Growth is the lifeblood of companies. Too often leaders at B2B organizations, especially those that have been in business for some time, find themselves scratching their heads and asking – “I used to be able to grow and make comfortable margins. Now I find myself competing on price to grow volume and in doing so, diminishing my profit margins. What can I do to break out of this doom loop?”
We at The Avery James Group have this conversation with leaders from a variety of industries and companies large and small. As businesses mature and their offerings come up against more challenging competition, a new approach needs to be taken, beginning with answering a few questions, usually in the following order:
Are the markets in which we’re competing still attractive?
Is it worth it for us to solve this problem?
Can a unique and differentiated solution be developed that limits competitive threats?
These questions are answered not only by your customers but also by their customers and others in the value chain all the way to the end user. You may have a great relationship with your customers but if they can’t make money because of conditions in the market downstream from their position in the chain, you need to know that. This understanding on your part puts you on an even keel with your customers. It further informs your thinking when considering whether to continue participating in the market. Extensive voice of the customer (VOC) work is not well practiced among industrial companies today.
It’s no longer good enough to say, “We deliver on quality and that’s why our customers buy from us.” The conversation needs to extend to “We have calculated and communicated the impact our offering has on our customer’s bottom line.” Knowing the impact your offering has for your customers and being able to articulate that in dollars, sets you apart from your competition. You change the conversation to one that is important to your customer rather than it’s our relationship or quality or customer service that distinguishes us. These days, relationship, quality and service are table stakes. Investing the effort to understand the worth of the problem being solved in economic terms along the entire value chain delivers tremendous payback in your ability to price your offering at more attractive margins.
Unique & Differentiated
A big part of the “we can’t make money” conversation is the presence of competitive offsets in your markets. While you may have initially had a unique position, time has allowed competitors to enter the market with alternatives that, in the eyes of your customers, work just as well as yours. To really capture margin, your offering needs to be unique and differentiated. Doing so protects you from competitive threat and places your competition in a disadvantaged position. Their ability to sell an offset usually requires it be done at a price point well below the margins you can capture.
A Story About the Value of Saying ‘No’
An industrial client struggled to generate positive cash flow. The business had been built on selling to a variety of outlets in the hope that as demand from some of the outlets went soft, demand in the others would pick up. The business was driven by asset utilization and selling volume. The business didn’t know the value of its offerings because it didn’t recognize the needs in the applications into which their offerings were sold. In part, by doing high-quality VOC work, one market was identified as unattractive because customers and others in the value chain couldn’t make money and opportunities were limited. By exiting this market, margins improved for the client and, as competitors pursued this business, their margins suffered.
Businesses both big and small, including startups, limit the resources available to truly understand unmet needs which allows them to create unique and differentiated offerings and calculate economic value on which to build lucrative pricing models. It’s the upfront homework that is more valuable than almost any other investment an organization can make. How can you afford not to make it?