This is part 1 of 4 blogs which will cover the different customer value propositions that a company can use to compete in the market place.
Every company competes, in one way or another. Either they are competing to get attention with a gorilla marketing strategy or to simply get new customers. Competition is a fundamental part of any marketplace. Unless there is a monopoly or duopoly in place, market forces are moving resources between companies.
The weakest of all modes for competition in business is operational excellence. In the eyes of the consumer, you offer the cheapest product of all solution providers within your space. Your business model is based on maximizing your capacity and selling as much of your product as possible.
There is one Fortune 500 sized company that comes top of mind when you think about a company that is operationally excellent….Walmart. Walmart, in the eyes of the consumer, is the cheap place to go, in general, when you need to buy something. They are not very innovative in their offering. Customer service, well, you have to be able to find someone on their store floor to consider customer service. Lastly, quality products is not something that rings with Walmart.
When you create your company with a business model of being operational excellent, you are more than likely to attract a large portion of consumers. Who doesn’t want to save money?
But in following this model, it becomes hard for your company to raise prices. You have to ensure that you stay top of mind for your consumer when it comes to buying something cheap. But what happens when someone else decreases their prices below yours? Well, if you are tried and true to your strategy, you will decrease your price too. This will only start a race to the bottom. In reflection, you have just commoditized your offering and your consumer will always go to the cheapest name, no matter who it is.
There are some circumstances where being the cheapest in the market is the best position. You may be focused upon an economically sensitive target group which is under served. Perhaps you are entering a new market with a new product and you want to help accelerate adaptation of your offering.
Does your company want to be the cheapest in its industry? What companies do you see fitting that bill?
Have an awesome and productive week.
Kevin MacDonald is a Business Consultant at L6S Business Consulting Inc (www.L6SBC.ca). L6S offers services in management consulting, Controller and CFO contracting, and lean management with either project work or teaching/mentoring of staff. Kevin has his CMA accounting designation along with a Black Belt in Lean Six Sigma.
Kevin is active in the community by volunteering for the South Edmonton Business Association, the Fringe Festival, Goodwill Industries of Alberta and donates at the Canadian Blood Services.