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.

 

 

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Risk Assessment for Small Businesses

When someone talks about risk management in a business context, usually the risk is of a financial nature. Yet, other kinds of business risk that cannot be taken care of with an insurance policy or other financial tool  are just as important for you to consider and make plans concerning.

New product roll-outs  mergers and acquisitions, and similar considerations all carry an inherent element of risk. If your company does not have cash reserves or strong current year cash flows, it is very hard to make up for a mistake in terms of something attempted that does not work out. The smaller the organization  the more a setback impacts your ability to recover. If the executive team understands this important principle, then you are well on your way to avoiding unnecessary risks that will kill your long term prospects for success and growth. Three areas of risk are significant:

Location risks:

Location risks include choice of where to offer your products and services, where your staff is located, and where your customers are located. It is extremely unwise to not think through these various parameters and how they impact your strategy and planning. Whether you are thinking of location in terms of geography or online versus in person, you have to wrestle this subject to the ground, develop a keen internal understanding within your team as to how to optimize your choices with regards to locations, and adhere steadfastly to your plan. Any forays into new locations–whether in terms of sales presence, staff, or customer preferences–should be scrutinized with the intent to preserve or improve efficiency in meeting customer needs. In addition to these considerations of location, there is also a need to think about your suppliers, strategic allies, and key advisers. You want to be as close as you can to key stakeholders who can drive your business success.

Locations that you choose should be that delicate balance between affordability and high traffic. being able, for instance, to  get banking and other errands done quickly will make your organization more efficient and, hopefully, reduce costs while improving customer service. Keeping in mind that you can’t spend too much money for a prime location, make sure that you have adequately researched alternatives before settling into a choice.

Design risks:

Market research should support all design decisions. Whether your company makes software, consumer goods, runs a retail store, or delivers a service, the design of your offering to your target market should reflect tat you have done your homework. Your offering should have strong appeal to each target buyer persona, with features and benefits that are tailored to identified preferences. However, designs can become  stale in a short amount of time, so it is advisable to create and revise based on prospect needs as well as initial customers. To only look to keep providing the same thing to an established clientele shuts your organization off from new opportunities and the need to replace customers over time with better ones. Once you have a series of strongly designed offerings, look to promote and sell as much of it as you can as quickly as possible because you will “iron out the wrinkles” and become proficient and prolific in delivery of something in which your fixed cost does not increase and you can exact better margins.

Sales risks:

Sales risks include the reputation of the sales force, distributors, resellers, etc, pricing competitiveness, and product price bracketing. Those who are charged with selling your offering are selected by prior performance in similar situations. Familiarity with your pricing, offerings, and market is a baseline–you want someone who will give you continuous feedback to keep improving what you offer. You need to educate some sales people on both the importance of this feedback  and what you require (and when).

Pricing should be within the boundaries  the market will bear. Not wanting to forego sales for higher prices, or profits for lower prices, it is important to devote a goodly amount of time to setting prices that will attract buyers from each target buyer category at profitable levels.

Being able to address each of these risks is vital if you are going to create and maintain a thriving business. Make sure that you develop plans for risk management in each of these categories, as well as the financial risk that most every business faces.