RJP:
Price elasticity theory does say that there is a correlation between price and volume, and that correlation is generally a positive one. However ANYONE that has actually done price elasticity studies on real product in the real world with real customers will tell you that there is never a case where price is the sole purchasing criteria. Further, price/volume function is also rarely linear, regardless of the absolute impact of price on volume.
RJP, thanks for participating in this thread. We need input from people, like you, who are educated professionals in the marketing dynamics that effect our business. I can't think of any industry that is more in need of an educated, rational approach to marketing than this industry. I also fully understand that I cannot fully appreciate the full dynamics of the market forces that will impact us. I can only speak as a lay retailer, but one with some considerable understanding of how our industry works.
RJP:
You don't REALLY think that price is the only thing keeping more people from diving do you? If you do you're deluded by what those of us who have not only taken lots of 101 classes but now actually do marketing for a living call "Self Reference Criteria" - the hugely incorrect belief that "my potential customers are exactly like my current customers with the one exception of ______." Here, you are filling in that blank with price sensitivity.
I never stated (at least I didn't mean to state) that price sensitivity was the only thing keeping participation in scuba diving down. There are many of them. But price is one of them. Look closely at the posts on this very message board. There is an amazing belief among consumers that they are being taken for a ride with regard to price. Most of the people that steadfastly adhere to the "local scuba store at any cost" purchasing mantra will acknowledge that even they are over paying. Dissatisfaction with the distribution of scuba equipment is rampant.
The current "high retail cost, low volume, small market" approach used by many scuba stores results in stagnant sales from year to year, even while the fixed and variable costs of operating a retail store continue to climb out of sight. The variety of products (brands) available to a given consumer who chooses to shop in a local scuba store, is extremely limited. After reading about all of the variety of brands and models of gear on the market in Scuba Diving magazine, or after getting expert advice here on scuba board, the consumer walks into a store, largely stocked with last years merchandise, available in sometimes only one brand name. Consumers are too educated for this. They have done their research and have decided what they want. Unless embued with considerable luck (they actually want what the local store sells), their needs cannot be met from the capabilities of the local scuba store. Far from attracting participation, this aspect alone drives them away.
The internet retail model gives a retailer an opportunity to expand sales through the expansion of their own market (going national or international instead of staying "neighborhood" focused). This generates considerably higher sales. The higher sales enhance their ability to expand their offerings into other brands. Their inventory width and depth expands. As a result, walk in customers are more likely to see, in the store, the same things they read about in the magazines and hear about on scuba board. This results in better opportunities to satisfy the walk-in customer and it results in higher local sales. Lowering the cost threshold for scuba classes (both in terms of absolute dollars and time investment) increases the number of entry level scuba students.....the very participants that are likely to result in the largest dollar volume of local sales. With the current conversion rate ( industry wide) of new students into completely geared scuba divers, it only takes a few additional new divers to create a considerable increase in retail sales. I agree, price is not the only problem we have. But it is a gigantic one.....one that is keeping participation down and that is preventing the local scuba store from offering the variety of goods necessary for success.
RJP:
At your dinner party, you're also just as likely to hear "I would never go diving in a million years - not even if you paid me!"
For the vast majority of people who do NOT dive, the thing that keeps them from diving is NOT price. Rather the thing that keeps them from diving is a lack of desire to dive. Or in many cases a specific desire to NOT dive. Cut the price to ZERO and there will still be people who won't go diving.
I agree completely. Pardon me if I left the wrong impression. I didn't mean to imply that at the right price, EVERYONE would dive. Probably over 80% of the population wouldn't dive if it was FREE! But, the 20% that are left, those that might be potential targets were the cost in time and money to be reduced, would represent a 25 or 30 or 40 fold increase, over current levels of participation. This would be gigantic for the local retailer. However, the fact remains.....the local retailer cannot reduce the price and expand the retail offerings......under the current system. Short of possessing a vast fortune they are willing to throw to the wind, there simply isn't the economic power with the current limited sales.
RJP:
If I had to guess I'd say that price elasticity for scuba diving is ABSOLUTELY BEST CASE about a 10:1 correlation. Every 10% you cut price you get about a 1% increase in participation volume. So cut price 50% and you'll get a 5% increase in participation. Why? Because lowering the price does not remove the actual barrier - a lack of desire to dive in and of itself.
I know little about the technical aspects of price elasticity. I agree, if we are talking about cutting the price and nothing more, it is a bad trade off. But here I am talking about cutting the cost of participation in order to expand into the MUCH LARGER MARKET available to scuba internet sales operations (by the way...in our industry..... it appears that reducing price is an essential element to being competitive in the internet retail scuba business). There are a number of REAL case studies of local stores that have already done this....they are right here, participants on this very message board, and willing to share experiences with any that will listen. I would venture to guess that most have experienced 100%, 500%, 1000%, and several even larger increases in sales volume in just a few years......totally as a result in a change of business model that involves decreasing retail prices (by 15% to 35%) to be more cost competitive and doing the other things (widen inventory offerings, improved business systems, advertising) necessary to operate an internet retail store.
RJP:
The approach you are espousing will surely doom the industry to selling a marginally higher volume of products to a marginally larger pool of customers at a hugely lower profit margin.
God, I hope you are wrong. Because this is where we are going.......kicking and screaming all the way. I also realize that this change in business model, when implemented, will mean fewer stores operating under this model. It is plain and simple....there are too many scuba stores for the current number of participants. I expect contraction (considerable contraction) in the number of retail outlets.
RJP:
I do a agree with you that SCUBA would benefit from a better marketing approach to attract non-divers to this great sport,.............
Amen brother, Amen!
Phil Ellis
