Tag Archives: competitive advantage

Get More Sales on Purpose

To support your team and finance operations, an executive team must be able to generate large volumes of revenue throughout the year. This revenue generation takes place through a combination of marketing, sales, and service. The customer has to

  • know that a product is available (marketing)
  • be convinced to buy that product (sales), and
  • be pleased with the purchase (service).

We have been discussing how research leads to better product positioning, and that is certainly an important part of marketing. We will zero in on the other components of revenue generation in this edition.

Many companies assume that all they have to do is make a product or offer a service and everything else will fall into place. Nothing could be farther from the truth! If no one knows who your company is, what the offering is, and how/why to buy it, you will either have inventory (goods) or idle workers (services). Similarly, if buyers know your business has something to offer but have no reason to purchase your offering over another’s, you will not make sales critical to business survival and growth. Providing a quality product in a timely manner an correcting defects quickly translates into repeat sales in any industry. 

Sales

Sales depend on three critical elements:

  1. the quality of leads
  2. the quality of the sales team
  3. buyer perceptions

The three need to converge into transactions built on relationships. Buyers are like pupils in an educational system–the sales team and the marketing team are the teachers. The marketing team must supply enough information so that the target buying market can learn about your offering. What is supplied to the sales team is information to reinforce the message: these products or services meet a distinct need in the mind of the buyer. As feedback is collected from target buyers, those conversations become a means to qualify leads that are much easier to convert.

Marketing

Inform the general buying public both directly (in face to face situations) and indirectly (in various forms of media, including social). Failure to reach either audience results in insufficient leads for the sales team–both in quality and in quantity. If your marketing team is not accountable for lead generation, it should be. Those who do not perform the lead generation function well should be replaced with others who are tuned into what makes your business continue to exist: revenues. The marketers can improve effectiveness by paying attention to statistics–whether it is website inquiries, newsletter subscribers, store visitors, or something comparable. There has to be several metrics in your setting that you can identify that make the conversations very professional an on point all the time.

Selling

Think through things like your incentive programs for your sales team, but don’t neglect to think through how to equip the individuals for success with well produced collateral, clear messaging and selling tactics, and sufficient training to overcome potential objectives smoothly and respectfully. Appreciation notes to customers are an art that has lost ground, but that demonstrate a personal touch that often leads to new customers. In your training sessions, emphasize product or service features, how and why they are important, how you have positioned your offering versus the competition, what your perceived competitive advantage is, what common objectives are, and how you want prospects to be treated when in a consultative sales conversation.

Buyers

Buyers also need to be instructed about what they encounter. Make an effort through both marketing and selling activities to run through the competitive advantage positioning messages that you have developed. Be consistent. Be passionate. Be sensitive. Emphasizing your research findings as to what potential buyers want and how you have tailored your offering will go a long ways to build identification with your company and its product or service. Think about where the buyers hang out and “meet” them with a compelling invitation.

Service will be tackled in the next post!

Create Competitive Advantage

Yesterday, we examined the role of research in growing small businesses. Today, let’s see how decisions about product are an outgrowth of good market knowledge. When you gain a better understanding of buyer preferences and the competitive offerings of other providers, you then have the right kind of information to make better decisions. 

In the context of home building, for instance, design, location and pricing considerations determine both the volume of homes that can be sold, as well as the margins at which they can be sold. Design attributes must be fairly consistent with the market–even more so in a mature industry such as construction. Minor details can reflect your brand or personal touch, but don’t overdo it! The location of home sites is very important to timely sales; if homes are attractive but in the wrong area, they will take longer to sell. Finally, pricing homes to reflect profitable sales is a science–often requiring that the building company learn to gauge what the buyer will pay through past experience, a trial and error process to be sure.

Design

Design features will vary somewhat from one part of the country to another, and may even vary greatly from one neighborhood to another. The important consideration is to maintain a theme throughout the home or series of homes. This is not unique to construction–branding is important to most every industry and consistent look and feel builds equity in your product or service offering because it represents a promise that is made and kept, thereby demonstrating credibility. Whether you are a builder who hires an interior designer or a public accountant with a secretary who types up a proposal, make sure that those charged with creativity do not proceed with their own view of what is needed rather than seeking to uphold your brand. Contemporary styled fixtures in one bathroom can throw off the traditional design scheme of the rest of the home, which may feature French provincial lighting fixtures everywhere else in the same house. In like manner, a different set of colors in every PowerPoint presentation, none of which matches your logo palette, dilutes your brand.

On the other hand, it is okay to evolve your brand image through minor and gradual design changes over time. Observing competitors’ design patterns can often provide ideas for introducing features (be they plan layout or choice of  tub styles) that are attractive to the buying public but have been previously unavailable. The decision to make such a move must be grounded in research–that’s the main point.

Location

Once you make an effort to create winning designs that the public loves, your next consideration should be location. In home building, this would be neighborhoods in school districts that are popular. In a business like high school athletic team paraphernalia, the equivalent would be going to the stadiums or booster clubs where fans congregate in the largest numbers with the most discretionary income. Using research results, you can hone in on where you want your product displayed, sold, etc. Demographic data must support your offering–make sure there are enough qualified buyers prior to making a commitment to a distribution channel that stakes out your territory. Try to maintain a mix that reaches different target buyers with different offerings at prices and features that they have said they want–available where they want. 

Pricing

Trying to undercut the market may work in the short-term but is a strategy that only works long-term for well-financed organizations with superior control over input prices, labor costs, and real estate (think of Wal-Mart as an exceptional competitor, not a normal one.) Make sure your prices cover all of your direct and indirect costs, plus an additional margin for profits. It is often better to sell fewer units at higher margins than greater units at lower ones. In general, if your pricing is within 10 percent of the market, you will be given a fair chance to compete. It is best to compete on factors other than price, but you have to be within a reasonable band of tolerance to get the opportunity. Again, to know what the price sensitivity via research data is a competitive advantage.

 

 

Growth Through Market Knowledge

Market positioning is won through a combination of market insights, product features, and delivery of “the promise.” Superior use of these three components makes for a winning strategy to outperform the competition. Market insights are critical to determining what to offer, in what way, and how to communicate one’s message effectively. There are two types of insights that should be studied in unison to drive your internal strategies an external tactics–competitor and buyer. 

Researching the Competition

Understanding where your product fits in the market is just good business sense. If you never take the time to study what others are doing, you will likely not be on target. When I was taking a strategy course in my MBA studies, we were treated to a semester long simulator assignment. The simulator was comprised of five teams of students who each organized to make decisions about their unique computer chip company. We were given freedom to make decisions about what size, durability, and other features different models in our product line would have. We also elected financing options, manufacturing capacities and human resources/training choices. Finally, we were able to allocate dollars between marketing and sales activities and each team received market data that showed what buyers were purchasing, along with trend reports showing products likely to be in demand in the future. Observing what changes others were making, and relatively what they were spending for parts of their businesses, then tracking both sales and profitability performance and plotting it against market share and stock price was a very instructional exercise.

What was most valuable for us was to see a glimpse into the decisions that our competitors were making. Much like a game of chess or a soccer match, the tactical maneuvers employed by others were not just to be noticed, but anticipated, planed for, and counter actions developed. Additionally, we would have strategy sessions to think through whether to do something unexpected, stay the course, expand/shrink products based on resource needs and profitability, plus make trade-offs between automation and personnel. 

In your own business environment, research data is compiled form three main sources:

  1. Primary: first-hand interaction with the market and reporting.
  2. Secondary: compiled reference materials outlining primary research others have done.
  3. Tertiary: facts and figures derived from someone else’s summary research statistics.

Surveys, focus groups, interviews, literature searches, online services, and personal observation are all legitimate ways to collect the above data, dependent on your desired level of confidence in the decisions you must make. Industry associations, through conferences and publications, provide a fair amount of secondary and tertiary research information about competitors and buyers.

Buyer Research

Though I have guided many companies in market research projects over the years, these days I try to guide clients to resources when someone is more dedicated to a discipline than I. Jay Nolfo, who writes the blog Pensare, and is a good friend of mine is one such  resource. (By the way, his company uses a rhino rather than a hippo, but at least we’re similar!) Here’s what he had to say in a blog post earlier this year:

  • Introduction of New Product or Service: Any new business, or introduction of a new product or service that the company is thinking of offering, needs market research.  By developing a good understanding of the product by developing a good business plan based on market research helps provide a solid foundation for your offering.
  • Customer Development: Next to understanding the product or service you are offering, understanding the customer who will be buying it is paramount.  In a consumer based business, understanding the demographics and psychographics of a target market can be determined by looking at previous purchase behavior or through a needs analysis.  In a business which sells to other businesses, understanding their needs can be a little more difficult.  However, this can be understood by doing surveys or focus groups.
  • Customer Satisfaction: After your customers have purchased your product or service, following up with them to understand their satisfaction of that purchase is key.  By understanding why they liked or disliked your offering and the reasons why the customer purchased your product or service over the competition can provide a basis of what could be your competitive advantage.

Take the matter to heart…consider how to improve your knowledge of what competitors are doing and what buyers want. You will then, as we did in our MBA class, be better prepared to develop winning business ideas!

 

Keeping Costs Under Control

If expenses are simply allowed to fluctuate, with no way of monitoring where they will be, optimal profitability will be hard to come by. Cut out as much fat as possible and keep the company lean. Clearly, certain expenditures are necessary and unavoidable. There are ways, however, to limit their influence on company profitability. For example, taking advantage  of any offered cost savings an creating efficient procedures to save time and project financing overruns will cut costs significantly. A purchasing requirements program is a start for reducing many hard costs. Most soft costs, however, can be decreased through effective scheduling.

An effective requirements program includes the following steps:

  • using purchase orders 
  • inspecting all deliveries
  • taking advantage of discount incentives
  • implementing invoice verification procedures
  • scheduling efficiently

Using Purchase Orders

Purchase orders are seen as a relic of old business practices by some. Others view them as an indispensable management tool. Somewhere in between the extremes there is a fit for every organization. Their usefulness is in getting reliable quotes upon which invoices can be checked later.

Inspecting all Deliveries

Inspecting all deliveries is essential to make sure orders are shipped according to the quantities and quality specifications provided on the purchase orders. Many managers complain that they do not have the time to physically inspect every item delivered to a work place. Inasmuch as doing so would require a huge time commitment, they are right.  However, for containing cost overruns, these same managers could not be more wrong in their assumptions.  Inspecting samples  from every delivery when delivered and figuring quantities by up close, visual inspection are necessary steps to ensure that suppliers are responding to the company’s needs.

Taking Advantage of Discounted Materials Prices

When suppliers make discounts available on purchases, your team should try to make the most of them. In addition, verify all invoices against delivery inspection reports, checking  the invoiced amount against the total amount delivered, and unit prices against the purchase order. This procedure will help ensure that a supplier’s negligence is not costing the company money.

Scheduling Efficiently

Time constraints are of utmost importance in eliminating inventory carrying costs–whether your business produces goods or services. If a product line or project is slow to be completed, many extra costs begin to accumulate. Alternative uses of profit margins are foregone. Had your team been able to finish sooner and collect within a finance cycle closer to the one in which work began, there would have been profit margin to discuss how to allocate. With margins, choices exist that don’t otherwise–suppliers can be kept happy and bankers and investors can too! If yours is a business that uses work in process assets, insuring those assets is an ongoing cost for the company. Theft and obsolescence of design and features due to carrying raw inputs too long further eat away at margins. The cost to repair items damaged over time also rings up expenses. All of these combine to make inventory (due to delayed delivery) costly.

Proper scheduling is not limited to getting one work team to immediately follow another onto the job. By ordering raw inputs in bulk through purchase orders, trips to supply houses are reduced, resulting in cost savings through lower fuel costs and less time away from actual work. As these employees spend more time on the job and less time running around town picking up materials, their projects are completed faster. Getting teams to succeed one another promptly with slight overlaps can also tighten production schedules and help reduce costs.

By tying your project financing to interest rates in a market where rates are rising, you and your team can make the most of prompt completion of projects. If you operate efficiently, you can move before rates rise consistently. Finally, scheduling vacations with as little overlap as possible will help with your production efficiency, and thereby improve margins.

 

What to Do When Financing Fails

Having been in business in the same town for almost twenty years, a Midwest company was accustomed to expansion and going after market opportunities. The owner had kept her business competitive by continuously improving product offerings and learning from the input of both customers and target customers. With a loyal, experienced operations team, she felt that she had the recipe for long-term success. However, when the recession of 2008 hit, she was unable to obtain a renewal of her line of credit by which she had historically been able to normalize cash flows.

The case study above illustrates a business principle–that we must always as business owners prepare for the unexpected and have the flexibility to adapt to changing market conditions. If we seem surprised when an action that we did not anticipate occurs, then it follows that either: 1.) our planning is incomplete, 2.) our systems and processes are too unresponsive to key indicators, or 3.) we have not established a feedback loop that provides us as small business executives with vital, timely information. Regardless the reason, it is poor management to not have a contingency strategy or tactic in mind for situations that may arise.

What should an executive team do when financing from lenders or investors falls through? First, the reason  for such a collapse in financing is normally attributable to one of the following:

  1. Partners or new regulations restricted the financing source from making (continuing) the deal.
  2. A more attractive alternative was available to the lender/investor from another source at the same time.
  3. The company failed to read the market conditions and adjust the financing request accordingly.

To stabilize the business in response to one of these situations, the owner and top finance executive should always seek new sources of funds–even if today’s source has been very reliable. If you have built relationships with other providers of financing, you may be able to reduce the risk any one player undertakes by spreading it among several. Alternately, you may find that some institutions have differing standards for new clients than for existing ones and may want the entire financing facility.  In either scenario, it is incumbent upon you and your team to perform due diligence. Find out how the bank (or alternate source) has shown commitment to other borrowers. In many cases, your accountant or attorney may be able to recommend new sources for you. Others in your trade group may have similar referrals to provide.

Being able to lay out both your best case scenario and a worst case one will show a new source your planning strengths and help to establish credibility. Ask questions about how credit facilities could be expanded as you hit milestones. Offer your plan for reporting your financial and operating performance. Discuss what the loan covenants may look like and have frank conversations about how your team will accommodate the request to demonstrate creditworthiness.

To avoid a recurring financing problem, owners should try to over-finance their operating needs whenever possible. It is extremely valuable to have credit available that is not being used–this cannot be overstated! Given that this funding source may dry up at any point, you never want to have to go back to the lender or investor because you failed to anticipate growth. 

The other recommendation is that you look at different types of credit. If you traditionally have only taken out installment loans, look for lines of credit–and vice versa. There are additional types of financing that may also be advantageous to consider–accounts receivable, factoring, purchase order financing, contract or project financing, asset based lending, leasing, etc. By using more than one type of funds from more than one source, you are diversifying your vulnerability to a credit restriction that could be deleterious to your business success.