The issue for a number of businesses it that they have already cut the obvious areas of waste but because revenues are weak they need to cut further.  The problem is where and how to cut without damaging the business.

A simple way of evaluating the various options to reduce costs is required. My approach is to look across the business and ask one question. How does this action or task add value to customers? A high level first pass will identify things to cut, things not to cut, things to review and perhaps even some areas to invest more in.  The key point is that it provides a consistent way to make decisions and to explain those decisions to staff and customers. It’s also repeatable as circumstance change either positively or negatively. 

Ideally the results should also be assessed against the plans of the business before final decisions are taken. Unfortunately a surprisingly large number of businesses do not have good plans beyond revenue and profit objectives. Definitely another reason why knee jerk reactions take place.  

I’d suggest looking at the behaviors and features that builds trust in the first place. To me the top 5 are:

1. Honesty
2. Consistency
3. Professionalism
4. Excellent service
5. Great staff
Therefore any action that a company plans to take should be assessed against the impact that it would potentially have on any or all five of the above and features. If the action would result in a negative reaction simply don’t do it because that would damage trust. If you still decide to go ahead with a particular action HOW you plan to carry it out should then be assessed against the top 5 list.

The model for the most trustworthy retailer is always John Lewis and their supermarket chain Waitrose. Interestingly Waitrose are rarely the cheapest and in spite of the John Lewis promise to never be knowingly undersold some of their own products are quite expensive. But, since everyone trusts them on all 5 points price becomes much less relevant.

Being consistent in everything that we do in life is one of the hardest things to achieve. For example none of us like “junk mail” but often we do marketing that is viewed by some of our targets as “junk mail”. Thinking from a customers point of view is a challenge for most people.

“Honesty” is even more difficult because its harder to define and our definition of what is honest changes based on circumstances. For example stealing pens from a shop is dishonest but what about stealing pens from your employer? Would it be OK to steal pens from your employer if he had not paid your salary for a few weeks? Hmmm…

Personally and in business I aim not to do to others what I would not like them to do to me. It’s a useful principle but there are always times when sticking to it becomes quite hard.

Malcolm says:

Customers, even in strained economic times, don’t just buy based on price.  In broad terms they buy based on perceived value but in selecting one supplier over another a different set of factors come into play. It’s not necessarily the best price and best perceived value supplier in the market that is always selected.

The other set of criteria that comes into play is what I call the RET factor. This stands for Relationship, Expertise and Trust. If you already have a very good relationship with an existing supplier you might well want to stay with them even though they are not the lowest cost or provider of the best value. In some cases you may not even have a direct relationship with a potential supplier but you may want a relationship with them. An example of this could be a shop local campaign or a major brand that you want to be associated with such as Apple.

People are prepared to pay for demonstrated or perceived expertise. Would you buy the very cheapest tyres for your son’s car? The top aspect is Trust. Even if a supplier ticked all of the other boxes if you don’t trust them to deliver as promised you will not buy from them.

I believe that the after-crisis economy and the in-crisis economy favours organizations who can demonstrate high perceived RET factors in the minds of their customers.  To me the RET factor will be much more important than price in gaining Sales

Malcolm says:

I recommend to my clients that they start by understanding why people became their customers in the first place. This gives you a base of… see more things to keep doing. In reality most purchase decisions are based on how a prospective customers regards you based upon three factors: Relationship, Trust and Expertise. To understand more about what these factors mean to your specific customers you have to ask them about their views on the relationship they have with you. The best way to do this is via a third party because many customers will not tell you what they really care about. The worst way to do it is to ask your our sales force. They are too close to the action and have too much to lose from negative comments.

By asking the right questions in the right way a lot of valuable information will be uncovered. My advice is to first ask your own staff how they think customers will rate their relationship with the company. Then go out and ask customers. Comparing the answers highlights the differences and because of the personal involvement of staff and customers improvements are more likely to be implemented. These improvements could both encourage existing customers to stay and buy more but in many cases also presents opportunities to reduce cost.  Get the balance right and your company will stand out from your competition. Several papers on my website explain more about this approach and has some examples of the benefits.

www.simpleplans.co.uk/7.HTML

Malcolm says

Step one, do not beat them up and tell them how badly they are doing. Step two, take the opportunity to engage other parts of the business to discuss what can be done to increase sales. Talk to Customer Services, Marketing and yes even Finance. Get a different take on customers that can be used to change how things are done. This current environment is a great opportunity to pull together the whole organisation to help and support Sales. With this extra knowledge and support Sales staff will be able to build better relationships with customers and improve results. Another key benefit is that top Sales staff will be more encouraged to stay with a company that helps them rather than just beats them up.

Malcolm says

Dogs are loyal, customers are not. Customers buy from you for a range of different reasons based on their perceptions and the relative value that they place on price, relationship, expertise and trust. There are often a few emotional factors in there too. The mix and importance of all these factors varies by product, circumstance, time and immediate economic environment. Of course it can also vary by individual customer too. This gives a lot of variables and shows that there are no easy answers. Success is usually based around really understanding your customers and providing an appropriate mix of the variables under your control for your target market.

If a strong competitor enters your market the worse thing to do is nothing. Hoping that “customer loyalty” will see you through is very dangerous. You have to understand the competitor, their offering and the likely impact that it will have on your current and target customers. Only then can you decide the most effective actions to take.

Malcolm says

I think that you are right, 2009 will be the year of the customer/client for smart companies. When times get tough consumers and B2B customers think more about what they buy and who they buy it from. Price is always a point but the RET factor is even more important. RET stands for Relationship, Expertise and Trust. If your business does things that negatively impact any of these three aspects less customers will buy from you. Of course the reverse is also true and that’s why the smart companies are implementing often low cost simple things that will improve their RET rating with customers.

The first step down this path is to understand how customers rate you today. I do a lot of RET surveys and almost without exception the company thinks that their customers will rate them higher than they actually do. With this evidence its much easier to decide what actions to take and what things to leave along. Without this evidence Corporations will continue doing what they think is best which is often not what customers want. Have a look at the survey results on www.simpleplans.co.uk/7.HTML which will explain this in more detail.

My prediction is that companies who do see the light and start to better understanding what their customers want at every touch point will be the ones who are successful in 2009/10.