It is very easy during a downturn for relationships with both customers and suppliers to unravel. The focus must be on consolidating those relationships, avoiding indiscriminate discounting and seeking out new segments and sectors. You must also remember that what you can measure, you can manage, so constant evaluation of your key performance indicators is imperative. The following tips will assist you in this respect.
- Avoid price cuts wherever possible. Be careful about dropping prices. Consider the longer–term effects of your immediate decisions on perceptions of quality. In the future when customers will not be so sensitive about price, you may have unwittingly conditioned them to lower prices or signalled that prices are negotiable. Also, of course, price cuts may not increase demand levels one iota if all your competitors follow you.
- Be cautious about selective discounts. Repeat business should be conducted wherever possible at normal prices. Different price levels for different customers requires strong controls to prevent the sales force being pressured into giving indiscriminate discounts. If you absolutely have to, then dump excess product well away from your usual market and use selective discounts to clear the excess as a one-off move.
- Develop partnerships and ‘value managed relationships.’ A value managed relationship is a trusting relationship in which information is shared between an organisation and one or more of its suppliers. Such a relationship can ensure smarter ways of managing the value chain more effectively and can help prevent adversarial relationships eventuating in a tight economy. The intention is to reduce overall costs for both parties. Under these arrangements cost savings of 10-15 percent are quite feasible.
- Recognise that relationships between customers and suppliers untangle in downturns. Competition in a downturn becomes more fierce. Customers are often looking for better value. Proactive organisations recognise the opportunity to win business in the short term and lock in customer relationships further on into the upturn.
- Cooperate with, do not confront suppliers. Too many people in a downturn exert unnecessary pressure on their suppliers in order to reduce costs. A cooperative attitude rather than a competitive attitude is more likely to produce greater benefits.
- Foster referrals and leverage customers through ‘tie-ups’ with other companies. Joint ventures and distribution of complementary products can expand a product range at little cost.
- Attack a few selected ‘big’ prospects. Find the few selected customers capable of producing volume business fast. At the same time target customers whose spending is immune to change. Look for those sectors that have not been sensitive to change in the past. Avoid sectors that clearly have a history of market share changes during similar times.
- Look to increase your presence in the public sector. Government contracts do provide a stable source of business. Despite the disadvantages of long lead times between inquiry and order, and the vagaries of political whim, such contracts are often long term and, in addition, reasonable terms, conditions and adjustments can be negotiated.
- Adopt very clear ‘marketing metrics. Expect a high return on investment for every marketing dollar spent. Place even greater accountability on your marketers and the agencies you use.
The following topic in our Business Basics Series is Confidently Lead Change in Your Organisation.