Management Memos

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October 2019
 

October 2019 The Future's Fine for SME's

With fine margins and fine-grained control of expenses, we've reached a 'new normal' for Small and Medium Enterprises. Add in low interest rates, and low sales growth calling for mighty fine new ways to get business, it's time to be strong. Taking a whole new look at what we've got and what we know, will guarantee a fine future.


It may be an indication that we are less resilient these days than we were, but we seem to be using the term 'perfect storm' much more often. That said, SME's facing consumers or other SME B2B customers are now facing a combination of tough times that require careful thought, and strong, carefully planned action. Not a 'perfect storm', rather a great opportunity for taking a strong lead in your market.

Three Key Factors

The three things currently making life hard, yet at the same time offering significant opportunities for SME's, are

  • First: low prices found around the world, but especially right next door to you;
  • Second: profound changes in buyer behaviour across all industries and every market; and
  • Third: growth of new technology tools to mine new customers and new profit opportunities.

 

Buying

'New Retail' - Shopper has tablet in hand

It's hard to grasp the significance of these things right now, and give them proper attention. Most Australian businesses are in peak season. If your product or service isn't seasonal and related to the sun, (think blinds, air conditioning, swimming pools and so on), then there's the season triggered by the need to get jobs completed or orders delivered before the Christmas shut-down. Others are driven by the spring racing carnival, and still others by the touring and holiday season fast approaching over January.

Despite the busy season, make time to 'take on board' the key points of the present environment, and how you might plan your business future. Reflect on those things when you, yourself, are 'off-line'.

Prices Are Low

Low prices is a good place to begin. "Global retail giants 'profoundly' affecting prices, RBA says" is the title of an article in The Age and Sydney Morning Herald for October 8. (See the full article here.) Specifically, the article cites companies such as Aldi, Kaufland, Amazon, H&M, JD Sports, Costco, Zara and Uniqlo, as examples of international operators who bring low prices to Australia.

Prices stay low

Prices will not rise again in the short term

While it is tempting to condemn these operators for predatory pricing using their international scale to provide an advantage, the reality is that the market likes value. The retail margin is supported by the value the retailer adds to the product, and that's hard to assess. With internet pricing now providing transparency, unjustified margins become more difficult to maintain.

One product we examined a while ago, was sold out of the factory in the USA for around $190. That price includes design and development, patenting, manufacturing and global marketing. The final retailer was selling the item in Australia around $800, taking $400 to the bank for holding it in stock for less than three months. Who added more value - the maker or the retailer?

Internet transparency allowed customers to see the unjustifiable value retailers were trying to 'score', and prices came tumbling down. It's about value added!

That means that the new world order means lower prices. Under these conditions, lower costs must follow. Lowering the cost base for a small business is an every day task - and it should result in a reduction in yearly expenses of at least 1.5% of sales value - every year. That's the management task!

Buyers Now Behave Differently

Buyer Behaviour is changing in every industry in every market. The reasons for these changes come down to a search for value. That not only means lowest price, but also best service, and now more than ever, the best customer experience.

New behaviours by customers changes our focus

Easy to say, but how do you do it? For a start, 'best price' does not really mean the lowest price ever. It means a price low enough to allow the buyer to consider the offer, without paying any significant premium. Consistently, studies we have done and read from others, show that 1.5% is about all buyers will shell out for perceived better product and service. That's not much, so your price really does need to be competitive.

So what about 'best customer experience'? Here in Australia, we're about five years behind Europe in achieving high standards of customer experience.

You don't think that's you? Just look at your own website - appealing graphic design, friendly language, good photography, What's not to love?

Hang on! All of those good things came from your web site provider - not from you. Has your website engaged the visitor, encouraged them into the store, created a benefit in choosing to buy from you? Has it made more sales?

'Click and collect' does all four! So what is your plan to put that in place?

New Technology

New technology is one of the most difficult topics when it comes to customer-facing SME's. There is a lot of new technology-based equipment today, and some offer benefits they just don't provide.

A good example is the retail beacon. It appeared to be a break-through for shoppers to navigate retailers' shelf stock using just their mobile phone. Technically, beacons work well, but they have failed to get enough extra buyers to make the process worthwhile. Now beacons are passing into retail history.

Retail beacon

Retail beacon: Technical success - trade failure


So what is a good technology bet? Anticipating a technology pathway is always fraught, and there is the added complexity here that we have to get customers to respond in profitable numbers.

We don't have to imagine the future. Imagine having your current catalogue and store layout on-line, or by way of a customer wi-fi that connects when they walk in the store. It adds excitement for a very low investment, and puts you a long way ahead of your competitors in your customers eyes. Importantly, it gives your customer an advantage by choosing you, because selection and purchase is so much easier with you.

All of which is to say, that applying today's technology more creatively to increase your customer engagement, is just what business leaders are doing all over the world... Get it? 'Business Leaders'. Is that you?

Here's a Three Point Wrap

Constantly work on ways to remove expenses

Find new ways of interacting with customers - it will build benefits in buying from you

Get smart with your existing technology to get ahead of the competition

 

These three challenges are not to be underestimated. They're huge. But responding positively will guaranteed a fine future, based on fine margins and a fine expense ratio!

 

See more on world-wide retail trend data (background for this article): click for 2019 Summary

 


We can help you explore the challenges you face, and the opportunities they represent.

Let's discuss it on a phone call. After that, you can just hang up - if that's what you'd like to do. No Strings Attached!

Phone us (see the numbers below) or use the contact form here to get help. Absolutely obligation free.

 

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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.