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The CEO of a major Asian corporation recently told me that the biggest
challenge he faced was that of growing his company. He wanted to know
whether he was missing any growth opportunities and was particularly
concerned about the adverse impact economic uncertainty and intense
competition were having on his company's growth.
Given the new uncertainties that terrorism
and the possibility of war in the Middle East have created, many businesses
are cutting back on spending. The travel and hospitality sectors have
been hit badly, financial institutions are cutting back on jobs, and
many consulting firms have put recruitment on hold. Not only is the
pie shrinking in size, the number of slices is also increasing: companies
are faced with an increasing number of global competitors in their
domestic markets. This has forced companies to look for new ways to
find customers and encourage existing customers to buy more.
In PSi's experience, the first
place to start in any growth initiative is with your existing customer
base. By reducing attrition a company can immediately grow its revenues.
Working backwards, this means improving customer satisfaction, which
means improving internal processes, and that in turn requires training
and organisational learning. Another way you can enhance sales among
the existing customers is to find new uses for your product. For
example, a company that sells paper for photocopiers can encourage
existing customers to also use the same paper in laser printers.
Companies can also encourage existing users to consume more by getting
them 'addicted' to increased usage through smart advertising ("use
after each meal"), repositioning a product ("it's not just for breakfast
anymore"), or volume discounts ("buy two get one free"). The key
to growing sales among existing customers is to completely understand
their behaviour and needs.
There are two basic ways in which a company can acquire new customers-luring
customers away from competitors and convincing non-users to buy
one's product. The first option is difficult because it's a zero-sum
game and there are switching costs and risks involved for the customer.
Companies reduce switching costs by offering introductory prices
(or even free trials), and risks by offering performance guarantees.
SmartAnalyst, an online research company, was able to poach sophisticated
American research customers from established competitors by offering
both free trials and satisfaction guarantees.
Convincing non-users to buy one's product requires
greater creativity. SmartAnalyst convinced non-users of online research
by holding seminars in luxury hotels and inviting a professor from
a major university to talk about the economic value of information.
Companies, however, can very often come up with great ideas to grow
sales, but fail in implementing them. This often happens because
of resistance to change within the organisation.
Another reason for failure can be some other conflicting initiative.
For example, free trials (to lure away customers from competitors)
could conflict with an initiative seeking to reposition the product
in the premium segment. Therefore, any set of growth initiatives
must be carefully and systematically coordinated.
The uncertain environment and the concomitant economic slowdown
have forced companies to unfreeze their thinking, question their
past assumptions, and challenge the opinions of the experts. Companies
need to view their industry from a new angle, think hard about how
to do things differently, and then systematically implement new
ideas.
The author is Director (Consulting & Private
Equity Activities) at PSi. He can be reached at psi@psi-world.com
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