The three things that will drive your strategy

In a commercial enterprise whether big or small, you may have many plans on location, human resources, financing, operations, technology etc. But those are only plans that are slaves to the true drivers. And there are only three drivers. The three things that you need to continuously do to get into, remain or compete in business.

The three things that will drive your strategy are:

1. Get more customers. I think this one is obvious. If you’re making a million dollars with a base of 1000 customers then you might project that you will make 2 million with 2000 customers. It may not be as simple as that but that is a good place to start.

So how do you get more customers?

One way to get new customers is to promote heavily to them, offering good attractive deals to bring them on. You may make some loss on these initial offers which are called loss leaders. However this can be a very effective way to acquire new customers and to get them to try out your products.

You could share customers. You can partner with other companies who are offering other non-competing products and package your products along with theirs to their customer base. So for instance if you were a restaurant, you could offer a meal at a heavily discounted price with every booking at one of the hotels in your area. That way the hotel is offering a promotion to attract customers to buy from them and in doing so is also feeding you with new customers.

You could also get new customers by expanding into a new market. You could open up locations in a different neighborhood, city or even another country.

Another ingenious way to get customers is: You could buy them! Pepsi supplies soft drinks to fast food restaurants. Pepsi thought it was a good idea to buy a chain of franchised restaurants and keep supplying them. That was a good idea. Pepsi was the only soft drink supplier because it owned its customers.

Whatever you do make sure that your new customers get what you promised and that the experience is great for them. If you give them a bad impression then you will not be able to keep them for the next purchase. Customer acquisition is very expensive because of all the promotion that is associated with it. To lose the customer when fulfilling that first sale is the worst thing you could do. All that effort would have been for nothing.

Make sure you have the logistics, the inventory, the service staff, the training, the telephones if receiving orders by phone, the website capacity if orders are coming online and everything in place to accommodate the new customers.

2. Get your customers to spend more. So you already have the customer. He or she has already purchased from you. You may have some data on this customer too. How much they spent, when, why etc. Bottom line, you have a customer base. Now you want to make as much out of this customer base as you can. Don’t forget, customer acquisition is the most expensive way to get business. You may even make a loss in acquiring new customers. Once you have the customers, this is where you are most likely to make your profits.

So how do you get your customers to spend more?

Well one obvious one is to raise prices. If you were an internet service provider charging $50 per month and you raised it to $52.5 a month, that may seem like a small increase to the customer. The customer may not be too keen to switch providers just for this small increase. This however would depend on how easy it is to switch and how sensitive customers are to price changes. It really depends on the kind of business you’re in and only you would know.

If you are successful in raising prices as in this example, you’d be able to increase your revenue literally without making much effort. You are providing the same service or product to the same customer only now at a higher price.

You could do this after a customer acquisition which may have been at a lower introductory price to attract the customer. This kind of tactic is used a lot in services that are not easy to switch between providers.

You could also raise prices by reducing the size of your offering. Many consumer goods distributors do this. You remember that bag of crisps at the grocery store that used to be 750g and is now only 580g in the same sized bag at the same price?

Of course another way to get customers to spend more is to offer them more products. You can develop product tiers where you have a basic service, medium service and premium service. You can offer existing customers a higher tier service at a higher price. You can develop variations of your existing products, expanding your product line.

If you are in a hurry and have the money, you could acquire a company that offers products that can complement your product line and then offer those products in addition to your original products to your customers in bundles. You will also get a new customer base with the acquisition and be able to sell them your current products.

Product development is a whole world of its own especially in large companies or where product lines are complex such as in high technology or biochemistry. There would need to be investments in research and development, possible alliances with partners, joint ventures, investment in new manufacturing facilities and so forth.

Or, if you are a small restaurant, it could be a matter of adding a new dessert on the menu.

3. Get your customers to buy more frequently. Again, worth repeating, getting new customers is the most expensive of these three strategic drivers. Attracting more business from existing customers is usually cheaper and more profitable. So the third driver for your business strategy is to get your existing customer to buy more frequently.

So how do you that?

Well, let’s say you are a small restaurant. You made some analysis and found that your customers visit your restaurant once a month on average. That’s 12 visits a year. Now if you could increase that to 14 visits a year you will have increased your business by more than 16% from your existing customer base. Maybe you could offer a coupon or a special discount or package for certain events like Valentine’s Day or offer free dessert when it is your customer’s birthday. For a couple, if they do respond to such an offer, that would mean two extra visits to your restaurant.

Some large online retailers entice their customer base to visit their website more often by promoting special offers on a consistent basis. In some cases they don’t tell their customers when the offers will be made and that encourages those customers to visit the website more often just in case there is one that day.

Believe it or not some products are made with a shorter lifecycle to force customers to buy more often. You heard the saying “they don’t last like they used to”. It is quite true these days because businesses have found that it is better to have customers coming back more frequently to buy. This may at first sound like a devious Machievellian, manipulative tactic. However it may not be entirely sinister. Can companies make your mobile and its casing so robust that it would last 10 years? Probably yes. The question is “would you want to keep the same mobile phone for 10 years?” Probably not. With some product lines it is just better to keep the lifecycle of the product shorter to enable more innovation and introduction of more features with newer versions of the products.

So to recap: there are three underlying core drivers for any business strategy that then could lead to plans for the specifics on how to satisfy those drivers. The three drivers are:

  1. Get more customers
  2. Get your customers to spend more
  3. Get your customers to buy more frequently

 

Hope you found this useful. Please leave me a comment. Let me know what you think.

 

Muneer

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