloved Square, notifying us that they would be discontinuing their flat-rate monthly pricing plan, and that I should look forward to the new options they were hard at work on for larger companies. Really? Why would we be excited about what options they were working on for larger companies? Aren't mostly all of Square's current customers SMALL businesses? Wait, come to think of it, Square wouldn't even EXIST if it wasn't for the small businesses that used their services-and now, they were turning their backs on us?
Why, Square? What happened to that trust we had? What happened to the company that was designed for the 'little guys'? What happened to the promise of heaven-sent processing fees so that we had a chance? Was it corporate greed? Did you make a mistake? Do you just not love and care about us anymore?
The thing that makes this worse, besides the fact that they seemingly knew all along that this is how things would go, is the precise, underhanded timing of it all. Debut the flat-rate pricing...bring out the shiny new register stand several months later...get people to make the switch and break contracts with credit card processors and switch to Square, wait for people to train and fully implement the new systems in their businesses, and be sure the businesses are fully invested....and then-WHAM-you pull the rug out from underneath them and turn your backs on them. You lured us all in, and slapped us in the face.
When you notified us of this, you did it via an email, which some merchants never even received, on a Friday afternoon of a holiday weekend-knowing full well that many people were gone for the weekend, and that they would likely not even get to the email until some point the following week-if they got to it at all. Perfect timing, don't you think? If this was such a great thing that we should all be excited for, why not announce it loud and proud on your Twitter and Facebook pages? Tell us all about how great it's going to be, and what features you are working on that are designed for larger businesses that aren't even your current customers! Come on! We're all waiting!
But instead, you shrunk back in the corner like a bunch of cowards. You slyly sent out an email to current customers, refused to address Twitter and Facebook noise about the matter. You took down the ability to post on your Facebook page and completely removed posts on Twitter. You failed to respond to messages and emails from your customers, casting us aside like yesterday's trash. I guess you thought we wouldn’t notice, am I right?
It is very clear that Janet is upset and I urge you to really read her entire posting. I am certain she is even more upset at the prospect that she also overpaid for the Square Stand. This may seem to be just a trivial bad grapes customer who had the price go up. But this is far more, at the very least Janet based her current business plan of a promise. That promise was broken by Square, twice. Her postings have been read by 1000s of people around the world and they have deeply impacted Square’s reputation and image.
Why Would A Successful Product Lose 75% Off Of The Selling Price?
It is both logical and empirically verified that if a product was designed for the market correctly, the price point should stay solid. With Tech products discounting takes place on successful products only after a new product replaces the current product’s position or if the product has been reduced in value as competing products enter into the market. Companies make mistakes in pricing, but usually within a 20% range. For example Apple over priced the iPhone 1 and adjusted the price with-in 3 months but gave a $200 rebate check to all of the charter iPhone 1 owners that paid the higher price. This however is quite rare.
In the case of the Square Stand, the price dropped by about 75% in less then 6 months. In the entirety of business product history, never has a successful product lost 75% in retail selling price, in even a year.
I can say with a high degree of certainty that Square lowered the price to try to kickstart sales. I presented a case where it is clear that Square misread the Practical and Pragmatic merchant when they designed the Square Stand. They also eliminated the $275 flat fee pricing program that would attract many retail merchants that would also purchase the Square stand. They clearly did not understand the history of why the selling venues and methods they used have consistently failed 100s of other companies.
Great Amounts Of Time, Talent And Money
Square has very, very talented artists and artisans and they have produced a really great product to behold with Square Stand. The problem is that the product was designed to solve a problem that in reality the Practical and Pragmatic merchant did not have. This was a huge waste of talent, time and money. The product, much like the Square Market will in the end be little more then a huge talent, time and money distraction. Square, nor any startup can afford to be in this position. Even more so when competing in a market that has many legacy companies that have equaled or surpassed Square on a number of levels. The problems at Square comes from ignoring history and empirical praxis and simply not understanding the Practical and Pragmatic merchant.
I said in September, 2013 that Square can do 40 things today to address these issues. To date not one of these things have been addressed. Do not ask me why, I have nothing for you here. I have tried. My offer still stands, I would pay them for the honor to fix this mess.
Why did Square lower the cost of the Square Stand to $99? The short answer is that the product failed at $299.00.