In previous recessions, the peak rate of business failures came after the bottom of the economic cycle, often lagging by as much as a year. Considering the shaky forecasts for the current recovery, it’s unlikely that this time will be any different. This is a critical time for businesses, who need to continue to increase their competitiveness in the marketplace, whilst at the same time, rebuild their margins to fund the investment that will secure their market share, as spending begins to recover.
So how can you remain competitive on price and deals, whilst repositioning your offer, recovering your margins and building for the future? Here are six ways:
1. Refresh your Customer Understanding
Customer behaviours have changed profoundly over the last 18 months. If your insights and segments are based on the customers of 2007, they are likely to have diverged from both your real customers, and the way your business is tactically operating on the ground. Now is the time for a refresher.
2. Reassess your Competitive Position
Many markets have seen major changes in both the make-up, and relative positioning of key players. How has the landscape changed? How does your portfolio stack up now against the new market shape? How relevant now are your sources of competitive advantage and differentiation? What new opportunities are there to consolidate and differentiate?
3. Refocus your Promotional Activity
Businesses have increasingly introduced more, and richer discounts and deals in a reaction to market competition. Now is the time to mine the sales data to prioritise and refocus onto the promotions that work over the medium term. Keep those that drive profitable footfall, halo benefits, frequency and long-term trade-up. Ditch those that simply drive cost and are cherry-picked by promiscuous shoppers. Find ways to re-deploy supplier funds into activities that strengthen the business, and cancel anything that looks like activity for activity’s sake.
4. Rationalise your Ranges
Refocusing promotions and consolidating range is essential for leveraging supplier investment and terms, but also creates space in the inventory to bring in new, innovative and higher value goods and services. Both can have a major impact on your ability to rebuild margin and recover your differentiation.
5. Reprioritise Innovation
Armed with a new customer understanding, a clear competitive strategy and space in the inventory, you need to reprioritise innovation. Engage deeply with developers and manufacturers, or buy into partnerships and technologies. The best techniques for innovation use rapid prototyping and involve customers early in the process. Success is a numbers game, so accept early failure as a good sign, and ensure the best ideas are strongly championed by passionate individuals.
6. Rebuild your Differentiation
What are the messages you’re giving to your customers? If you’ve been focused on discounts and deals, you can bet that your sources of differentiation have moved from headline news to the inside pages. If you’re even thinking of pulling back on discounts, make sure you’re communicating, and delivering some fantastic differentiation.
Final note: A restaurant chain executive recently shared with me their experience of pulling out a major discount message that they’d been running with for over six months:“In the first week we lost 30% of sales; we lost our shirts and we lost our nerve.” A week later the deal was back in. Pulling back from any big promotion is tricky, and customers are still highly value-conscious. You need to know exactly what will fill the gap, and how long it will take for your customers to react. The only way to know for sure is to test. That way, you’ll get to keep your customers, and your shirt.