Taking StockGrowth Strategies — By Jim Lane on November 21, 2012 at 8:00 am
It’s November. With about a month-and-a-half left of 2012, let’s take stock of the year.
Many of my clients, but by no means all, are saying it was better than expected. It was probably a year of changes and shifts for you. Maybe you’re still making some last minute adjustments to prepare for a different tax structure for next year.
While many of those changes are still either unknown or wet cement, there are things in your own business that you can review and assess now to set direction for you and your team over the next year.
I suggest your focus be threefold:
1. Provide (enough) value for your customers.
2. Keep enough of that value for your company.
3. Use the value retained to do more of numbers 1 and 2.
You should be using customer satisfaction research to measure customers’ satisfaction with the value of your goods and services. The minute someone asks you about the price you paid for a meal or the latest flat screen, don’t you immediately think, at some level, that it could have been better?
So it is with business-to-business pricing. A perfect product can always be improved, in the customer’s eyes, by reducing the price. So when you ask, they will always indicate that they are less happy with the trade than they actually are in the hope you will reduce the price.
Fortunately, this is predictable. Based on more than one million interviews, there is an expected range for the unbiased valuation of the goods and services you provide your customers. So your first challenge is to listen to your customers regarding the value they receive.
Even without research, you can simply ask yourself, “Do they like our products and services enough that they are buying more? And if we charged more, can we reasonably believe they would stay?”
Your second challenge is about what you charge. Focus on the difference between the customer’s perception and your perception.
In the early 1980s, I worked for a small high-tech company in Columbus that made the Comboard, a data communication device. This device was capable of operating at high speed− 56K bps. OK, bear with me; it was high speed at the time.
However, since many companies could only afford 9600 bps or perhaps 19.2K bps data lines, they did not want to pay what other companies were willing to pay for a fast Comboard. To meet the varying customer needs, the Comboard was sold in three different models for three difference prices, the fastest model being the most expensive.
Each customer purchased a Comboard for the type of data line they could afford. These prices ensured that the company received the full value of the technology it had developed by offering customers with advanced needs the ability to buy a faster device while allowing customers with less demanding needs to connect their systems at a price they could afford.
The interesting thing about this is that there were no differences in the Comboard models between the fastest and slowest; the hardware was all the same. The difference was in the software, which checked the model number and instituted a sort of speed governor on the slower boards. To the customer, however, they paid for what they got.
Are all your customers paying you enough for what they get? Can you apply differential pricing? As you really looking at the situation from their perspective?
The third challenge is determining whether you’re putting the difference to work. If your customers are relatively happy and you are making a profit, are you investing that profit in activities that will grow your earnings?
The difference between a profitable short-term frontrunner and a company that can predictably continue to be a frontrunner is reinvestment of profits into innovations that will provide future earning power.
New and innovative products and services hit the market at a price premium. Over time, the premium disappears as others enter the market and the monopoly the innovator had is dissipated by “me too” companies and products. Therefore, companies that are often innovating and introducing new products and services frequently have new, profitable products and services hitting the market to buoy their profitability and boost the bottom line.
Of course, as you are introducing new products and services, don’t forget to revisit challenges 1 and 2 above to ensure that the business stays strong.
So have a happy Thanksgiving, and take some time during this busy season to challenge yourself and your business. Are you doing enough for your customers? Are you able to get enough in trade to be profitable? And do you know what your next new profitable product or service will be?
Jim Lane is the Founder and Director of GBQ Redbank Advisors, the profitable growth division of GBQ Partners LLC. With more than 30 years of experience in successful consulting project delivery, Jim has helped owners and investors drive improvements in every major area of business. By day, Jim helps clients grow and improve profitability, building revenue and improving margins on that revenue. By night, he is a husband, father, adventurer, blogger, ProMusica and Columbus Chamber Small Business Council board member. Click here to learn more about Jim, or contact him directly at 614-947-5257 or email@example.com.
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