Why do your customers buy from you?

Why do your customers buy from you? I’m sure we all have our own ideas of how we are better, faster, cheaper and just an overall better choice than our competitors; but sooner or later we all pause and wonder if those are the real reasons why our customers are…well, our customers.

You’ve probably heard it said that customers buy from us because they are drawn by our Unique Selling Proposition (USP). True enough. To take that further, they actually formulate a Unique Value Proposition of their own based upon our expressed USP. But enough of the marketing jargon, how do we even create our USP in the first place?

We don’t start our businesses just thinking of what we can do to attract customers, although that is important. More important to us, at least initially, is how are we going to make money. And that brings us to the heart of most businesses…profit! This is where we concentrate much of our planning if the company we run is actually going to sustain itself, sustain growth, and sustain an acceptable return on invested capital (ROIC) over time. Now we are really getting to the heart of most businesses and “what makes them tick”.

So what is the key ingredient to the recipe which allows an acceptable ROIC, make a profit, attract customers and create a highly valued USP? Why do they come to us? The foundation for all of the above rests within our distinctive competencies.

Distinct competencies form the basis upon which companies earn above average profits and are usually those capabilities which competitors are either unwilling or unable to imitate. If a company has distinctive competencies it will earn above average profits. Competitors will notice and will naturally wish to imitate whatever competency they see as the basis upon which you’re earning these higher that average profits. Their ability to imitate these competencies will determine how quickly they can erode your higher than average profits, so the level to which they are distinctive is very important.

By erecting barriers to imitation, you increase the distinctiveness of these competencies and therefore your competitive advantage. These barriers can be a patent or trademark, technological know how, a secret recipe, or some particular skill not easily replicated. They could even be composed of special access to a particular market or sales channel. The degree to which a business develops or nurtures these competencies determines the ultimate formula used to create their sustainable competitive advantage. This is the fundamental reason that some companies seem to flourish and other struggle against seemingly insurmountable hurdles. Luck works too…just not very often. I’d much rather have a plan to follow than rely on the goodness of lady luck, the weather, or the much awaited economic upturn to help a new or underperforming company.

So how do we craft this formula for a sustainable competitive advantage? There are four keys you can dial into in varying degrees comprised of Price (efficiency), Innovation, Quality, and Customer Responsiveness. (Hill, C., Jones, G. 2008 Strategic Management) Through these keys you will determine whether your competitive advantage leans toward low cost (low price to customer) or differentiation (high margin). The goal with either scenario is to achieve a sustainable advantage which means that there must be enough ROIC to be able to also continue feeding the needs of the four keys to achieve growth and maintain barriers to imitation.

Competitive advantage is not about a willingness to accept less profits, it is about a drive to sustain and improve those keys which fuel growth over time.

© 2009 Best Business Associates – May not be reproduced in whole or in part without written permission and attribution.

Facing economic downturn in business

When the economy takes a downturn, or if a business simply experiences a downturn in sales, many businesses react by cutting back budgets in order to conserve funds in the face of declining sales. It is an instinctive reaction that is often scorned by would be advisors. They say things like “when things slow down, that is the best time to keep up with your advertising efforts”, citing the fact that there might be less competition in the marketplace therefore one who continues their efforts would logically stand out and achieve greater results.

Baloney! There is a reason that your instincts might lead you to conserve your resources, cut back on expenses, and reduce advertising budgets. Your instincts have probably served you well in the past, why should you start ignoring them now? If you examine your decisions, they are probably based on sound reasoning. If something is not working why would you continue doing it? If your advertising is not pulling its weight and not bringing in the results intended, why continue? Albert Einstein once said “The definition of insanity is doing the same thing over and over again and expecting different results”. If a smart guy like Al thinks it’s a bad idea, I’m betting you might agree.

So what are these would be advisors thinking anyway? Are they nuts? After all, it’s not their money they’re spending, is it? The answer is…they are both right and wrong. They are right in that one may not be best served by “hunkering down” and cutting budgets and just waiting out the downturn in hopes of “things getting better”. They are wrong in recommending simply staying the course in hopes of the same “things getting better”. Something has to change.

Chances are that when sales decline there are one or more reasons why that has happened. It’s easy to blame it on the economy, especially these days. But so what? That doesn’t change your need to pay rent, payroll, or even, perhaps yourself! No matter what the reason is, it is your job as CEO to examine or re-examine the market and determine a course of action. Your goal when you started your business was probably not just to “ride the market and hope for the best”. It was more likely something on the order of maximizing talents and efficiencies in order to satisfy some market need with a high value proposition. My premise to you is that nothing has changed! At least, nothing should have changed, but it obviously has. That is why sales decline. It is not because of bad economies. It is not because of recessions. Those are all symptoms of what the other guy is experiencing. That is what has happened to the financial markets, the housing markets, construction, and who knows what else. They have lost their value propositions! It just so happens that your market may have been influenced by that, but that doesn’t change anything for you. Your job is still to provide high value efficiently, right?

So simply advertising that which you have done in the past would be kind of crazy if things have changed, right? See, your instincts were correct! And you were half right! You got the part right about stopping doing what was not working. You just forgot to start doing that which you must do in order to grow. You must re-connect with your target markets and find out what they now value most. And by the way, you must continue to grow, because the alternative for any business is ultimate failure or an orderly exit. Either way, that party will be over.

So what should you do? Just what you’ve done in the past…or at least, what you should have done in the past. Your customers form their unique value proposition by combining direct input from their perceptions of your company’s offerings with their needs or desires. If, in their mind, that unique value proposition (UVP) is higher than those they form with alternative suppliers then you get the business. It is that simple. You control the Unique Selling Proposition (USP) which your company exudes in the form of product/service breadth/depth, pricing, availability, personalized service, or perhaps other factors that your customers perceive have value. And this is exactly what I find has changed when sales decline! Through time, a disconnect is formed between that which we feel has the greatest value perception in our customers’ minds. In short, what turned them on in the past is no longer working. They now value something different. It may be similar or quite different. The point is, over time we tend to lose touch with that most precious connection with our customers and also those who are not currently our customers, but could be if we “only knew”!

Getting back in touch with those two groups, customers and potential customers, and finding out just what they most value today in their supplier is often an epiphany. It is rarely that which worked ten years ago, and is rarely what you think it is today. Strategic marketing is not a task. It is not a tactic. It is an ongoing discipline designed to ensure that all your company’s messages and contact points are germane. It is only through knowing what your customer values today that you can advertise messages which are effective in bringing desired results.

When sales decline it is time to cut back on that which is not working. It is also time to dig into the marketing puzzle to find out why and what needs to be changed. USP, VOC, SWOT are tools used to scientifically arrive at solutions to those questions which make your tactical marketing efforts more efficient and productive. Even in a “bad” economy, businesses need to grow. If your company’s sales are flat or declining, take action now before your party is over!

© 2009 Best Business Associates LLC