Thoughts from the C-suite: So, do you really want to be cheaper?
Published by CME Manitoba on April 07, 2017
By Kevin Lusk, CME Advanced Manufacturing & Senior Executive Leadership Champion
In order to grow your business, every manufacturing C-Suite occupant out there knows that you need more sales. Your competitor is in the same boat and knows that too. In the end, how your company handles growth or keeps sales from declining is largely up to the decisions you make in the C-Suite. It’s also about how you lead, participate and motivate around not competing for, but winning those sales.
In considering this issues let’s assume that technology upgrades are out of the question, so instead you decide to push your team to do whatever it takes to drop the price… and thus also lower your margins. If you are contemplating dropping price, be careful what you ask for and how you do it. More often than not dropping the price response is often a knee jerk reaction to a wakeup call served on a manufacturer that you just lost some market share. If you go this route, realize that price dropping invariably results in a zero sum gain financially. It also is no guarantee those additional sales you so desperately want will materialize. Here are some thoughts to consider around price dropping and your potential available options.
To drop the price, something has to give. Usually it’s product integrity and quality. You know that you are going to have to make compromises. Maybe you go with cheaper buy components, maybe not quite as good, or take production shortcuts under the guise of process improvements (an entirely separate matter). You of course will keep your product brand name. But now the expectations are a bit different because the performance envelope has changed modestly or significantly. This leads to problem #2.
Nobody told the customer about the change. Are you going to direct marketing to tell them that they need to lower their performance expectations? Not likely. As a result, over time while the product is cheaper, customer faith drops. The customer base begins to erode because you aren’t as good now as you once were. Your branding takes a hit. This leads to problem #3.
With fewer customers the business model dictates that the budget needs to be reduced. Because there is now less to spend, the product quality needs to be eroded even more. Perhaps of equal importance, your employees know what’s going on and the work care drops. These are the mechanics in, “The Race to the Bottom”. For those of you living in the C-Suite; here's the hard part in going this route. For you it’s just the beginning. You don't fall down the abyss all at once. Sitting in the C-Suite, you won’t feel the depth of the fall because nothing bad happens at first; but trust me, it will. And it will be very painful and costly to fix late. “If” you survive.
There is an alternative. Don’t drop the price!
You’re in the C-Suite for a reason. Figure out with your team how you can increase the value proposition of your product in ways that appeal to your customer to take their money out of their jeans and buy it. Those options might include adding a product feature that the customer might like, which differentiates yourself further from your lower cost competitors and make sense why you cost more. Perhaps you re-focus on quality. If your quality is as good as it gets, have you “market hyped” your quality and really tied it to your branding? How easy are you to do business with? Why is your website the way it is and how effective is your dealer network? What kind of financing do you offer? What does your brand look like and when was the last time you overhauled your marketing and sales literature? Tactically, have you gone to the same customer well too often? As a result is the 80/20 rule (80 per cent of your business comes from 20 per cent of your customer base) fact or fiction in your business analysis? If it’s fact, how you will change/ transform that fact into myth?
In the end, sales still rise as a result of word of mouth by your customers and users and by customer satisfaction. If you are occupying the C-Suite and face this issue, get on it because you know by experience that a problem is always easier to fix it today than it will be tomorrow. Especially when it comes to protecting and increasing market share.
As a CME member you do have a competitive edge through your membership. Whether you want to improve your leadership skills in your occupancy of the C-Suite, improve the leadership skills that you need throughout the company or get some marketing assistance, CME has excellent proven leadership programs and leadership supports that can help. Through your membership privilege, you might want to contact CME for a no cost discussion regarding your C-Suite issues, and how also to improve the leaders in your company.
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