When I do business and someone wants to haggle on a price for an item which I know is already a great value proposition, my go to counter response is to emphasize that my business needs to pay its overhead before I get to keep any of the money. The larger the rent or mortgage payment the more revenue which must be allocated to pay that expense each month. Overhead is the minimum figure required to meet obligations and is independent of the top line (sales).Obviously controlling overhead is vital to the health of any company. Cutting overhead should be accomplished with surgical precision, removing fat to run lean, but making sure not to remove the meat.
That means that any reduction in costs must not degrade the value ultimately delivered to customers. Anyone who's ever shopped at a dollar store is familiar with buying products that they would not care to purchase again. They are made cheap and with many things that just doesn't cut it. Maintaining the value that the customer relies on is the responsibility of effective leadership which places due emphasis on customer feedback, typically accomplished by polling the relevant market for the specifications of customer satisfaction.
Every business requires a certain quality of inputs to ensure meeting continued expectations and customer loyalty. Inputs will always cost something and costs will never equal zero, but there is no such limit on the volume of revenue that can be achieved through continual growth by way of dominating a market and conquering new ones.
In many industries certain performance benchmarks are set and enforced by regulators, as in the case of Corporate Average Fuel Economy (CAFE) which requires vehicle manufacturers to comply with fuel economy standards established by the Department of Transportation. Contrary to common belief such government intervention often is beneficial to industry particularly when it demands that the industry set the quality bar higher, which in turn spurs domestic players to become more competitive. By working to make cars and trucks lighter, while maintaining structural stability, less (kg) heavy metals are required (dematerialization) and fuel economy improves. (The Mellman Group, Inc October 26, 2007).
Holding a desirable position in the marketplace requires revisiting the value creation process and making optimizations and innovations incrementally to stay out in front. If not, someone else will. The American Auto Industry is probably the most widely studied example of what happens when customer feedback is ignored. For more than two decades American Automakers ignored numerous polls which indicated that more than 80% of Americans preferred imported Volkswagen and Toyota's passenger cars over Chevy, Chrysler and Ford. The polls cited greater reliability, fuel efficiency and lower costs championed by foreign manufactures. (Popular Mechanics 1997).
Very often there is tremendous divisive force within a company which absent strong responsive and stable leadership can pull revenue and profitability into the crab pale along with market share. This is why the value proposition to the customer must always be properly understood and the key performance indicators (KPI) for value must serve as guidance in all operation process decisions. The KPI provides context according to the value driven expectations of the customer, An example of great KPI is Net Promoter Score which measures how many customers like the brand well enough to refer it to others. If more people recommend the brand than not, the score is positive. So effective managers are looking to improve that score. If the feedback indicator is static work needs doing to get the item trending from neutral into the plus columns. But if more people do not promote the company then do, there is an urgent and potentially devastating problem in the process that must be uncovered and addressed.
The goal for marketing should be assertive, might be as follows: Marketing is tasked to yield a minimum growth of 15% new customers each quarter. Of course operations must produce what marketing commits. Either sufficient capacity or fresh area to scale up the process is mapped to fill those orders. All of this requires ample planning.
The bottom line in any company depends on its ability to accumulate loyalty and if it is not doing so, there must be action to change that, otherwise value degradation will quickly amplify, it will set in like rust and eat away at the frame of the company.
Learn to recognize the symptoms of value degradation but more than this, to avoid thinking that when changes occur in the market, what is transpiring is just a fad that will pass in time. It is best to vigilantly maintain the structures which support remaining tuned in to our customers concerns, and those that measure value accurately.
The least cost to produce a product or service, the better position in the market, ifcorresponding value added meets customer expectations. Many of the most reliable products come from smaller to medium sized companies who's focus is on the long term penetration of the company over short term profit maximization. Study the German manufacturing model. In 2014 Germany had 44 % of of its GDP from exports compared to 12% for the US. The German trend of production was positive even through the economic crash of 2008.
Source: http://data.worldbank.org/indicator/NE.EXP.GNFS.ZS
It is best to adapt to market conditions incrementally, thereby maintaining constant growth in your space.
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