Staying profitable in a recession

At the start of what looks likely to be the most difficult trading year for some time, we at ‘How to Solutions’ have looked at all the functional elements of our business to make sure primarily that we are not wasting money through poor practice or a lack of focus on the bottom line.

We’d expect you to be the same, cashflow, stock levels, margin reviews, wastage all thoroughly examined and savings made.

It might be understandable that after three and more months of investigating business practice and coming up with ideas to save or at least not waste money, that taking a breather is in order – but absolutely not. Now is the time to really crank up some business building ideas all designed to enable us all to hang onto and increase profitable sales over 2009.

We’ve seen businesses take varied approaches to difficult times and two opportunities and favourites follow, both that we’ve seen work in practice, and one which we are about to instigate in our own operation.

Opportunity one

The customer is always right. For all our cost savings and efficiencies serving our customers expectations will be key to developing our turnover and profit. That means being measurably better than our direct competition.

While driving out inefficiency is a must to protect margins, when is the last time you reviewed and decided to up-weight your customer contact strategy? Who represents your business with your most profitable customers and are they well briefed with your expectations of great customer management?

We’d take a lead from Peter Kraljic’s 1983 Purchasing model and apply customer segmentation theory by assigning customers into as a minimum three groups:

l Strategic core – business critical customers who are capable of partnership and collaboration;

l Developable – customers who you would love to do more business with or open a business with;

l Day-to-day-customers that you want to ensure you service to the best of your ability.

Then challenge yourselves as to the quality of contact that these groups receive. We know that customers are not all the same, but do we always treat them differently?

First look at your profitability within each group to fully understand the customer return to your Features > Business, this is a given where protecting profit is concerned.

Then look at your customer facing approach to the groups. As a minimum look at your communication with them, your marketing plan for their channel, your customer service levels, and how successfully you launch innovation.

Finally, assess what value you believe you are adding to their operation. This is vital as the primary customer measure of your competitive advantage is the added value they see you bring to their business.

Then selectively go out and get involved in their businesses with their issues and their problems with the aim of answering the question ‘how can we help’ and to test your assumptions of your value.

Opportunity two

Get creative to explore what opportunities exist. The boundaries of creativity are really extensive, from imaginative ways to solve problems, to innovation cycles, through to establishing a real organisational climate that is dynamic and challenging – all with the aim of approaching business or pleasure in an original and unique way.

As purveyors of ‘creativity in business courses’ we’ve decided to take a new look at ourselves through the following:

We are challenging ourselves to break the habits of old and really query our tried and tested approach to our business. We are ‘taking things to bits’ and then re-constructing our approach to our own operation with the goal of adding more value to our customers and profit to both of us.

Where are our ‘blind spots’, what have we been frightened of doing and who in our three-tiered customer base can advise us of what they need?

We are going to target ourselves to generate alternative methods of practice, and while doing so really work as a team to understand what actually makes a difference in the way we work. We will take time to reflect on our potential new ways of working and analyse the value to our business and those of our customers. The intention is to find a real differentiator, a generator of new income, purely by taking a more creative approach to the issues in hand.

Summary

Profitability results from the value we add to our customers and within our businesses. All of our efficiency programmes are necessary but they are not a long- or even medium-term strategy that will differentiate us from the competition. People learn and catch up.

Use your resources and capabilities creatively to add more value to customers. Segment them based on their needs, not yours, and offer an approach that recognises that they are different.

The aim is not just to protect profit, but to grow it.

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