Last week we hosted our inaugural Q+ Showcase Masterclass for almost 100 leaders from businesses across the South West and Midlands. At the end of the session, we offered our suggestions for how they could ‘do something different’ in 2023.
With a recession forecast next year and The British Chambers of Commerce (BCC) forecasting that the economy will not return to growth until Q4 2023, the response by many organisations will be to cut costs. Instead, we encouraged business leaders to focus on being purpose-led & control costs rather than make arbitrary and / or drastic cost reductions.
In a previous blog we highlighted that competing on price assumes that this is the main requirement of customers, however this is often not the case. Identifying the real needs of customers and delivering that value in different market segments will bring healthier returns.
As Justin Young, Operations Director, Cotteswold Dairy, shared during the Showcase Masterclass, "It's about knowing what you do best, and doing that better."
Review where your company makes money (selling what products/services to whom) and then align resources (and costs) to deliver to customers in these ‘market segments’ what they require i.e., what they value.
Any organisational costs that do not deliver what the customers want can be assessed and minimised / eliminated as these costs are not adding value.
Some may be necessary and have to be kept as they are needed to support an activity that does add value and without the cost the activity could not be undertaken. Others will be waste.
Understand your market
The starting point in all business strategies is the market/customer base and understanding the key market segments and where you make most profit (selling ‘what products/services’ to which types of customers).
Ask yourself 3 questions:
1. Do you understand the contribution (gross profit and gross margin) of the individual product/service lines and their cost bases, including allocation of fixed overheads?
2. Do they really make money?
3. And, are you focusing on / emphasising the right ones?
Advice from Professor Malcolm McDonald
Professor Malcolm McDonald is one of our cherished Masterclass speakers on our leadership program, LEAD™. He is a world-renowned expert on marketing strategies and offered these thoughts to encourage and reassure those of us who are worried by the effects of the impending recession.
“I have 120 pieces of scholarly research to prove that long term successful companies take the trouble to segment their markets. Segments are groups of customers with the same or similar needs, not sectors. They work hard at understanding these needs and their behaviour patterns. They prioritise these segments according to their likelihood of enabling the company to achieve its profit objectives and they then develop appropriate product/services packages for each. They are ruthless in times of recession at focusing their attention on the segments they intend to keep in the long term and they prune out those which are a drag on their resources. Only then is cost cutting and downsizing justified.
“I am, of course, referring to Pareto’s Law (the 80/20 “rule”). About 20% of your customers will deliver about 80% of your revenue and profits, so trying to delight everyone with all of your offers guarantees average service that will delight no-one. By identifying your core market of primary customers and delighting them with selected differential offers, you will successfully preserve a resilient customer base.”
In Malcolm's book 'Marketing Plans: How to prepare them, how to profit from them', there are five real case studies of businesses that QuoLux™ has worked with which we discuss in the final chapter.
If you'd like to read more about our leadership and business development program, LEAD™, you can click here for more information.
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