Strategic Planning Expert

by M. Dana Baldwin, Senior Consultant

In my prior article (“Time to Start Planning for Growth – Step One: Analysis“), we discussed the lessons we should be learning from the major slowdown in business experienced during the recession, and how to analyze them so we would be positioned to plan to grow as business improves.

As indicated in the previous article, we tried to learn what our markets would be looking for as their business improves.  We studied the competition to learn how they were reacting to the slowdown in business during the recession.  We probed for weaknesses and looked to see where our competitors pulled back and possibly even lowered service levels.  We tried to anticipate what the market would be asking for as business improved in order to be positioned to better serve the market in the future. 

Now that it appears that the recession is ebbing, and growth is returning to the economy, what steps should our company be taking to establish strategies that will lead to improving our sales and our profits? 

First, we need to revisit our strategic planning.  In order to take the best advantage of our earlier work, we must review our market segments to obtain the best information on which we will base our strategies.  Especially important is the updating of our assumptions.  The efficacy of our work on assumptions will guide our future course and direction, so the importance of doing this well and thoroughly cannot be overemphasized.  Good work here will mean we likely will have appropriate strategies for our core market segments. 

Another key part of strategic planning is our focus on new opportunities.  Part of our work to establish our future course and direction will be started with our brainstorming of perceived opportunities.  At least some of these perceived opportunities should come from the analysis we did in our pre-planning efforts (discussed in the prior article).  These efforts should have resulted in our looking for what our customers and prospective customers will be seeking as they recover, and should be targeted at responding to their anticipated needs and preferences. 

Once we have established the products and services which our markets – both current customers and future prospects – will be seeking, we need to determine what our responses will be.  We need to assess each opportunity to determine how each one will address the future needs and preferences of our prospects, and how each one will fit into our future.  How does each relate to our capabilities and our strategic competency?  Is each opportunity a good fit with our course and direction?  Selecting those which fit our future direction and which utilize our strengths and competencies, and which meet the anticipated needs of our customers and prospects is a key to our future success. 

Next step is the actual execution of our strategies and our action plans.  Action plans are simply the step by step roadmap which will be used to accomplish our objectives.  A detailed action plan with responsibilities assigned and dates agreed upon is the key tool in accomplishing the objective.  Monthly update meetings are used to keep our action plans on time.  In the monthly update sessions, the action plan leaders report on progress, confirm schedules for the upcoming month and make any updates or changes needed to make the action plan effective.  Pulling all this together and getting our strategies and action plans executed effectively are keys to our profitability in the future. 

If you’ve been dragging your feet about doing SP because of the cost or uncertainty, ”bite the bullet, and get going”.  It’s ultimately about execution, but intelligent formulation of strategic direction is necessary first. And the time is now! 

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

© Copyright 2010 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.

By M. Dana Baldwin, Senior Consultant

By Denise Harrison, Vice President

By M. Dana Baldwin, Senior Consultant

Strategic Planning Expert

Pricing can be very tricky in times like the ones we are going through currently.  Too high a price and you can lose considerable volume, customer loyalty and market share.  Too low a price could lead to diminished profits, commoditization of the brand or product/service and lower long term prospects.  The key is to strategically determine the pricing band, which is best for your product/service in light of current conditions.

To do this, you need to determine where your products and services are positioned in your market places.  Each one of your offerings needs to be analyzed in terms of where it is located on a spectrum from pure specialty to pure commodity. 

We define a pure specialty product as one, which is priced to take advantage of the uniqueness of the product or service.  Key characteristics of a specialty product or service include:

• Unique “product” or “packaging” – “packaging” equals services wrapped around the product/service offered
• Market perceives clear superiority of the product or service provided
• Sales result from having the right product at the right price
• Strong margins/profits on each individual sale
• Value-based pricing – taking advantage of what the market and competition will allow to maximize profitability
• Exceed customer requirements – providing the extra services which add perceived value
• High level of customer support – to keep the perception of value valid

By comparison, a commodity product or service has very different characteristics.  They include:

• Little differentiation between products/services offered by all competitors
• Substitutability – One company’s offering is little different from another
• Sales result from low price
• Weak margins/profits due to tight margins
• Competitive pricing in order to gain market share
• Meet customer requirements – no added services can be afforded
• Order taking – because there is no budget for added services

Almost all products and services have some of each characteristic – commodity and specialty.  The challenge is to determine the behavior of the specific product or service in each market in which it competes.  You need to determine where each offering is located on the spectrum between pure commodity and pure specialty.  You also need to determine what the overall characteristics of each market segment are, to see where you are competing.  For example, are you providing a specialty product in a mostly commodity market?  Entirely feasible to do, but you must know this or your pricing could be hurting your profitability by being too low. 

An example of this is windshield washer fluid (appropriate for this time of year).  This is basically a commodity market, with the majority of sales of the blue fluid centered in a narrow band within a few cents of each other.  There is a specialty part of this market, however.  Some people buy the green version, which contains more alcohol and more soap, allowing better functioning at lower temperatures and with the ability to clean the windshield better.  The price of the green fluid is considerably higher, due to the higher performance and specifications.  This green fluid is a specialty item in a mostly commodity market.  If the vendors of the green fluid were to price their product at or near the price of the blue fluid, they would be leaving money on the table.

By properly understanding the positioning of their product, the makers of the green windshield washer fluid can keep their profitability higher and keep their perceived value high to command the higher price. 

Some additional thoughts: 

Pricing policy is one of the most strategic issues that a company can deal with-both for the short term and the long term.  It is tied to market strategy (expand, maintain etc.)  e.g., do we need to buy our way into a market?  Do we need to do some pre-emptive price-cutting to make a market a competitor is eyeing less attractive? 

In custom manufacturing, cost-plus std. margins can be the kiss of death.  You either over-price and lose the business or leave money on the table and get the business. 

Competitive intelligence needs to feed into pricing as well. 

You may want to take a look at Tom Ambler’s 2-part article “Mining Your Unexploited Value”.  It offers a process to address the pricing issue.

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

© Copyright 2010 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution

by: M Dana Baldwin, Senior Consultant, CSSP, Inc.

Strategic Planning Expert

In these uncertain times, it is very important to do things right, right?  Absolutely!  But doing things right is only good if you are doing the right things! What are some of the right things to do?

Make your company invaluable to your key customers.  Your company should be focusing on serving your core customers to the best of your ability, so they will continue to buy from you, even if those purchases are at a much lower level during these trying times.  But, are you really doing the right things to build your relationships with those key customers and clients that will keep them as customers when the economy finally does rebound and sales volumes really do increase.

One thing you should consider doing is working to become deeply integrated into your key customers’ operations.  For example, if you supply components to a manufacturing company, are you working with their purchasing group to optimize value for your customer?  If your customer does a lot of research and development for their product offerings, are you involved as a resource in the engineering and development areas of the company?

The purpose of these types of efforts is to become more important and more valuable to each customer.  By becoming better integrated into the fabric of those customers, when a customer has a need you can meet, your company will be the first one they think to ask for assistance with their problems.

Get rid of those things that are no longer necessary to the mission of your company.   Every company builds up things which are not necessary to the effectiveness of the core business during low volume times.  Those things that are outside the core business arena, or are no longer used and likely won’t be needed in the future, should be trimmed if doing so will help lower costs, provide more liquid assets (cash) in place of the unused items, or free up space which could be better utilized, either now or when business picks up in the future.

Look to the future.  Work hard at trying to predict where your markets will be headed once the economy starts to recover.  Look for niches where your expertise and your customers’ needs match, and brainstorm solutions to their problems. 

One approach is to develop new applications for existing products or services.  One company which sold lasers for measurement systems determined that there was a limited but potentially lucrative niche in applying laser measuring systems to parts of wind generator units.  While their original business segments are languishing, this new application is doing quite well.  The potential volume is modest, but for a smaller company, it is a lifeline.

Another stratagem is to work hard to anticipate how your company can better be a part of your customers’ futures.  Work to help them survive the slow times, and innovate so that you will be more valuable in the future.  Building these relationships, especially if you can do it while others are husbanding their resources, will very likely enhance your competitive position not only now, but when the economy improves. It should result in your expanded relationships becoming that much better, and closer, for both.

M. Dana Baldwin is a Senior Consultant with Center for Simplified Strategic Planning, Inc. and can be reached at baldwin@cssp.com.

By Robert W. Bradford, CEO

Strategic Planning Expert Robert Bradford

One of the intractable problems of economics is that first-time buyers bring a lot of uncertainty about the value they will receive to a transaction.   An excellent example of this is to compare the sale price of new electronic items on eBay with those at an online retailer like Amazon.com – inevitably, the individual sellers on eBay will be selling the same products at some discount to the prices on Amazon.  This happens because most online buyers have some experience buying from Amazon – and no experience buying from a specific eBay seller (of which there are thousands).

Your company faces this same “value uncertainty discount” when selling to a new customer for the first time.  Your customer, never having experienced doing business with you, does not know much, if anything, about what that experience will be like.  Will you be accommodating or difficult?  Will you be generous or nickel-and-dime the customer?  If there are issues, how easily and quickly will you handle them?  In many markets, these are not trivial questions.  Indeed, for customers in some markets, the answers to these questions are more important than some of the basic features of your products or services.

Imagine you are a customer who is looking to switch suppliers – or establish a new supplier – for a given product or service.  If you have no way of establishing confidence about the utility of the relationship with a given vendor, you are very likely to discount it entirely.  This can lead to very commodity-oriented buying behaviors, which isn’t really in anyone’s long-term best interest.  The smart customer, then, starts looking for signals that you might offer more than the basic product or service.

Here are a few clues that people commonly look at when trying to establish value:

1.      Referrals from other customers – perhaps the most credible clue

2.      Guarantees

3.      Price (higher price signals more quality/service)

4.      Advertising

5.      Quality and responsiveness of sales support

6.      Appearance of “packaging” – including sales literature, and possibly even your plant and office

There are more – but this list should give you some ideas about how you may signal higher value to prospective customers.  Clearly, it is the function of your marketing to address how you will signal this value – and it one of the primary tasks of strategic planning is to assure that other elements of your business, such as finance and operations, reinforce that value in execution.

How do you signal value to your customers in your marketplace?  More importantly, is this signal any different or more credible than your competitors?  Strategic planning is an excellent time to consider how to set yourself apart from the competition in this way – and having your human resources, IT, customer service, operations and product line support this vision is a wonderful way to increase the strategic muscle and staying power of your business.

Strategic Planning Expert

These are difficult times for many companies. For some this may be an understatement, for others not so much of one. Stepping back and looking at your business from the outside, are there things you should consider concentrating on and/or doing better to keep those customers you have? Chances are that there are a number of things you could do to improve your communications with and relationships with your current customers.

Even if many of your customers are not able to buy as much as they were buying a year or two ago, with their business shrinking to some degree, it is worthwhile to make every reasonable effort to keep these customers as happy as you can with what you offer, be it product or service based (or both).

There are three simple reasons for this effort to be made. First: You need to make every sale you can to keep your own business viable during this slowdown period. Second: You should aim to retain as much of their business as you possibly can so when the turnaround comes, you have built on your relationship with each customer to the best possible extent. The goal here is to be the source for each customer’s needs when business returns to higher volumes. Third: Current customers are usually less expensive to keep than new customers are to find, develop and cultivate into regular customers.

How can we do this in an environment where everyone is looking to cut costs, reduce staffing and/or minimize inventory investment in order to survive these difficult times?

Read More (case study included)