I have been running commercial workshops with a number of telecoms resellers for some time now and conversations we have during the sessions bring up several recurring issues, one of which is simply how do you combat slim or disappearing margins? For many companies the go to answer is to batter your suppliers for lower costs and increase your prices to your customers.
Ultimately, this is the only answer, increasing the margin between sales and cost of sales is the only way to increase, well, margin. However, do that without a plan and you could find yourself in a very lonely place, spiraling towards the ‘budget’ end of the pack, spending most of the valuable time you work so hard to get with your customer competing on price. In my experience this situation is far more common than we talk about.
The issue then isn’t necessarily on how to manage your supplier and customer pricing, although these elements are critical. It is how you have developed and managed the perception your customer has of you and how this fits into your overall business strategy.
A lot of the organisations that I have worked with don’t really look at the reasons why people make the buying decisions that they do. If you are interested, you should have a look at an article written by Bryan Eisenberg giving his perspective on this from 2011 in which he identified some 20 reasons people buy. Spoiler alert. The 20 reasons distill down to two key modes. Transactional or relational.
Nothing particularly earth shattering in that, but honestly this is where your business has the opportunity to gauge what it does and in the environment that it does it in, and more importantly how your customers look at you.
It is critical to understand why your customers came to buy from you in the first place. A winning smile and a low price is a great place to start, but it doesn’t create a perception of value and a long term partnership. You might have noticed I am avoiding using the term ‘relationship’. I’m going to come on to that in a later post.
The key to this is understanding your business offering. So ask yourself a couple of questions.
- Are you a solutions provider or a transactional seller?
- If you add value to your solution, how? How does the customer perceive that value?
- How is this value unique in your market place? (Please, please don’t say ‘excellent customer services, laser focus on the customer’s needs’ etc. Literally everyone should be doing that. It’s a hygiene factor and therefore not unique)
The reason to ask these, some might say blindingly obvious, questions is that if you are unable to articulate your competitive advantage in terms other than cost, then your customers are not going to be able to. They certainly aren’t going to do it for you. If there is no perceived value in your customer’s eyes, then they aren’t going to be willing to pay a premium for a service they can get along the street for a lower price.
So, to sum up. If you are fighting eroding margins, one of the places to look is your place within your market and in comparison to your competition. How are you perceived by your prospects and customers? Are you a solutions provider or a product vendor? What is your value proposition? How have you communicated that to your customers, and do they get it?
So if you’ve identified your situation, the next step is to have a look at what can be done to get where you want to be.