Strategic Investments Create Strong Value Propositions

I have learned that most executives tend to be “programmed” to follow a particular path of thinking and acting when sales drop in an economic downturn. First they cut prices, thinking that this will stimulate sales because their economics professor told them it would. Then, when sales continue to decline and profits decline even further due to lower prices, executives cut costs in product offerings. Soon, labor cuts are attempted. Eventually management may feel forced to decide to sell what is left of the company at a discount or to close its doors.

What is unfortunate is that this thinking is not rational. Yes, there is waste in every company, but whatever may be gained by cutting costs without a value-oriented systematic approach is often minor in comparison to the damage these cuts make in the mind of the customer. Would you expect your vendor to charge you the same fee or give you only a slight discount if they cut some of the very elements of the offering you valued?

Why do you treat your customers this way?

Customers have come to expect the value proposition you are offering over time. If your sales are down, you need to analyze what is happening by talking directly to your customers.

Here are some examples to consider:

Customer “A” chose to not renew your contract and instead traded up to your competition who is currently offering a discounted price that is reasonably close to your price for much more value over a period of time that will likely exceed the length of the current downturn.

Customer “B” chose to leave because they found that many of the elements of your service or product offering were never the right fit for them and a less expensive but better-fitting offering is available from another competitor.

Customer “C” was approached by a small aggressive company who offered to customize an offering in exchange for Customer “C” funding some of the development costs. The product or service is a perfect fit and the price is right.

Customer “D” found a feasible alte
ative to your product or service. This customer found a way to achieve the same goals with an entirely different solution.

As you should be able to see from the scenarios outlined above, customers leave for a variety of reasons. In addition, there is no single solution to solving this exodus. You have several challenges that cannot be addressed simply by cutting prices or costs.

Here are a few suggestions for you:

First, bring together your team and communicate with them. Authenticity is the most important factor in communication. If you don’t know the answer, say so. Make sure you offset negative impressions with a focus on what is working well and how you plan to leverage that. During poor economic times, communication with your employees should increase.

Secondly, contact customers who recently defected and thank them for their past business. Tell them that you understand that they had to make a decision based on their business situation. Ensure them that this is not a sales call; but rather, that you want to learn more about why they chose to go with a competitive or alte
ative offering. Simply ask questions and listen. Do not argue or contest the validity of their decisions.

Before closing the call, thank them for their past business and ask them if you can occasionally call them to discuss new product ideas that may be of interest. Describe this future call as an opportunity for them to give input on the direction of your company. This should leave them feeling positive at the end of the call and you now have a reason to call them back later.

Thirdly, create a customer council that meets at least once a quarter. You will want to have a variety of customers represented. Industry, profitability, proficiency, loyalty, length of relationship, and other relevant factors should all be considered. With a multi-dimensional audience, you will learn more and your customers will each bring a different level of expertise to the team.

Finally, redefine your value proposition. Ask your customers what you do well and then ask them what they value most. You can plot this data on a grid that shows you what to really invest in—high value, low satisfaction; what to reduce investment in—low to mid value but high satisfaction; what to eliminate investment in—low value, low satisfaction; and, what to maintain investment in—high value, high satisfaction. Taking action on this information will allow you to properly reallocate investment and will help you avoid cutting prices or costs rashly.

Most of these efforts can be carried out quickly by a focused team. Make sure that this is the priority and give it the time it demands. Your company’s future is at stake.