The news is full of stories of companies “battening down the hatches”, going into “cash conservation mode”, and making deep cost reductions in an effort to survive the real or expected drop in demand. This retreat reflex drives business decisions that feel like the right thing to do at the moment. But, statistically, for many companies these measures will prove insufficient - that is, they will not prevent failure. Why? Because they are only driven by fear, and fear is a poor adviser. What’s needed is a bit more creativity. Lack of imagination is always a handicap, but that is especially true in an environment that is under great stress and is undergoing substantial change.
So what are the signs that a company is just practicing self preservation, and what are the important questions to ask now that will position the company for the recovery?
- “Let it pass”
Expecting that after laying low for a while, the company will be able to go back to business as usual is almost certainly an illusion. Nothing ever stays the same and certainly not after an upheaval of the current magnitude. For one, the credit landscape will certainly look very different from what it has been until recently. Credit availability and terms will change significantly with a new regulatory framework for the financial sector. Greater aversion to risk is sure to become part of the picture for a while. That by itself will have a deep impact on how businesses invest and how consumers behave. Consumer spending will in all probability represent a smaller portion of GDP – not just while the crisis lasts, but even after recovery takes place. Experts are already seeing the emergence of a new culture of thrift that spells trouble for many companies built on easy consumer credit. So, the world that was interrupted by this recession will not return. - “We just need to work harder”
It is distasteful to describe a commitment to working more as anything but laudable, but just working harder is not guaranteed to succeed. For example, if analysis of the lead generation funnel indicates that you need to email 5,000 prospects instead of 3,000 to get 10 solid opportunities that may indicate that more customers are cutting back and that running more campaigns to find those who are not is the right solution. But it also may be indicative of a deeper problem tied to the changing nature of the market, which means that working harder will only go so far. - “Go back to basics”
The idea here is to adopt a no-frills approach to everything from product design to marketing campaigns to staffing, across the board. In product terms, this means moving to stripped-down versions of current offerings to hit a lower price point in the hope of luring customers whose budgets have tightened. In some sectors, if the economic situation fails to recover for an extended period of time, this may become the only viable strategy. In other places, it will be a stop-gap solution while companies come up with a new plan.
When many companies scale down, are acquired, or fail, when established business arrangements are disrupted or broken, what is perceived as a valuable offering changes. You can “let it pass”, “just work harder” , and “go back to the basics” but the true question is: “is our offering still valuable in the eyes of our customers?”. This is the right time to take a dispassionate look at your value proposition and determine if it is still relevant. So, now is the opportunity to:
- Understand if and how your customer’s’ problems and desired outcomes have changed
Ideally, your value proposition was designed to solve a problem. But is your customer’s problem still the same? This is the time to keep a close eye on the nimblest and savviest customers to see what their response is. Also, it may be that your offering was always somewhat off the mark but was sustained by the general upward motion of the economy. The company may have been over-serving the market, or not providing the right “total product” for its target segment. If such is the case, this is an excellent opportunity to review the product strategy. - Take a hard look at all the components of the business model
Determine which components should change and how to support a modified value proposition. It may be that you need different partners to provide an adjusted offering or that a change in the infrastructure is required. Maybe some core capabilities need to be augmented in some ways and scaled down in others. If there has been downsizing, the remaining positions may need to be reconfigured to provide an altered offering to different customers. Downsizing also opens opportunities to hire a different set of skills to build a different value proposition.
One of the visible signs of this re-assessment may be that the product or company positioning needs to be adjusted. At a basic level, does the message need to shift from “highest performance” to” best price/performance” to reflect a new emphasis on value-for-money? Does the value proposition need to be more about delivering cost-effectiveness and efficiency? The crisis will surely create opportunities to segment the market in new, more relevant ways that can lead to growth. Being creative about re-inventing the value proposition rather than just being reactive through fear is the best way to be part of the recovery.
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Tags: business model, marketing strategy