TNG Blog

Four months ago I started an apartment search in Germany. It seemed to be enough time to find the perfect place that I would call home for the next couple of years. In an initial round, I filtered 8 apartments from 68 on the rental market at that time, each of which seemed to have what I was looking for. No crazy requests, I just wanted a window in each room (read LIGHT, since I don’t want to live in a box), hardwood floors throughout (since lots of places had tiles in the whole place…yes, bedroom too), and a balcony where I would be able to put my patio furniture. From those 8 apartments, only 3 actually had all of what I was looking for. Great! It felt like finding a place to live in Germany was an easy task. The only thing left was to negotiate the price and move into the ‘best deal’ since all of them seemed a bit pricey.

My first negotiating activity was a real disaster. The agent was obviously annoyed and irked by my attempts to negotiate a lower monthly rate. I really had good arguments why I thought that the rate should have been lower – from comparing the price to others on the market to naming all the investments that I would implement in the place and which would stay for the owner (since I’m not planning on taking with me, nor can I resell custom-made kitchen cabinets). No matter how hard I pushed his answer was “No, this is the price for this apartment. The owner knows that the place is worth this much and won’t rent it for less. If you don’t want it, someone will come along who will”.I guess that every product has its customer, one who’s willing to pay a particular asking price. Obviously I was not the right customer for this product.

Ok. Tough luck. 2 more to go.

The second  place, the second agent. Of course I had questions about the apartment! However, the agent found my extensive interest in details….frustrating and pestering . One moment he turned to me and actually said “Since you are asking too many questions, it’s obvious that you don’t like this place.” No! I liked the place just fine! I just wanted to know if holes in walls would be closed and if I could change or remove the curtains…. But, he didn’t have any patience for me. He had this demotivated look on his face, showing me that the visit was obviously over – since I was not the right customer for that place. I had too many ‘issues’ that the right customer would not. The right customer would be just happy, quiet and would take the place without question. I didn’t even get to the point of negotiating the price this time.

In the mean time, I was trying to rent out my own condominium in the Chicago area. After a month on the market, I started to rethink the price – was it too high? After a second month not renting the condo, it was clear that I had to lower the price if I wanted to get a tenant. People started to call and show some interest, and finally an offer came – even a bit lower than my reduced asking price – but hey I couldn’t afford to go on for much longer with paying rent on one side and a mortgage on the other side.

The third place was being rented out directly by the owners. I kind of felt for them since I saw myself for a split second. Decent renovations, decent location, more or less both I and my partner were satisfied…that is until we started hearing about all the conditions that we needed to fulfill “No animals, preferably no children, a garden that was exclusively mine had to be ‘this’ way,  you are not being allowed to paint the walls any color other than white…”. Should I mention that the rent would be raised 10% after a year and even more the subsequent year. Space for any negotiations? I think not! Did they seem a bit more emotionally attached to their ‘product’ than normal? Yup! Were they aware of the rest of the offers on the market ? No. They didn’t have an outsider (an agent) to even give them constructive advice about how to ‘sell their product’. In their eyes, they had a perfect product on the market and only a fool would pass and not rent it. They were doing a favor to the world by even putting their product on the market. I just wasn’t thankful for that (favor)….what an imperfect customer I was! Thank God!

This month, I have found myself constantly thinking about Lesson #3, which as always would be dedicated to small businesses. As much as I try to distance myself from the current economic situation, I find myself being drawn back to its continuing impact to all aspects of life.

Serious economic downturns such as the one that we are facing today, can cause a number of changes that reach multiple markets, from banking to technology. A positive outcome that we hear about often is the significant acceleration of innovation and entrepreneurship Nevertheless, while new ideas and theories arise in the short term, the consequent appearance of new products and services on the market is more of a long term development. Large corporations often have the vision, resources, and luxury to address such long term change even in face of short term issues. Small businesses,on the other hand, must first face and overcome short term challenges to ensure that they survive long enough to be part of that change.

Small businesses often have to address numerous challenges, including reduced overall market demand, supply chain limitations, increased cost of goods and so on. In some cases, these issues may be too dramatic to overcome. For example, the demand for housing and construction over the past year has dropped to the extent that regardless of service quality or innovation, some companies could not survive. On the other hand, for many markets, demand will continue albeit at a lower or at a much more competitive level. If your small business is in this latter situation, it is important to step back and revisit your sales and marketing strategy in an effort to increase competitiveness, along with brand awareness and loyalty.

Today, in many markets, there is still a good level of demand, but customers are much more sophisticated in their decision making process.Today, customers are looking for value and are willing to make tradeoffs between quality (including branding) and cost To capture this new customer, you should follow these three steps:

1. Determine your value proposition (cost vs. benefit)
2. Identify customer segments that best fit your value proposition
3. Target these customer segments with a revised marketing strategy

Determine your value proposition

Let’s simplify the value proposition in one sentence -what do your customers receive and how much does it cost them? Sounds really easy, but most businesses fail to clarify the link between cost and benefit, and at the same time distinguish themselves from competition. Some businesses may be able to determine their value proposition easily while others will need research. If you are a small business that doesn’t have the ‘resources and luxury’ to hire consulting companies like large corporations, engage your most valuable resource – current and loyal customers. Ask your customers why they choose your product over competitors’, what are differentiating factors, and what tradeoffs they are willing to make between cost and benefit. This feedback will help you clarify your product or service’s strengths and weaknesses.

Now that you have started to analyze your internal situation, you can turn to analyzing the entiremarket and your competitors. Overall market data, whether statistics or trends, is relatively easy to access in today’s world (e.g., average prices for a given market). However, more specific data on individual competitors may be more challenging. That is the key question -do you know your competitors? If you don’t know the answer, perhaps it is time to buy a competitor’s product (or range of products) and test it yourself. It might sound weird, but getting the real experience of a competitor’s product, their marketing materials (i.e., brochures, catalogs, and newsletters), or their ‘value proposition’ can be valuable research. Compare your competitor’s product cost and benefit to your own and revisit your own value proposition. There will be some threats to your product, but also some opportunities, after you break down the competition and the market environment. If you juggle the cost versus benefit well, and if you determine a proper value proposition, you will have a chance to survive the economic downturn.

Identify customer segments that best fit your value proposition

Remember that this new and almighty customer, armed with information and gifted with choices is your ticket to the next fiscal year. You don’t want to fight, trick, or seduce this more sophisticated customer – it is too dangerous for your business. You want to play a fair game by identifying and targeting key segments of customers that will be a perfect fit for you value proposition. Start with abasic customer segmentation that determines the number of customers and their breakdown according to a number of factors such as age group, gender, location, income, and so on. Next, begintracking buying behavior for existing customers (or use historical data if available) to determine recency (timing of most recent purchase),frequency, andmonetary value of purchases. By combining the basic segmentation with buying behavior, you should be able to develop more advanced customer segmentation.

Target these customer segments with a revised marketing strategy

Once you have identified key customer segments, you should perform a final round of research to match each segment to variations of the value proposition. This can be done in a number of ways, using interviews, surveys, or even comparing prior marketing initiatives with sales history. After determining the best ‘segment-level’ value proposition, you may need to update or totally redesign last year’s marketing strategy to develop it into a more effective vehicle for your newly discovered value proposition. Rethink your product description, promotion materials, distribution channels, and pricing points. You have already discovered how each customer segment will react, so now put this into action. Develop the most effective marketing materials to transmit your message to different segments. Your message should be simple, memorable, and consistent through different marketing channels. Remember, you are dealing with a customer that balances both benefit and cost so make sure that you adequately address both.