A New Way of Doing Business is Required
The environment has changed and business needs to change in order to survive. Correct?
It is true that the business environment has never been as competitive and some changes could be required however, not all changes need to be totally radical or brand new initiatives.
To a large degree it’s about the basics, with one key strategy being to increase your focus on customers.
Do you know what your customers are thinking? Do you have a method of getting feedback from them? It’s not necessarily enough to be having regular conversations with your customers, you need to have meaningful conversations that uncover how they are really feeling. Specifically understanding what their wants and needs are; is your product or service still relevant for them, is it priced at a point that they are getting value?
I’m not suggesting that it should be all about price. Simple price discounting is not usually a good tactic. If a business operates at a gross margin of 30% and reduces prices by 5%, sales must increase by 20% to maintain gross profit. This is a massive increase in sales to justify what may seem like a relatively small price reduction. If the starting gross margin is less, the required increase in sales is larger. So my advice would be to think carefully about a pure price driven strategy.
If your customers are seeking more value, can you add something to your product or service to provide additional value? As an example, car manufacturers will generally resist discounting at all costs because reductions in the price of new vehicles leads to a reduction in value of used cars. To avoid discounting, car manufacturers continue to innovate and provide a greater level of equipment for a similar price. Other tactics that car manufacturers use are to offer better terms (low interest rates/ deferred payments/ guaranteed buy-backs). What can you do in your business?
But my customers are focussing solely on price………….
There are always a percentage of customers that will be predominantly price driven. At the same time, price cannot be the sole determinant unless there are virtually no restrictions to supply. If your product is plentiful and is largely homogenous, price will be the major differentiator. If your product has an element of scarcity, or is differentiated in some way, a price differential should exist.
If your current pricing is uncompetitive, what can you do to reduce your costs? Are you working with your suppliers, are you innovating and investing in technology to reduce costs? Regardless of whether you are in a highly competitive price environment or not, innovation is important because you can be sure that competition will quickly follow if you are lucky enough to be in a highly profitable industry.
The last points that I want to make relate to having a strong niche and maintaining a sharp focus on your niche. I see a number of situations where businesses try to be ‘all things to all people’ and end up getting distracted by ‘other opportunities’. Or perhaps worse, not being particularly strong at anything. The advantage of having a strong niche is that it allows you to become the ‘expert in your field’, or a ‘category leader’. Even better, you may be able to develop a brand that is synonymous with your product. Think of Band-Aids, which are simply a brand of sticking plaster.
Finally, please make sure that everyone within your company can describe exactly what you do and who you do it for. This may sound like a really strange thing to say, but I’m constantly amazed that I meet people that cannot really describe exactly what their service or product actually does, and who uses it. I recently went to a business expo and spoke to a number of the exhibitors. I deliberately wanted to meet them and to learn about their offering so that I can improve my knowledge of new innovations. Most were very good at describing their product or service and could identify their 'ideal client'. I learned a lot from this group. In other cases, I spent a good ten minutes or so talking to the exhibitor and walked away with a general overview of what they did, but didn’t get a sense for their specific offering.
The difference? The first group of companies were able to tell me stories about their product or service and described the difference that they make to their customers. The second group gave me technical talk, jargon and a typical response was that they customised their service to suit anyone that needed them.
Which approach are you using?