Red Zebra Business Centre - Management Memos
December 2010 Making Measurably More For Your Business Since 1985!
At the end of 2010, have we learned anything?

Max Williams, Principal Consultant

Rolling up the Business Year 2010 this month brings us to the end of an extremely interesting period.

On the one hand we have had the experience of seeing parity of the US and Australian dollar - if only
for a remarkably short period of time.  Contrasting this to the time we were seeing the exchange rate
around 40cents shows just how much things can change.

On the other hand, we have seen disappointingly slow retail demand worsened by a decision of the
Reserve Bank to raise official interest rates on Melbourne Cup day - exacerbated by a cash grab from
the banking sector which raised actual loan rates even further.

While it's pretty common to criticise economists for their  paperhanger' status - by always saying "on
the one hand ...." and so on, this time there really are two sides of the coin.  Retail sales figures released
by larger organisations clearly show that overall pricing is relatively flat - now isolated from the annual
inflation-based price increases.

This reveals the awful truth about activity levels!  Over a quarter of a century of consulting to small
businesses across Australia, we have seen company after company talk about  growth' in their
business, where the increase in sales value has been almost entirely inflationary in nature.  In the scope
of their business activity, there had been no real organic growth at all!

This stark fact, now clearly apparent across a number of industries is causing concern.  Well it should.
It should always have been a concern.

No doubt many traders who are looking for a bumper Christmas trading period to finish off the year on
a reasonable note.  On this hope, predictions do vary!

Whatever the outcome of Christmas trading, the question remains.  When the big economic
circumstances are ranged against you, what do you do to prosper?

There are lots of answers to that question, and most of them are a part of the story, and some help.
When it all boils down, that is the key - all of the common suggestions of what to do are a part of the

What makes the story a good one, with a happy ending, is the way the parts of the story are woven
together.  For instance, some people think that getting themselves a good website is going to be the
answer.  It is a big help, but it will be even better if it a part of an integrated marketing strategy in which
the web plays its proper role.

And what is its proper role?  Only you, or your marketing analyst can say.  It will depend on whether you
want (need?)  an electronic catalogue, or is it an interactive site you need so that customers can
interact with you?

It's questions like this that will exercise the minds of many small and medium business people this
summer.  For some, mostly those not in retail, there will be a time for reflection, and if that is your case,
it is time to be used wisely contemplating constructive strategies for 2011.

Others will be caught up in the hurly burly of retail, anxious to make the most of the holiday buying spirit,
and the back-to-school retail opportunities.  If that is your case, it may take a little longer to get to the
strategic thinking frame of mind.  Just be sure you take time to think about it constructively - and don't
put it off!

The last thing any of us needs is to be in the same position at the end of 2011!

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s we rush towards the end of 2010, lots of things have changed. Beginning with the end of the GFC, and an optimistic outlook for the year, we ended with an interest rate rise and considerable business scepticism. Here are some of the steps we suggested you can take to  beat the odds!

Marketing is evolving!

If you're in business, you  need customers. And if you need customers, you need to keep up with the market trends around you, or you'll sink into the background. Here are some of the basic needs and a few trends ...

Be Open and Appealing
You only get one chance at a first impression. So what is the door to your sales outlet like? Wide open, well lit, attractive to look at and welcoming in it's atmosphere? Do you have an inviting display just inside the door to lure customers?

Be Unique and Up to Date
How unique is your offer compared to others in the market. Be serious about this. What do you do to think every day, how is our offer unique? What you did yesterday is not going to stack up tomorrow.

Be Friendly and Helping
Good showroom and sales room staff like to be with people. They enjoy meeting and talking with customers - even if the customer has a tough request or a complaint. If your staff don't feel like that and deal positively with your customers, get them trained so they can change. If you can't change the people, then change the people.

Give Your Customers A Reason to Be Loyal
A really loyal customer is a fantastic advocate for you. Some people talk about the 'connected apostle' - a customer that loves you, knows you, communicates with you and is loyal to you. Loyalty comes about by having the right offer at the right time, and having the right service people.

Be Consistently Strong
We need to be better, sharper, and faster in our physical environment to make our store or showroom a compelling visiting point for our customers. The day has quickly gone when shoppers would comparison shop two or three stores, or two or three departments.

Maximise 'The Moment of Truth'!
When your customer first deals with you or your staff, if is the first 'moment of truth' for them We get less chance to maximise that 'moment of truth' these days. We have to make it stick.

To be a fully effective operation, we must communicate with our customers in all the channels available; our advertising, Point-of-Sale promotions, visual merchandising, staff presentation of the sales offer, our website, and yes, today, our social media. The list goes on.

These basics always remain the same. But it is important to watch the developing trends too!

Reduce Your Transaction Costs.

Small Retailers Most 'At Risk' from Higher Transaction Costs

With the greatest concentration of small and medium businesses in the retail sector, it is this sector which is most at risk by not taking a serious approach to forward planning. Nowhere is this seen more clearly than in the approach of small and medium retailers to the issue of e-commerce, internet trading, and selling over the web.

Simply raising this topic in discussion leads to a fairly predictable response. The response is usually a mixture of amazement, anger, and frustration at the low prices being touted on the web, a sense of frustration that the allegedly high service delivery of the traditional retailer is not properly valued.

'Big Boxes' Big Threat to Small Retailers

When it comes to small retailers in particular, it is not only the internet which appears to present a serious threat to future profitability. So called 'big box' retailers, otherwise known as mass merchants, are usually treated in a similar way. Too big to buck, but with massive merchandising clout, and a value equation which, in the eyes of the small retailer, is flawed, these retailers attract high volumes of trade, and thousands of customers.

Presumably these customers are satisfied, because their size just keeps growing and customers keep returning for repeat purchases.

Most Responses Entirely Defensive

There are a number of ready-made responses to these competitive threats, and just about all of these responses are defensive moves which are generally attempts to stave off the inevitable.

One such response is "Look at the expert advice and help we provide, I bet they don't get that over there!"

In a market research exercise we undertook for an agricultural supplier, we found that farmers greatly valued the agronomy advice that went along with the sale of certain chemicals. However, while the advice was 'greatly valued', farmers put no dollar value on that advice. Almost universally, buyers selected the lowest priced supplier. The unpalatable fact is that expert advice is always deeply appreciated and warmly welcomed -  provided it comes free!

Don't be Defensive.

When a sale has been lost and the customer has bought the product from the internet, a traditional retailer will generally respond by asking "What are they going to do when they want warranty support?"

This both misunderstands the purpose of warranty, and overestimates its value.

A warranty is intended to reduce any small residual perceived buying risk, in case things go wrong. Emphasising the warranty is emphasising that things probably will go wrong. That's a complete reversal of the underlying purpose and role of a product warranty,  focusing on the risk rather than the benefit.

'Grass Roots' Thinking Provides Strategic Clue

If you look at the 'big box' retailers, while the monthly expenses are high, the large number of transactions (because of their high business volumes) means that individual 'transaction costs' are generally lower than for the small retailer. Where the price is not lower as a result, the profit is higher!

In the case of internet trading, the costs of doing business are usually much lower than the cost of running a retail store - but it is easy to underestimate the cost of running an e-commerce enterprise. It costs a lot more than most 'bricks-and-mortar' retailers realise!

In fact, the key issues for e-businesses are the twin issues of supply and delivery. Putting these things in place and maintaining them is a costly process, and good e-commerce (like big box retailing) depends on achieving a high volume of demand.

The Longer Term Strategic Response

Reduce 'transaction costs'.
The term 'Transaction Cost' may sound a bit theoretical, but you can calculate it very easily. Just look at the total monthly expenses, then divide that number by the number of individual transactions in the month. That's your  'transaction cost' for the period.

It has to be reduced for you to remain viable in the face of all kinds of competition. One of the few ways you have to reduce it, is to increase the volume of transactions - and that means handling more customers.

How can transaction costs can be reduced in your business? Asidde from increasing hte number of transactions you conduct, this is a special consideration that cannot be considered here. Each case is different.

That does not mean that it cannot be done. Driving down your current transaction cost is one key part of your long term strategy. You will need to develop your own cost-cutting strategy.

Increase volume by e-tailing?
The lowered costs of web trading can help drive down the transaction costs for your whole business. This is a good start, but it is scarcely enough, and it is far from certain.

Fixed costs for a serious e-tailer are not inconsiderable. Then there are the other costs of doing business - accounting, stocking, freight, and staff to name a few.

If you look at some of our larger businesses, you see that developing a compatible internet business to run alongside your existing store can be done. It must be made to generate substantial volume though, or it cannot be profitable, and it will cost you dearly.

Significantly, developing an e-store is a major project, comparable with creating a whole new department store. And both must run alongside each other!

Make the Most of the 'Customer Experience' For Your Customers'.
Not only retailers, but all kinds of B2B traders, including manufacturers and service providers with a base of corporate customers, have traditionally measured the customer experience using market research surveys.

Such approaches have worked very well, and are still valid today. But you probably need more than that!

For today's traders, it is clear that customers are increasingly using the internet to research the products and services they're intending to buy. It's these activities which can seriously influence a purchaser's buying decision.

Before, during, and after the buying act, customers are using the internet to review products, rate their satisfaction levels, and recommend products and services to friends.

Make sure the customer experience with your business is as great as it was meant to be!

Happy Christmas
Happy Christmas!

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