There is an old marketing axiom that I have often recited, “You have to be better; if you can’t be better, you have to be different because if you can’t be different you can only be cheaper.” In an economic downturn the temptation is to increase volume through price cuts. Yet this approach can be detrimental to your business in that you lock in customers’ price expectations for the future. The challenge in times like these is for you and your staff to collaboratively identify ways in which you can outcompete your rivals through a superior or differentiated offering. The insights provided in this blog are designed to stimulate your thinking in this regard.
- Use this downturn to bring about changes in your organisation. Lee Iacocca once said, ‘There is nothing better than a life and death struggle to get your priorities right.’ If it had not been for severe cashflow problems and the need for a rapid reduction in working capital, Toyota would probably not have instituted its Just-In-Time system.
- Rethink your business model. Do you have the right structure in place for these changed market conditions? In responding to this question, think beyond the next 3 months. Yes, short term downsizing will be a necessity but deciding on your long-term vision and how to structure the organisation given changed economic circumstances will be vital.
- Re-evaluate the market and look for new opportunities and new products. Is your product or service still valid for the original market for which it was intended? Do you need to modify your product or service, or do you need to change your target market? Early examples of this include distilleries now also producing hand sanitiser, and a service company offering a pre-paid voucher system to support businesses cash flow.
- Be imaginative. This is a time to think differently and be creative. But there are no magic solutions. Creativity needs to be anchored in reality, ideas must be financially viable and focussed on your strengths.
- Move into niches and differentiate. If you are in a market experiencing overcapacity and have little chance of becoming the lowest cost producer, find a way to differentiate your product. In addition, a move to serve niches with a focus on specialty products or services will ensure more stable demand at higher margins.
- Diversify if feasible. By diversifying it is possible to achieve profits in sectors less impacted by the downturn. However, experience suggests that this approach will not always work, mainly because managers misinterpret market conditions. Be very cautious. Sometimes the hope that one entity will generate cash while the other one is consuming cash can result in both consuming cash.
The next topic in this series is Focus on the Numbers.