Segment customers, both by size and by need, to identify targets for the Company. Your business must grow to prosper. You grow your business by selling more of your Company’s product. You increase your sales by selling more products to your current customers and by finding new customers to buy your products. But, not all customers are equally valuable to you. Your best customers are the core of your business. The purchases these Core customers make from you provide a good profit for your Company, a profit large enough to make a good return on your investment in the business. Other customers are less valuable to you than the Core customers. Some will purchase products from you, but at low prices. Or, they will be costly for you to serve because they require a lot of service but buy little from you. Others will not buy from you at all. The time and resources you spend on them are wasted.
This first activity of the Basic Strategy Guide identifies your Core customers, or those who could become Core customers, and creates new segments of these Core customers according to the needs these customers have that you and the other competitors in the market have not met yet.
|Define the products, competitors and customers of the business.|
|Segment all the industry’s customers by size.|
|Step 3:||Understand the size and purpose of multiple roles in customer relationships.|
|Step 4:||Place the total industry purchase volume on a Customer Size/Supplier Role matrix.|
|Step 5:||Estimate the average volume by position on the Size/Role matrix.|
|Step 6:||Find the annual amount and location of the industry’s Positive Volatility.|
|Step 7:||Determine whether “Wins” or “Failures” account for the majority of the industry’s Positive Volatility.|
|Step 8:||Find the Company’s strengths and weaknesses on the Size/Role matrix.|
|Step 9:||Separate the sources of the Company’s change in share.|
|Step 10:||Compare the Company to the industry on the components of Volatility.|
|Step 11:||Classify and assign company objectives to each current and potential customer.|
|Step 12:||Develop new need-based segmentation.|
Develop new products and services to gain share with Core customer segments. Your market share with your Core customers will not grow unless you do something for them that you are not doing now. But, what do you add to your current package of products and services and in what order? This activity answers these questions. First, it corrects problems that cause your current customers to reduce their purchases from you. These are the easiest changes you can make. It proceeds to develop potential innovations that might reduce the costs that customers incur with your product over the life of the product. It checks whether each innovation is difficult or easy to copy because your Company’s package of product and services must be unique in order to increase your market share. Finally, this activity sets priorities for your potential innovations because you can always do more than your money and time will allow you to do.
|Determine the reasons for the Company’s Negative Volatility with Core customers.|
|Step 14:||Determine the reasons for the Company’s “Hidden” Negative Volatility.|
|Step 15:||Evaluate the Company’s success in penetrating each Price Point in the market.|
|Step 16:||Estimate the customer’s Life Cycle Cost with the product.|
|Step 17:||Develop a program for new products and services and confirm their value for customers.|
|Step 18:||Modify the Company’s product and service innovation program to reflect the worth to the company and the practicality of each innovation.|
Develop a pricing policy to improve the Company’s market share and returns. Prices never seem to be simple or stable. Most markets press you to change your price. You need a pricing policy to govern your Company’s actions when it faces these pressures. This activity develops that pricing policy. It helps you anticipate the pricing pressures you may face by helping you understand the likely direction of your market’s future long and short term prices. It then looks for opportunities to change your prices compared to those of your competition to increase your profits or your market share. You change your prices by adjusting the pricing process you use to develop a price for each product and customer. This pricing process often changes the level at which the company prices its products. You implement a change in the price level by choosing specific price-based segments and then using the components of price to isolate the price changes to those chosen segments.
|Project the direction of future prices and margins.|
|Step 20:||Set Objectives and Pricing Guidelines to exploit near term price opportunities.|
|Step 21:||Look for opportunities to change price to gain or save share.|
|Step 22:||Change the pricing process according to the direction of industry prices.|
|Step 23||Adjust the level of price by targeting price-based segments with the four components of price.|
Manage the Company’s cost structure to create Economies of Scale while offering good value to Core customers. You cannot really reduce your costs to increase your profits unless you have customers buying your product. Before you can reduce your costs, then, you first have to find customers and offer them a good value, in the form of unique products and services at an attractive price compared to competition. You do this with the first three activities of the Basic Strategy Guide. These activities secure your customer purchases for you. Then you are ready to focus on reducing your costs.
|Identify current shortfalls in financial results.|
|Step 25:||Evaluate the Company’s advantages or disadvantages in visible costs compared to low-cost competitors.|
|Step 26:||Identify the profit increase from the improvement in the mix of customers that the Company serves.|
|Step 27:||Create countable measures of Productivity.|
|Step 28:||Evaluate Economies of Scale in each functional cost department.|
|Step 29:||Measure Economies of Scale by type of employee.|
|Step 30:||Develop new ideas to improve the Productivity and Economies of Scale in each organizational unit.|
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