United Consumers Club: The $100 Million Marketing Miracle

In 1971, Jim Gagan found the solution to a problem that millions of consumers around the world face every time they make a major purchase: How to buy what they want without paying the hefty retail markup. Today United Consumers Club’s $100 million sales are America’s best kept secret.

Gagan’s idea was so bold and unusual that many of his friends wondered if he had lost his mind. When Gagan wrote his basic business objectives on a pad of paper he focused on these ideas: (1) Provide merchandise at wholesale prices; (2) Offer this merchandise to club members only; and (3) Build a national sales organization.

By paying a membership fee, club members would enjoy the purchasing power of tens of thousands of consumers and pay no more for the product than a typical retail establishment would pay. To protect the manufacturers, Gagan decided that the club would not advertise and the members would not be allowed to divulge confidential price information.

In the same way that Fred Smith’s original idea for Federal Express earned only a passing grade in college because it “lacked realism,” Gagan’s new marketing idea made people shake their heads. They asked: “How can you convince manufacturers to sell at wholesale if you have no club members and how can you sell club memberships if you have no manufacturers?”

For entrepreneur and super salesman Jim Gagan, problems like these only stimulated his energy to peak performance levels. After 21 years of hard work, Gagan’s idea has matured into a $100 million business that creates a triple win among manufacturers, consumers and United Consumers Club. During a recent United Consumers Club sales and service conference, Gagan described to Personal Selling Power how he turned his dream into reality by transforming tough obstacles into profitable opportunities.

OBSTACLE 1 Finding Manufacturers Willing To Sell

In January 1972, Jim Gagan traveled with an associate, Fred Wittlinger, to the Chicago Furniture Mart to sell the new idea of United Consumers Club to leading manufacturers. At first they had a hard time selling the show organizers on issuing a pass for the show. Finally, Gagan convinced them that many of the exhibitors would lose sales and get upset if they denied access to United Consumers Club. When the manufacturers listened to Gagan’s story, they immediately wanted to know how many members UCC had. When Gagan related the facts, each manufacturer politely, but resolutely, turned him down.

Like Thomas Edison, who refused to believe the naysayers who told him that an incandescent light in a glass tube would never work, Gagan never gave up. He was convinced that his new marketing concept could benefit the manufacturers who refused to believe, as well as future UCC club members who had not yet signed on to the revolutionary, yet practical, concept.

In a flash of inspiration, Gagan came up with a new approach that worked. When they visited the next exhibit, Gagan anticipated the standard objection by saying: “We are a private club and we will never divulge information about our members. We do not rent our membership list, nor do we publicize our membership.” The rebuttal worked like a charm and by the end of the show, Gagan and Wittlinger had signed up 30 furniture manufacturers.

GAGAN’S SELLING SECRETS

“I love selling and I can’t think of anything that is more gratifying. I have used sales as a vehicle to achieve most of my life’s desires. Selling is the world’s single biggest manufacturer of millionaires. Over the years I have learned that a sales professional personifies most of the things that I admire in successful people: discipline, dedication, and commitment. The only thing that ever set me apart was that I had a different idea. To achieve success, you don’t have to come up with incredibly brilliant ideas repeatedly. It takes only one single good idea; then you must work at it and continually refine it. With the proper effort, combined with perseverance, you can make a fortune.

“I don’t think that you can do anything well without being focused on it. There are some people who can play the piano while they carry on a conversation, but many people have trouble just carrying on a conversation.

“I am not multi-talented, and when I am selling, I want to be totally focused on it. To increase that focus, I’ve got to believe in what I sell. I have to make a commitment that I care about my customer, appreciate the customer’s unique situation and care about what I am offering. If I can convince you that I am honestly concerned about you, and if I am able to find your true needs, and if I can offer a better way to fill it, then I will be successful. If I focus outside these boundaries, I have very few chances of winning.”

OBSTACLE 2 Selecting Quality Merchandise To Sell

Excellence guru Tom Peters once talked to a very successful German toy manufacturer about the secrets of lasting sales success. The company president told Peters, “A product is not sold when the sale is closed. It isn’t sold when the money has been collected from the customer. A product is really sold when customers enjoy the benefits they hoped to get from the product or service.”

In order to create lasting sales success, Gagan carefully selected a line of products that would provide UCC customers with the highest level of quality, the greatest level of satisfaction and the biggest savings. To quickly offset the initial club membership fee, Gagan decided to concentrate first on selling furniture. He reasoned that this is something that everybody needs a big ticket item that can cost several thousand dollars and the retail markup savings could amount to multiples of the UCC membership fee.

The second line of products included carpeting and drapery. Later Gagan added home appliances, outdoor garden supplies and other household products. Gagan and his associates have formed effective partnerships with all UCC suppliers and every year the leading suppliers receive awards at UCC’s annual sales and service conference.



GAGAN ON ADVERSITY

“Many people don’t realize that adversities help shape our lives in a wonderful way. I did not grow up in the rich part of Chicago. When my father lost his job, we were on welfare. I remember when Christmas came, several families gave us baskets with food. To this day I don’t like having food baskets around Christmas time in our house.

“I didn’t like being poor. I didn’t like having my nose stuck up against the glass window of the candy shop and watching everybody else get goodies. I didn’t know what I could do and often cried about it. I was even more acutely aware of that when I started high school. Everybody else in the freshman class had a high school sweater with a little school pin. I didn’t. To me, acceptance was having a high school sweater and a pin. I had other problems at that time in my life and I never completed high school, yet I have been in school all my life. The school of life taught me that the greatest growth always comes from disappointments.

“I think that my ambition never came from inspiration or perspiration, but desperation. No motivator in the world speaks more eloquently than this inner voice, the silent cry of desperation.

“Over the years I’ve come to recognize my one strength in all my weaknesses. You have probably noticed that I am not 6 feet 6 inches tall. I am 5 feet 7 inches. I can’t afford to lose an inch, because I’ve almost got a Napoleon complex. I think that my insecurities as a young man probably still come out to this day. I guess insecurity breeds emotional intensity. That’s why I often put everything on the line. I feel I have nothing to lose except my life.”

OBSTACLE 3 Finding Salespeople Willing To Sell

Gagan’s plan was first to line up some suppliers and then get salespeople to sell memberships. The attorney who incorporated the new company, United Consumer’s Club (UCC), introduced Gagan to Fred Wittlinger, a young and dynamic IBM salesman.

Fred had always wanted to start a business of his own and immediately recognized Gagan’s idea as a business opportunity that would present itself but once in a lifetime. Gagan’s game plan: set up UCC clubs all over the country. Without the capital to finance the sales organization, he decided to establish franchises. Fred Wittlinger shared the idea with his friend Jack Allen, a lawyer who served as a city judge, and both agreed to purchase a franchise from Gagan for $12,500. Gagan received a $5,000 down payment and during the first year Fred and Jack bought a small building and operated a UCC showroom during the evening hours and on Saturdays. After the first year their sales volume had grown to the point where they could easily afford to quit their jobs.

Their franchise became a model of success for many new UCC clubs across the nation. Fred Wittlinger and Jack Allen later joined Gagan’s head office. Today, Fred Wittlinger is chairman of United Consumers Club and Jack Allen serves as president of the company.

GAGAN’S PHILOSOPHIES: TESTED IN THE FIRES OF FAILURE

“Prior to starting UCC, I had lost what I considered my fortune in a merger of my company with a public corporation in California. Only 72 hours after the merger was completed, the company was removed from the Stock Exchange and the principals went to jail. They had already merged my assets into theirs and I ended up with worthless stock. This brought me down to almost zero.

“At the same time, I had a debilitating illness which required surgery. These disappointing events made me realize that all my possessions were far less important than the people I loved my family. At that point I realized I had not lost anything and that acquiring things in life was not satisfying and fulfilling.

“So I began to rethink a lot of issues in my life. I began to understand that whatever you win in life, you don’t win forever. You have to go out and earn back your fortunes every single day. I also kept reading the Bible every day. I wanted to build that business and put it on a foundation of total honesty and integrity. I wanted to create a value that lasted and endured. I was 41 and I thought of my father who had died at 57. If I was going to do something meaningful with my life, it had to be now.

“During that time I had the idea of starting United Consumers Club. That’s how I threw myself into this new business and I think that’s the reason I had any success at all.”

OBSTACLE 4 Selling Consumers On The Idea Of Saving Money

Even though Gagan’s idea of saving money on every purchase appealed to many people, it turned out to be a difficult selling proposition. Nobody was familiar with the notion of becoming a member of a club to which dues were paid for the right to buy merchandise. People asked, “Why should I pay you money for a plastic card?” or “You mean that I should pay dues for the privilege of buying from you?” Gagan quickly discovered that it is not good enough to build a better mousetrap, it is still necessary to sell the idea and persuade the consumer to pay money for it.

Gagan was handicapped by not being able to advertise. Local retailers would present strong opposition and soon all suppliers might stop selling to the newly formed company. As the founder of the company, he had no mentor to guide his approach and repeatedly he would head down one avenue only to find it was a dead-end street.

UCC’s sales organization spent a large amount of time educating prospects about wholesaling and retailing in order to lead into the benefits of becoming a member. Finally, Gagan came up with a suitable metaphor that convinced people that the UCC concept was an idea that really had existed for a long time. Gagan trained salespeople to say, “Suppose that you had many uncles who owned dozens of businesses. One was in the furniture business, another in home appliances, another in sporting goods, and others were in many more businesses. Imagine that each one of these uncles agreed to sell you practically anything you wanted to buy at his cost.”

Gagan and his associates spent countless hours teaching salespeople and managers how to operate new clubs. From the very beginning, Gagan put great emphasis on professionalism within UCC.



GAGAN: WHY PROFESSIONAL SALESPEOPLE WIN

“A professional salesperson has made a commitment to the business of selling on a very personal level. A professional is more consistent, more committed and more dedicated than an amateur. When I go on a sales call, I go with the clear idea that I can help you. The only question is how do I get the message across to you? My goal is that the results will benefit both of us. If I can help you fill your need, then I should be rewarded. Sales professionals realize that in giving there is getting. Their number one priority is customer satisfaction.

“Good salespeople realize that it doesn’t pay to carry any excess baggage with them on sales calls. They learn to be alert and sensitive to the moods of their customer. They learn how to create the right dialogue that will direct the focus of the conversation to where it should be: the needs of the customer.

“The professional salesperson operates with the philosophy that selling is not something you do to somebody, but it’s something you do for somebody.

“To create a professional sales organization, we set very high standards at the top and they trickle down automatically. People pick up their habits from you. When you start your business, you have to be the first one in the morning to turn on the lights and the last one to leave. If you want to reach the top, you have to set top standards.”

OBSTACLE 5 Running An Efficient Sales Organization

During the early years, overly enthusiastic members of UCC would challenge Gagan’s patience with unexpected departures from his business guidelines.

For example, a sewing machine that had been advertised in Reader’s Digest for $495 and sold in retail stores for between $200 and $300 had a wholesale price of only $90. One of the franchise owners, who wanted to avoid selling memberships through home presentations, which was the common practice during the early years of UCC, put the sewing machine in his front window, with a big sign stating the $495 price tag. Next to it an even bigger sign said that it was marked down to $90. When people came in to buy the machine, he said, “Oh, I am sorry, but only members can buy for that price.” When Gagan learned of this bait-and- switch selling practice he immediately ordered the franchise owner to remove the sign and delivered a stern lecture on the legal responsibilities of a franchise owner.

Other franchise dealers were more creative and productive. One dealer pioneered the idea of inviting a group of prospects to a tour of the UCC showroom. Soon every club used the tour sales approach and closing ratios increased dramatically.

Today, a public relations director (a UCC salesperson) calls qualified prospects who have received UCC literature and invites the prospects (with their spouses) to come as guests to have a tour of the club. The club manager makes the presentation and the guests get a chance to browse through the extensive library of manufacturers’ catalogs.

People have fun going through these catalogs and their jaws often drop when they discover the big differences between the wholesale prices and the retail prices. The open catalogs are the best opportunity for UCC salespeople to close the sale.

GAGAN’S TECHNIQUES FOR HANDLING OBJECTIONS

“When I first created this business, I heard a million excuses why people would not want to join right away. They would tell me, `I have to talk this over with my spouse.’ Then we got smart and asked them to come together. Then they told us `We have to think this over.’ I learned quickly that the biggest challenge in selling was to help people make a decision. People always want guarantees in life, yet they hate to make commitments.

“One way to help customers decide is to tell them about the consequences of not making a decision. Another way to facilitate the decision making process is to use the take-away close. (Editor’s Note: see side box on page 56.) When the customer said `No,’ I used the “help-me” technique. I told my prospect, `I appreciate what you are saying, but could you help me with something? I feel that I have done something wrong today, and I am not sure what it is. I know that I have what you need, yet you are saying `No’ and I appreciate your being candid with me. I am not trying to sell you now, I am trying to improve myself. Please tell me honestly what I did wrong, because I’d like to share this story with a lot more people. I don’t want to make the same mistake with them that I made with you. Can you tell me what I did wrong?’ If you can convince people that you are no longer interested in making the sale, then you can learn a great deal from these experiences. My point is that you never lose when you don’t make a sale as long as you can learn from the experience.”

OBSTACLE 6 Cutting The Excess Brought On By Success

Many newly appointed franchise dealers had a hard time getting used to the phenomenon of sudden wealth. When an individual’s earnings rise quickly from $25,000 a year to $200,000, it can often be more devastating than a big failure.

Most people know how to tighten their belts when they fall upon hard times, but few people have the inner reserves necessary to adjust to rapidly accelerating prosperity. Intoxicated by the sweet taste of affluence, they begin to indulge in expensive habits that may include fancy cars, fast powerboats and memberships in country clubs. Soon these entrepreneurs are more fascinated with pursuing their new lifestyles than in doing what they did to earn the money that paid for their new toys.

In one instance, a UCC franchisee moved into a very expensive office, installed three private telephone lines, hired a private secretary and became less interested in selling new memberships. He ignored the fact that his overhead was eating his profits. Soon it turned out that he was also spending money that did not rightfully belong to him. When the facts came out, the individual’s franchise contract was terminated.

GAGAN ON LEADING OTHER PEOPLE TO SUCCESS

“Many entrepreneurs allow their emotions to run the business and in the process they allow the people who are close to them to break the rules that have been established for the entire organization. Over the years I realized it is OK to love your people, but you have to love them enough to enforce your guidelines for doing business. You can’t run a national organization without discipline.

“For example, if salespeople’s production becomes so marginal that they are doing a disservice to themselves, we have to take action. How? I tell them that the most deadly disease that I have found in my lifetime is a disease that rots from within. It is called `potential.’

“Often sales managers become too soft on certain people. They say, `Let’s keep this guy because he has great potential.’ They give him more time and more money. Giving the poor performer more time and money is like giving an alcoholic a bottle of whiskey. What is the cure? It’s tough love. Tell the poor performer that he has this much time to go out and get the job done. It’s fish or cut bait. Set a deadline. Be fair and honest. Everybody will feel better and the guessing game will stop. Remember that everybody has potential. It’s up to the salesperson to turn that potential into reality on the job.

“The key to leading people to success lies in addressing performance problems in the early stages. I never wait for a problem to grow. If I see a problem I’ll go out of my way to meet it. I’d rather meet a problem on my own terms than be surprised by it.

“To deny the existence of problems is foolish. Not acting on problems is insane. It’s OK to make mistakes in dealing with people, as long as you learn from them. If you don’t learn from your mistakes, you get bitter, not better.”