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:
- Determine your value proposition (cost vs. benefit)
- Identify customer segments that best fit your value proposition
- 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.