Red Zebra Business Centre - Management Memos
October 2010 Making Measurably More For Your Business Since 1985!

MaxProfile
Sales Downturn Worries Some, Makes Others Act

Max Williams, Principal Consultant

With a fear of RBA increases in the cash rate, an economy allegedly in strong conditions, but slow and disappointing retail sales, many manufacturers, wholesalers, and retailers report difficult trading conditions and cash worries as the October deadline for the first quarterly tax instalment looms!

Most clients report that trading began returning to more normal patterns as August unfolded. In most cases, sales performance has needed some stimulus. Fortunately, there are several things you can do to push business ahead.

First, plan. Whether business is better or worse than  last year is less important than whether business is generating enough gross profit this month. And just now is when you really do need a gross profit plan to help you.

Second, increase your sales strike rate. Current prospects, enquiries and quotes produce a much faster response, and with less cost, than looking for new leads. So polish up the closing skills, and be prepared to deal. Check what closes you are getting on your quotes. That can almost always be improved.

Third, promote a specific extra value with an action hook. You will need extra leads as well as your improved strike rate. Be sure to include an action hook, and make certain you are offering visible, measurable, and unique, extra value.

These three simple steps will see you meet your commitments, and stay in control during a challenging time.  But then, it is not quite so easy as it sounds.

One answer available to our clients is the increased planning and control they get from the gross profit plans we prepare.

To trade their way to increasing gross profit dollars (Remember: You can't 'bank' per cents!), they are using our exclusive "Full Value Pricing" program. The extra insight and information Full Value Pricing gives, makes it easy for business managers to close the sales they really need.

Makes it hard for their competitors. Guess that is just too bad, heh!



Don't get better, get different!

Consider this assertion by Michael Milgate in Marketing and eBusiness:"improvement is overrated, because it can be a barrier to innovation. Market success is more often the result of strategic innovation, which comes from conceptual thinking".

Tom Peters, (famous for "The Pursuit of Excellence"), in his later book "The Circle of Innovation" puts it very sharply:

"Cannibalize yourself as quickly as you can.  i.e.. Now!"

In other words, while you are trying to improve what you do, every one else in your industry is trying to do the same thing. And they won't succeed either, because someone outside your industry is trying to destroy all of you with something new.

The message is clear. Doing better what you already do is the way to lock yourself into the past, and so become irrelevant  Not that there is anything wrong with continuous improvement. It is essential of course. But only to stay alive for now. Don't spend too much effort on it, because the future depends on reinventing your business - Being Different.

As Milgate continues, "there is much you can do to improve people's ability to reconceive the business... You can get them to look and learn outside the boundaries of their industry.... the only time you learn is when you talk to people who have a different experience base than you do... You can also bring new voices into your strategy process."

Milgate cites an example where a hotel operator sighed, shook his head, and said "Michael you just don't know the hotel business."  Milgate's response was "I know, and not being in the hotel industry gives me a competitive advantage".

Having an interested third party who is not involved in your business is a very useful way to harness this kind of competitive advantage for you.

Consultant, anyone?





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Rear View Management


Y

ou can't drive without the rear view mirror. It tells you what's going on behind you. But you wouldn't use it to steer your car. There's only one time you can steer through the rear view mirror - and that's when you're going backwards!



Same in managing. Managing next month and the month after is the way to make real progress. We call it "Managing through the windscreen".


Easy to say, hard to do!

In the last month or so, we have talked with a number of businesses who have had great expectations for this financial year. Problem is that when we look at the results to the end of August, not one is performing to the level required!   It is now almost impossible for those companies to reach their expectations next June 30.

Part of the reason is the overhang of the GFC, but the main reason is the fear of interest rate rises, and the other factors holding back non-investment buying, and retail sales in particular.

Peter Drucker, long time doyen of management theory calls this "the future that has already happened".  Put simply, the year is made up of just twelve months, and each month has to produce the right result, or the whole year just can't work out right. You might get lucky, and have a run of good months, but then that is not managing - it's just being lucky.

One time Executive Engineer of Ford Motor Company of Australia, Ron Davies, when addressing a group of young engineers looking to make a career in management, put it this way - "Management requires insight, initiative, and action. Without those, you have nothing more than administration of the status quo".

Dealing with the demand as it happens, trying to save expenses here and there, keeping an eye on maximum and minimum stocks, are all very necessary things to do. But that is administration, not "managing". Certainly not "managing through the windscreen".

So how do you apply "insight, initiative, and action" to determine the results of the next month and one after that?  And how can you do it in time for it to make a difference - before the future has already happened?
 
One of the critical elements in good management, and one of those most often overlooked, is the ability to project future performance. If your financial systems, support people or advisors are not giving you future projections, you just don't have en enough information to manage properly.,

So, next January, when it is time for the next quarterly PAYG payment, will you be hoping that December was good enough, wondering again how to find the cash to pay as you go?  Or will you have the gross profit already booked, the cash available, and be on your way to achieving your sales and profit goals for the year? 

You will, if you are managing through the windscreen.


Product ranging is a key factor in success

In any product range, whether it is fashion goods or homewares, hardware or office supplies, soft drinks or confectionery, there will be products that sell particularly well, and others that just don't. The secret to good business is picking the winners.

For Retailers . . .
1.  You are the expert on the nature, make up, and  objectives, of your business. You know what fits the image you are projecting. Range in only that stock that truly fits the pattern of the business you are building.

2.  What are the price points that suit your target customers?  Well, who is coming into your store anyway, and what are they looking for?  What are they prepared to pay?  When you know the price points that suit your customers, choose product lines to fit that pricing pattern.

3.  Remember "leader lines"  Not "loss leaders", but leader lines. These lines attract customers and generate store traffic. Usually at good value for money prices, leader lines appeal to people who will often be "upsold".

4.  Breadth of stock range  Depending on what kind of business you set out to be, for example exclusive and personalised or high volume discount, you will have a different need for breadth in the stock range.

Discount stores depend on high volumes and have deep stocks in a relatively narrow range. A personalised store needs more variety, a wider range but smaller quantities in each.

5.  Depth of stock range  A personalised service, premium quality store with a limited quantity of each line, will still have an unusually wide range of colours for each line. Its stock depth is found in the colour range on offer, rather than the quantity of each. In the discount store we don't need many colours, but we do need a good quantity in every colour we decide to carry.

6.  Basic Stock  "Bread and Butter" lines that form the basis of a strong sales performance. Lines you must never be without. The front runners that sell every day.

7.  Best Sellers  Every classification has a best seller.  It may be a seasonal line, a manufacturer's promotion, or a favourite line changing to a new model. What best sellers are in your ranging plan?

8.  New lines  When you preview a new range, check all the points above, and see if (and how) the new range will suit your store.

Now and again, the new line will be so brilliant you will want to replace your "hero" display with it.  Don't.

Let the newcomer prove itself first

Product ranging for Manufacturers

In one example, a manufacturer boasted a "bigger range than any one else in the business", and proudly offered over a thousand models and variations. When the range was reduced to just a hundred varieties, sales increased by ten percent within three months, and without any change to the marketing mix.

An overloaded, confusing product range is really bad news!

It is a brave decision to stick to a predetermined product strategy and refuse a prospective customer's request for a "special", but sometimes it can be fatal not to take the hard line.

1.  You know what your business does and for which markets. Start with only core products to provide the framework for servicing your key markets. Only the core products. Only the key markets.

2.  Add extra products to this core group, only if they satisfy your company's targets for sales value, gross profit and stock turn.

3.  Good sellers, poor sellers! Some of your products sell particularly well, and others just don't. Examine every product you make. Does it produce at least your average gross margin, and your average stock turn? (Don't forget component stock holding.)  If not, what possible reason is there for continuing with it?

4.  You probably don'tneed it to keep a full range on offer. It's not usually true, actually, even if it's a great point with the sales team. Use activity based costing principles to see if the gross profit dollars generated by these low volume lines cover the full cost of making and holding them.

5. Match price points that suit your key markets  When you know the price points expected in your market, you can see which product lines fit that pricing pattern.  Some of your favourite products may fail this test, and that means it's time for a new design or a new process that will support market pricing..

6.  What models, or varieties do you have?  For most categories of product, there is benefit in a "good", "better", "best" approach to types and models. It gives freedom for price segmenting the market, or giving choice to the customers.

7.  What of the selling costs?  It is very easy to forget the selling process when looking at individual products.

Everyone in the sales process does not have the same motivation or interest. Complex catalogues and price lists produce some strange effects. Some sales people just find it all too hard, and others make a speciality of keeping their detailed knowledge up to date. Either way, the main function of selling suffers.

Keep it simple. A simple product range that makes sense to everybody is easy and efficient to keep up to date, easy and efficient to sell, and keeps the salespeople's minds off being a product expert. It lets them become a sales expert. And isn't that what you want?

8.  Keep Product Up to dates  Every product strategy must provide for the continual updating, refreshing and renewal of the product line.

With so many new products coming on stream every day, the items you rely on for your major sales and profit contribution will get stale, and finally die. In addition, each new release will apply something new to give them an edge over older, more established products. Don't keep pace with these changes, and your products will finally be too expensive, and probably old fashioned too.

Specification, shape, colour, material and size can all be changed, sometimes very easily. For instance, new international specifications gave microwave oven manufacturers a chance to launch a whole batch of new models. Power ratings went up, and new colours and model names made the units new, fresh models. Some minor additions to the range of features, gave legitimacy to the new model names, and presto!  A fresh model line up, with very little cost.

Make these changes on a planned basis, and there will always be something new happening in your company to keep customers and the sales network alive with interest.

9.  New Products While your existing products are being kept up to date, you are buying more time to generate really fundamental new models. And each new model will give you the chance to get cost advantages and additional customer benefits compared with the old version.

You will see these advantages come from
  • Using more modern materials
  • Applying new tooling to reduce lead time, and lower tooling cost
  • Using newer manufacturing techniques to improve quality and reduce cost
  • Designing in cheaper, easier to use fastenings that require less assembly preparation
  • Choosing less toxic, less polluting and stronger adhesives
  • Basing the design around more efficient sub-assembly procedures, and selecting longer lasting, more appealing finishes


10.  Now, seriously, should we do specials?  Of course - but which ones?  That is the question.

Here's a clue. Your long term business survival depends on meeting, and bettering, global competition, even if you are servicing a "niche" market. Put all your resources into meeting your long term plan for your business.




If you'd like to find out more about how to make measurably more in your business right now, talk to us, or ask us a question here! Remember, there's no charge or obligation.




This same offer applies in New Zealand. Click Here!

McNicol Williams Management & Marketing Services is a Small Business Advisor listed with the Small Business Victoria, and has presented The Red Zebra program under its auspices. This listing requires that the first hour's consultation is always free. So when we say "No charge or obligation", we mean it!