Would You Ride a Bike on a Tightrope?

bike on rope 

Trying to manage a business in the middle of the present economic mayhem, is like trying to ride a bike on a tightrope. Moving too fast or too slow will put you off balance. Lose your balance, and there is little chance of escaping injury - or death!


Despite confusing signals from the overall economy, marketing to your local situation will avoid problems down the track.



Confusing Signals

Just about the time you get this edition of Management Memos, the Reserve Bank will be announcing its interest rate decision for this month. What will it be? At the time of writing - it is expected that interest rates will remain unchanged again. But, the economic news is mixed!

Jobs growth - once described as the indicator of a strong economy - has slowed, leading to reports of a softening economy. Similarly, the housing boom has slowed substantially despite some hotspots, suggesting that the period of high economic growth is coming to an end. By contrast, business investment has now taken over from housing as the main driver of growth in Australia, indicating a much more resilient economy is on the way.

The resource boom continues, however, and despite commentators saying it will be short-lived, it continues unabated. Rising fuel prices, now the concern of every right minded citizen, have “fuelled” inflation as well , raising the prospect of higher inflation and so higher interest rates, but low priced imports from China have offset the higher fuel prices - holding the balance right for a while longer.

In fact, looking at the “global” reviews of Australia’s economy is not always helpful, because Australia’s economy is not homogenous. Different regions are responding differently for different industries. It is more helpful to consider the local circumstances for your industry, and respond appropriately - while still keeping an eye on the bigger picture. Let’s look at a few specific local issues for small business.



Massive Wages

While the resource sector is booming, its demand for labour is insatiable, driving wages to levels unsustainable by many other local employers. We hear of clients with a demand for people who are skilled only a little more than labourers, in a market where similarly skilled people are getting $85,000 a year. In these areas, labour is both scarce and very expensive.

High earnings, fuelled by the boom lead to high sales, and sales of high value, high margin lines. The resultant balance for many businesses is a high cost structure, supported by high margins on strong volumes. Eminently profitable - but risky, and needing a strategy to prepare for the collapse that always ends a boom.

In the immediate future, such businesses need a strategy to head off new startup competitors, always attracted by the high prices. This is especially true for startup sole traders, who see the appeal of being able to underquote existing operators.



Limited Sales Leads

Throughout much of Australia not affected by a local resource project, sales leads are off by a worrying gap. Where the “bogey” for the business is “How does it compare with last year?”, sales leads are lower than last year (where records are kept) or appear to be less, where there are no records to check on. For businesses with a budget, the number of sales leads is worryingly below target, and year-end projections suggest a round of significant losses - unless there is a significant change.

Several people have commented in recent times that the market appears quite resistant to advertising that has worked in the past, and that sales leads are not being generated by advertising as might be expected.



Drought Ended, Orders not Flowing

Many rural centres have been hard hit in the last three years by the effects of drought rolling though their local economy. While some pockets of drought affected areas still continue to suffer, most areas have had good rains this season and are looking to a strong harvest with reasonable prices. Unless you are in wine grapes - where price problems still remain.

Even where the outlook is good, sporadic large value sales seem to be undermined by a general softness of the main volume lines. Considering that 10% of all farmers make 50% of all farm profits, and the lower 30% of all farmers make losses even in good seasons, it is evident that there will be some big buyers in the market, whatever your industry, while the great majority will be less willing to spend.



Enquiries Much Harder to Close

There have been widespread reports that this year, buyers seem much harder to bring to a purchase decision. Even when the prospect has been qualified, and the price is within the buyer’s budget and expected price range, closing the sale is reported to be much harder this year than previously experienced. Regardless of price, surprisingly.



Forging a Response

The anecdotal overview described above suggests that the management of a small business has just got more complex. Successful responses will cover two major areas of every business - supply and marketing.

We will leave supply considerations until a later edition. For now, marketing is under the microscope.

First - Know your market: Since you have been in business for a while, you probably know a lot of information about your market. Take time to go through all that information again, and see if can be made to tell a different story. Markets change, and often the right data paints the wrong picture, because we are not reading it right.

Second - Segment your market: There are customers who want to buy the best, and can afford it. Any hint of “cheap”, and they’re off. But they are discerning, and if, for example you claim your product is “stainless steel”, it had better be the right grade stainless for the job, and well made.

Correspondingly, there are customers where price is king. Having the best quality at the ruling price makes for a strong product claim - but it takes skill to get there.

An offer based on “One product - One price” just won’t cut it.

Third - Price Point effectively: Pricing is the most powerful tool you have - to make profit, to make sales, and to compete with less capable operators. Running your product at “RRP” won’t do it for you. Taking a “global” mark-up approach won’t be much help either. Match your competitor’s price perception for each segment, but beat them with smarter pricing on the goods themselves.

There are lots of tricks in this. Most of them will hurt you. Get good advice.

Fourth - Advertise strongly and affordably:

There are well travelled rules in creating cost effective advertising that builds profits. Mostly, advice from radio, TV, and press sales people is more about filling their quota than helping your business.

Make your advertising effective (you probably need help here - so ask for it), and make sure it is affordable. Neat trick - getting the advertising weight you need to be effective, while trying to save money. That’s why BizMark® was invented at The Red Zebra Business Centre.

Fifth - Sell professionally:

You wouldn’t get anyone but a qualified electrician to connect up your new airconditioner. So why trust your entire business to a salesperson who is unqualified? Everywhere we turn, we see clients with sales people who have no sales training at all. Product training - yes, sometimes. Not good enough for these turbulent times. Don’t mistake “good with customers” for “good salesperson”. Fatal mistake!

Get help, and get selling!

If you can apply these five aspects of marketing effectively, you will not be looking at a small profit, or a spray of red ink at the end of June!

Would you like to ask a question, or make a comment regarding any point raised in this edition of Management Memos?

Your question will be answered by email as soon as practicable.


Any advice, information or comment contained in this document is general in nature, and should not be relied on as the basis for any specific commercial, business, employment, or financial decision. Specific advice should always be obtained for each individual circumstance. Accordingly any advice, information or comment contained herein is for general guidance only.