GS Key Tips For Competing In A P
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Key Tips For Compet ing in a Price Sensit ive Market Businesses are now operating in an increasingly competitive environment driven by globalisation saturation and diversification of industries decreasing industries and increasing levels of e trade and e commerce This dynamic commercial environment creates both opportunities and challenges for businesses With e commerce businesses can now tap into global market growth and reach customers they couldn t service previously However this environment also brings about fierce competition meaning that businesses need to operate smarter in order to survive in this global market place 1 1 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Reduced Pricing is Not t he Answer When faced with competitive challenges businesses often first turn to reduced pricing as a mechanism to combat competitors and retain their customers This type of response can lead to an all out price war resulting in a downward pricing spiral for all competitors in that industry This downward pricing spiral can lead to businesses reducing pricing for customers products into negative margin territory a big NO NO for business sustainability Furthermore as markets are becoming increasingly price sensitive pricing may no longer be a weapon available to businesses to combat competition This eBook lays out a number of levers that business can pull as an alternative to higher pricing to combat competition and drive profitable growth 1 2 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Cost Leadership In order to compete successfully in an industry businesses need to achieve Cost Leadership What exactly is Cost Leadership I hear you ask To achieve Cost Leadership in your business start by asking yourself the following questions Is your Cost of Sales material cost freight packaging etc competitive Are you leveraging your full economies of scale in your purchasing activities When was the last time your business did a full scale market test quotation of your Cost of Sales Never under estimate your purchasing power Your customers aren t afraid to come to you and ask for price reductions you should be doing the same with your suppliers Is your overhead structure as competitive as it could be When was the last time you analysed your overhead cost items to confirm that every single cent being spent is adding value to your business When is the last time you went out and got a competitive quote on your energy costs or insurance Remember every single cent you save in costs will flow to your bottom line profits Do you understand your break even point Do you understand what the minimum amount of sales you require in order to break even Is your break even point as healthy as it could be 1 3 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Is your asset utilisation or people utilisation if you re a service business as competitive as it could be How does your asset utilisation compare to industry benchmarks What changes can be made to improve your asset utilisation Does your business have a Budget and associated targets and Key Performance Indicators that are understood by all of the operating team Remember what gets measured gets managed Do you have regular reviews of performance against these targets with your team 1 4 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Prof it and Revenue Opt imisat ion Once you have your costs under control it is time to optimise your profits Here are some steps to help you maximise your revenues and profits A starting point is to understand your profits by product line and by customer on both a marginal basis revenue cost of sales and a fully accounted basis margin support costs Many businesses have systems in place that have the ability to do this but the systems have not been collaborated in way to allow this level of reporting So why is it important to understand profits by product line or by customer Having this kind of information at your fingertips can be an extremely powerful tool When you have this data available to you you will see that you have many products or customers that don t actually make money for you Once you know this you can take actions such as Cutting the customer or product line Yes this will result in reduced sales but you will actually make more profits and cash The focus should be on profitable sales growth and not just top line revenue growth You can reduce costs increase prices restructure the product portfolio or any combination of these actions to improve your profitability 1 5 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Focus Market ing Act ion on Prof it abl e Product Lines and Cust omers Once you have an understanding of your product line and customer profitability you should focus your marketing actions on these profitable areas This doesn t mean you need to increase your overall marketing expenditure but rather optimise the spend by moving marketing dollars to more profitable lines Over time this will result in an increase in both your revenue and bottom line profits even though your sales volumes may not increase We now live in a world of digital marketing so this could be a good time for your business to perform a health check of your marketing activities Has your business fully embraced the world of digital marketing Is your business still marketing itself through traditional means You need to ensure every dollar spent on marketing is as effective as it could be These actions will help you achieve a more profitable mix of customers and products whilst not increasing your absolute level of marketing spend 1 6 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Don t Forget Innovat ion Innovation takes many forms For any business to thrive in this dynamic business world they need to continually innovate and keep a focus on process improvements Innovation and process improvement can help your business achieve a point of differentiation in your market place giving you another tool other than price to compete Innovation can take many forms including Product innovation Continually review your market place and your customers so that you develop products that they want and will pay for Stay up to date with all your industry s latest developments by staying connected e g reading journals joining industry associations etc 1 7 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Grow your business Growth can come via product diversification i e tapping into different product segments growth into other markets e g exporting to different states and or countries and by fully embracing e trade and e commerce to tap into markets you weren t able to service previously Remember to focus on profitable growth here and not just increased sales Focus on cont inuous process improvement in everything you do and at every level of your business There are always better and more efficient ways of doing things Businesses that do not embrace process improvement will not survive Process improvement should be the domain of everyone in your business and not just management Process improvement should be built into everyone s job roles and responsibilities Create a culture of innovation and process improvement in your business by leading by example be open to new suggestions and ideas 1 8 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
Look Af t er Your Cust omers Retaining a customer is much easier and cheaper than winning a new customer A satisfied customer is also less likely to be concerned about price Great ways to maximise customer satisfaction and retain your customers include Providing extraordinary customer service Regular communication on time deliveries providing immediate responses to queries and maintaining the highest of product service quality Ensuring your whole organisation is committed to providing the best possible customer service Conducting regular customer satisfaction surveys Keep doing more of what your customers like and rectify issues quickly Acknowledge customer feedback and respond promptly and directly to customer issues Delighting your customers Thank them for their commitment to you This doesn t mean that you need to excessively spend on freebies You will be surprised with how a little can go a long way in delighting customers Recognising the lifetime value of your customers A customer that you retain for a long period is going to contribute significantly to your profitability and revenues over that period 1 9 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
If you need more help in developing profitable growth strategies CFO On Call is here to help CFO On Call s focus is to help small to medium sized businesses improve their profitability cash flow and overall business management and performance Fundamentally we offer owners and managers access to part time CFO Finance Controller support at a fraction of the cost of a full time person All CFO On Call partners have extensive real world commercial experience that can help your business get to the next level For a f ree Sounding Board Session pl ease cont act us on 1300 36 24 36 Aust or 0800 180 400 New Zeal and or visit our websit e www CFOonCal l com au 1 10 Copyr igh t CFOon Call com au by CAD Par t n er s Pt y Lt d www CFOonCall com au
