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Sales forces with activity targets only, businesses without customer and product P&Ls, businesses caught in a ‘commodity product’ dead end, businesses that have allowed themselves to fall into price taking relationships, businesses that use ‘margin’ instead of ‘activity’ to grow their top line. The list goes on. The businesses we are talking about include house-hold names in some cases. Do all your leaders and commercial decision makers know what the sustainable margin decision making parameters are for your business? Do they know the difference between the ‘winning work at any price’ and a staying in business ‘value adding package’? Have they got permission to come back without an order if the margin isn’t ‘sustainable business margin’? If your business starts down the road of unsustainable margin guess where that road leads to?
There are three major strategies needed to make sure you are in a position to operate ‘sustainable margin’
Strategy One – Branded product and services you can only get from us
This fundamental business principle is nothing about pricing, finance or margin directly – it is everything to do with what the money measures and value represents. It is nothing to do with aiming for profit, it is everything to do with not putting yourself in the position to be ‘systemically screwed’. Sustainable margin should represent the value that the product and services that you supply, enables for your customer. If your business is not ‘branded’ around your business uniqueness and sustainable value add to the customer, then there is nothing special or different for your clients and customers to value in preference to other business offers. The customer will go elsewhere – by not signing in the first place or by leaving because they have had a compelling reason to not stay with you. Strong position on merit is the core of maintaining healthy margin.
Strategy Two – Have a portfolio approach
With a strong basic position and presence, the risk that you don’t want to become open to is one customer, one geography, one product, or one route to market. With unequal relationship – where your customers have the whole supplier market on offer to them and you only the one outlet or one customer with a majority of your margin attached to the relationship. When the screw turns you don’t have many options other than to respond to customer pressure. If that pressure is price, or packaged as ‘more for less’, in one stoke of pen, your business could have lost its sustainability. If however you have three legs to the business and one leg loses its sustainable strength then two other legs can do the carrying for a while. In an increasingly competitive market we have to learn to shift into sustainable margin areas with innovation which is covered in other e-business journal articles.
Step Three – educate your clients with the value that your products and services bring to them on a like for like basis with other competitors
In a conversation between strategic partners in a business relationship there needs to be an open and honest understanding on the true cost and value of a product or service. We all know that if you work on headline price to grab attention, either there will be a sting in the tail or fulfilment of expectations will be broken at some point in the relationship. I have never seen a proper, like for like financial case for the different types of energy sources. Nuclear waste has a 1000 year half life. There is a cost to this. A solar panel on the top of the roof only comes with a 25 year cell guarantee. What is the real cost and value differential to me as a consumer? I have no idea. In a conference of professionals from the sector whilst asking some probing questions in this area, they couldn’t tell me either! There were just lots of individual camps arguing passionately for wind or nuclear or gas. As a professional in your sector you need to be able to argue the value differential of your product or service which renders ‘price’ into third or fourth place in a decision making criteria – not because you are trying to hide it, but because the long term value add is head and shoulders above the competitors.
Only then are you in a position to pitch the pricing which allows you to stay in business and grow. Don’t pitch for business in unequal relationships or overly competitive market places unless you are hanging onto a lifeline before the next sustainable margin stream kicks in. An existence and slavery is all that results. What you want is the fullness of a sustainable business working life based on honour, mutual respect and mutual ethical value add. Sustainability as an aim is ‘True North’, Sustainable Margin is on the compass and ‘True South’.
Enrichyou’s Sustainable Leadership, value adding, role formation and development programmes have delivered lasting learning and £350 million of value add for our customers in the last 10 years. We measure it. Do you? Call Enrichyou on 08456 126 006 and ask for a callback to talk your situation through.
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