Business Resources

Connecting product, price, and promotion

The need for connecting product, price, and promotion

A lot of small businesses, and some large ones, lack alignment and focus in their overall marketing strategy. They do not connect product, price, and promotion strategies. In part, it’s likely because they see marketing as promotions alone. For that matter, promotions might not even be specific enough. A lot of businesses see advertising as marketing. Advertising is a small part of marketing. If businesses disregard all other marketing components but pay for advertising, they are likely wasting money.

Your customer has a problem, and your product is what will fix the problem and transform your customer. On top of that, your customer is represented by real people. Even in business to business environments. So you are fixing a person’s problem and helping them in their transformation. Understanding this, you need to package your product, price, and promotion strategy in a way that clearly delivers a solution to your customer’s problem. “Clearly” is a keyword. You don’t want your customer to have to think about this too much. After all, most problems are pretty easy to see, so why can’t the solution be easy to articulate?

Your customer has a problem and your product is the solution

The first step in coming up with an integrated strategy is to identify your customer. From there, identify their problem and what their life becomes if you can help solve their problem. Once you know the problem and the transformation, produce a product that solves the problem and transforms your customer. The problem and transformation will help determine what kind of pricing and promotion strategy you should use.

If the customer has a time problem (which is often the issue), you need to get a sense of what that time is worth and make sure your solution costs less than that time wasted. However, you don’t want to price it so low that they don’t believe you will solve the problem. It would be best if you also were careful that your pricing doesn’t subconsciously offend them by being too low. You also don’t want to be too high to allow them to start to rationalize what their time is worth. The particular problem and the solution will help define where your pricing should be.

For example, if I sell high-end fashion jewellery, my customer may want to feel more confident in themselves. Just because I can source a particular earring style for $5 a pair doesn’t mean I should sell it to the client for $15. I may still want to consider selling the earrings for $45 or more per pair. If I don’t, the customer won’t necessarily believe that the earrings will make them have more confidence because they know what they paid for the earrings.

What about promotion strategies?

Once you have a sense of the product (solution still) and the price, make sure your promotion strategies align. For instance, you likely never see coupons available to get 10% off expensive jewellery at a high-end goldsmith. It doesn’t fit the feeling. Similarly, the high-end goldsmith isn’t going to target everyone with Facebook ads blindly. They are likely targeting people that have similar interests and demographics to others who shop at their store. Think about some of your favourite brands and products and think about their promotion strategies. Do they align with the product and the price? If they are a well-known brand, I bet they do.

For help with connecting your product, price, and promotion strategies, contact us now.

Culture of transparency

I’ve been asked a lot lately about how transparent employers should be with employees. This is a fair question because business owners often feel like they need to protect their employees in the downtime and that it’s not the employees’ burden to bear. There is also a fear of losing good employees if they know how bad things are. Further, when things are going well, the business owner might be concerned about the employees knowing how much money the business is making. Any of these relate to you? If so, you might benefit from instilling a culture of transparency.

The need for a culture of transparency

I’ve had businesses that were doing super well and businesses that were on the brink of collapse. I now believe there is hardly a time that you could be too transparent. But this is in part about communication. In bad times, I agree, it’s not your employees’ burden to bear, but don’t kid yourself; your employees know when things aren’t great. They know by suppliers calling, your tone, and general rumours. In small towns or communities, this is significantly increased.

Control the message to reach a culture of transparency

The best thing a business owner can do at this point is to communicate. “Yes, things are bad, but we are doing x, y, and z to try to survive” is a good approach. It’s up to you to control the message, and the best way to do that is to provide the information yourself. People get anxious when there is a disconnect between what they know and don’t know – help them with that. You will lose some people, but chances are if your business is struggling, so are many others in your industry. You will also gain significant engagement from the good ones on your team because they want to help you make it through the hard times. Make a note of those people.

Transparency in the good times

Regarding transparency in the good times, a common misconception about businesses out there, and I think if owners were more transparent, that would help ease the misunderstanding. The illusion being that business owners reap all the rewards. First, business owners should reap some compensation for the risks they take and apply their knowledge to generate the successes they have had. That said, the average net profit for businesses falls below 10%. Assuming that the business owner is paying themselves a fair wage, they get the paycheck plus a few percentages of the overall revenue.

For most of my business life, the employees and suppliers had consistently better income from the company I had than I did. If you then combine that with tough times, and the business owner takes no salary and receives no dividends, the employees are in a good spot comparatively. Maybe helping your employees understand the financials and being more transparent might shed some light on what is going on. At the very least, assisting employees to understand the financials will develop them into eventual managers and leaders. Empowerment is a good thing and very rarely comes back to haunt you.

Encouraging information flow

But wait, there’s more. There is a hidden gem to having a culture of transparency. Although I’ve mainly talked about financial transparency, I think having an overall transparency culture is critical. For example, I’m against safety awards that award going a certain period without an incident. However, I am all for safety awards that encourage reporting of relevant hazards. As a business owner, I don’t want to be blindsided. Having a culture of transparency helps with that in the short-term.

Organizational learning

In the long-term, a culture of openness encourages organizational learning (and individual learning too). If we have a culture of transparency and allow people to fail, and encourage them not to hide it, they will embrace failure. They will also reflect appropriately on the failure in a state of curiosity instead of a state of fear. Embracing failure with curiosity and a hunger to learn will allow the employee (and organization) to reflect on the event and learn from it properly. Further, having transparency does something similar for wins too. In transparent organizations, people are more likely to reflect on success versus just celebrating it, maybe bragging about it, and then moving on in a hurry for another win.

What do you have to lose?

Here’s the reality right now though, if you are in trouble, struggling to survive, you probably have nothing to lose by trying to be transparent. I suspect the results will surprise you. You’ll see a loyal core team emerge that take ownership. You’ll see who your future managers and leaders are. And finally, you’ll see an increase in engagement.

For more information on instilling a culture of transparency, CONTACT US.

Communication problems

In business, like most of life, most problems come down to a failure to communicate. If you have human resource (HR) issues, you likely are having internal communication problems. If you have challenges reaching your customers, getting them to buy, or even knowing who they are, you probably have external communication problems. The point being, if your business is struggling, look for communication problems.

If your expenses are too high for your revenue, you might have communication problems on both sides of the coin – internal and external. You might be lacking the communication that expenses can not be that high and not connecting with your customers.

The question now becomes, how do we fix communication problems. Arguably, this may be where things differentiate from your personal relationships. Businesses can fix most communication problems in business by simplifying the message and the medium. The message is what needs to be said, while the medium is how it’s delivered.

External communication

When crafting messages to external users, this holds. Simplifying the message of what problem you can solve, or better yet, be the guide to help the client solve is a good start. The client probably has a direct, external problem that you can directly solve. However, there are probably other problems that can be solved by solving those external problems. Those other problems are the ones that provide a true benefit to the customer.

For example, the virtual assistant solves the problem of getting the letter written for the client. However, the client’s real benefit is focusing on higher return activities – client acquisition, billable work, etc.  

Internal communication

A lot of communication problems internally can also be fixed by simplifying the message and medium. Reducing the number of channels can also help fix internal communication problems. A channel is a path for communication. You can calculate the number of communication channels with the following formula: n(n-1)/2 where n is the number of channel members.

To give you a sense of how the numbers of channels can change dramatically, here’s an example. Bev has a small business, and it’s her and two employees. Between the three of them, they handle everything. With three people, there are three communication channels (3(3-1)/2). Bev decides to hire one more person, now there are six communication channels (4(4-1)/2), and Bev finds herself spending a lot more time correcting the communication. The same thing happens in businesses, especially small businesses that are growing. If you ever wonder why big companies or government struggle getting anything done, this is largely why.   

Dealing with internal communication problems

There are ways you can reduce internal communication problems. First, make sure roles and descriptions are clear. Second, make sure you don’t have more people than you need to have. As businesses start to make a bit of money, they often hire people to fix problems. However, because of what happens with the number of communication channels, hiring can compound problems. Third, instill a culture of being direct with people. Make sure you communicate expectations and allow your people to share back with you. Foster an environment of transparency, and you will likely find you’ll have a more efficient workplace.

I will write more on transparency in the future, as I have found that small business owners fear such. As always, if you need anything, by all means, contact us.

Perceptual mapping

Here’s a video giving you an overview of perceptual mapping and then walking you through an example. This is useful for a new entrepreneur trying to refine their market and business idea. It’s also useful for an existing business, trying to redefine their market, or add to their product line. If you found this useful, check out the courses page or go directly to the Entrepreneur and the Idea course.

The concept of perceptual mapping is about figuring out where a business lies in relation to its industry and what the customers are wanting from the business or offering. It uses two factors at a time. If you are just getting into business or are developing a new product line, perceptual mapping shouldn’t be overlooked. Plus it’s a wonderful excuse to draw pretty pictures.

An example

As an example, if I wanted to get into the automobile business, I would look at several factors that my potential customer would be interested in. Factors I might consider would be safety, price, luxury, sport, environmentally friendly, and image. You would take two of these factors at a time and graph them, with one factor being on the x axis and the other factor being on the y axis – each with a high and low. You’d end up with four quadrants. Within those four quadrants you would start putting pins where everyone else in that industry landed. Once you have done this for all of the factors listed you can start to see visually where there are gaps in product offering.

Ideally, you would then be able to build a new product (in this case, automobile) that would fill those gaps. Alternatively, you might find there to be good reason those gaps exist – such as the market segments that might be buyers in those gaps being not substantial enough to allow for economic feasibility. For more information on this topic please CONTACT US.

Business Idea Assessment

A useful business idea assessment tool for the entrepreneur

Below you will find a link to download an Excel file called the Business Idea Assessment. Try out this tool and let me know if you find it useful.

Bruce Barringer, in “Preparing Effective Business Plans” (and published by Pearson Ed in 2009) provided a First Screen assessment for entrepreneurs to use to do a quick evaluation of their potential business. Bruce broke his assessment into five sections: 1) Strength of the Business Idea, 2) Industry-Related Issues, 3) Target Market and Customer Related Issues, 4) Founder Related Issues, and 5) Financial Issues.

Although I quite like the assessment, I wanted to build an assessment that was quicker to go through. Thus, I have reduced the assessment to three sections: 1) The Entrepreneur, 2) The Idea, and 3) The Market. I liked his use of a simple scale that would help to visualize certain areas of low or high potential. As such, I’ve used a similar scale with -1 being low potential, 0 being neutral, and +1 being high potential. I’ve used this assessment in my course, “The Entrepreneur and the Idea.”

What do we do?

Most of the questions are straight forward, though reasonably subjective. I’d encourage you to go through this document with your idea and potential target in mind. I would then have someone who knows you go through the document as well. In particular, you’ll want to get their feedback on things like your management skills, value-added for the customer, and other components as you see fit for your idea.

Most of the questions should be self-explanatory, but a few may require a bit of research. I have an article posted on perceptual mapping, which you may have to dig into further (a Google search works too). As well, you might want to do some thinking about what substitute products are for your idea as this is an area people often underestimate.

What does it mean?

Once you have gone through and noted a -1, 0, or +1 beside each statement, focus on the different parts honing in on any parts that total to 0 or less. The overall score on this assessment is less useful than the totals for the individual parts. Think to yourself, “what do I need to do to rectify the weak areas?” It may be that you need more money, or refine your target market a bit, or find a few people with the skills you lack. Either way, I encourage you to do this exercise before diving into a full business plan. For that matter, I will provide my opinion of what business plans should and should not be in a different article. But as a spoiler, most business plans miss the mark on what they really ought to deliver.

Let me know what you think about this tool, and if you have found it helpful by contacting me now.

Business survival guide

In this video, I take you through a three step process in business survival. You need to deal with the immediate issue of survival before considering growth opportunities. Once you have dealt with business survival, you are better equipped to focus your energy on taking advantage of the opportunities that might exist.

For more information, contact us now.

What is entrepreneurship?

Original beliefs on entrepreneurship

There’s been a long held belief that entrepreneurship is about the person, or personality. To be an entrepreneur you need to be this or that kind of person. I even would have agreed to that theory in the past. Previously, I would have agreed that some people can’t be entrepreneurs. We could then provide training to improve the chances of success for those that had the ability to be an entrepreneur. However, after meeting with several entrepreneurs and reading various researchers’ work on entrepreneurship (Shane 2000, Rae 2000, Minniti & Bygrave 2001, Cope 2005, Rae 2005, and Diamanto Politis 2005), I’m not convinced that its based on personality. I believe that entrepreneurship is a process of interaction. Therefore, a cross-disciplinary interaction process might be in order. There could even be an argument for entrepreneurship being the result of a learning process.

Getting to the process of it

Yes, there are stories of entrepreneurs that have doggedly pursued a new idea and have made millions in doing so… Jeff Bezos, Steve Jobs, and Bill Gates are examples. However, the most common example of an entrepreneur that drives economic growth is the expert. An expert in an area or industry. Whether through life situation – laid off or their supervisor would not let them pursue something – discovers an opportunity. The entrepreneur then proceeds to explore or exploit it.

The decision to explore or exploit is also dependent on life events (March 1991). The decision is part of the process of life that has led the entrepreneur to where they are at in the present time. In addition, there’s likely many other factors that help transform a variety of experiences into relevant entrepreneurial knowledge (Politis 2005 and Cope 2005). This area is the topic of my research. These other experiences can determine how the entrepreneur goes about dealing with opportunities and uncertainty. This points to a process of learning that has led to the individual going out on their own to start something. For now, know that more work is being done in this area to build out a refined model of the entrepreneurial learning process.

Entrepreneurs you know

In the meantime, think about the entrepreneurs you personally know of. And trace how they got to where they are now. I bet most of them didn’t invent something new at the age of 20 and were off and running. So what? So this raises the question of how can educational institutions and government policy encourage entrepreneurial activities? The research on business incubation suggests that firms that go through business incubators have a higher likelihood of failure after a period of higher growth. As such, there is limited possible economic benefits (Amezcua 2010 and Schwartz 2012). For that matter, a degree or major in entrepreneurship might not be that effective either. Formal education misses the key ingredient – experience – which allows for opportunity recognition and development.

Place for incubators

There may be a place for new technology initiatives in business incubation. However, I would challenge incubators to at least rethink how they intend to incubate such new technology. Perhaps finding a few seasoned industry professionals and matching them up with someone who knows the new technology would be a better way to go (less of a mentorship and more of a partnership). For example, if you are attempting to incubate something in Blockchain technology related to logistics, find someone who has been in logistics for 25 years and pair them up with a Blockchain expert. Finally, throw in someone with some business skills and you might have a shot at a sustainable, viable, new business.

If you’re interested in becoming an entrepreneur, contact us now or have a look at the business idea assessment post or a course offering.

Toys ‘R’ Us’ aggressive capital structure

Toys “R” Us filed for Chapter 11 bankruptcy protection in the US and the similar in Canada. A lot of people have been speculating about the position TRU is in. Many speculate that e-commerce is the culprit of TRUs pain. I don’t necessarily agree. Toys ‘R’ Us was doomed in large part due to its aggressive capital structure. A structure that didn’t provide wiggle room. My historical information on TRU can be accessed at https://en.wikipedia.org/wiki/Toys_”R”_Us.

Steering into the aggressive capital structure

TRU started, as a toy store in 1957 by Charles P. Lazarus (earlier than that as a furniture store). It was bought out in 1966 by Interstate Department Stores. Then it went public (offered on the stock exchanges so that the general public can become shareholders) in 1978. Finally, it was taken private (bought back from the public) by a consortium of private equity players in 2005.

When TRU was taken private by Bain Capital, KKR, and Vornado Realty Trust, the group paid $6.6 billion using only $1.3 billion in equity. The rest of the deal was in debt. The company reported net earnings of $252 million for the fiscal year ending January 29, 2005 (accessible most recently on Form 10, at https://www.sec.gov/Archives/edgar/data/1005414/000119312508100880/d10k.htm). To the net earnings we should subtract off a $59 million income tax benefit and add back $130 million in interest expense.

This gets us something closer to what the company had to service debt with. Servicing debt means to be able to pay that debt. This means that TRU, based on the January 29, 2005 earnings would have $323 million available for debt servicing. The trouble is, from 2006 to 2008, TRU would pay anywhere between $401 million to $530 million in interest alone. Thus, meaning that based on the 2005 earnings before taxes and interest, TRU was not able to service its new debt.

Private equity comes to play

When TRU was taken private, the private equity would have known without significant changes the company would be in danger (because of the inability to service the debt). So why would the group take this amount of risk?

TRU was bought at $26.74 a share when it’s all time high had once been $45. If the group was able to restore some level of profitability and lustre to the TRU brand and take the new TRU public at the equivalent of $45 a share, there is a significant windfall. It would mean that a go public at $45 a share would see a little over $11 billion to the group. The group pays back the debt of $5.3 billion and receive $5.7 billion for their equity (which was originally $1.3 billion). Thus, making a 438% return – ideally occuring in under 5 years. This is a prime example of a leveraged buyout – something Bain and KKR do regularly.

Challenges of such a structure

Toys ‘R’ Us is a prime example of why capital structure (the mix of debt and equity) is something to look at very carefully. On one hand, with more leverage (more debt) there comes the opportunity for more gain. On the other hand, with more leverage there comes more risk of untimely demise. Such a demise leads to nothing for the equity holders.

For more information on the right capital structure, CONTACT US.

It’s not just the current competition

In the late 70’s, Michael Porter developed his “Five Forces” model (published in the May 1979 edition of the Harvard Business Review, volume 59, number 2). Porter identified five forces that have an effect on an organization relating to competition. By the time business students are done their first semester they can probably recite Porter’s Five Forces (at least I hope so). The model has become an everyday thing, in business school. Yet, I’m surprised at the number of high paid executives that don’t seem to remember the Five Forces. The Five Forces are: Buyer Power, Supplier Power, Threat of New Entrants, Substitutes, and finally, Direct Competition. I will get into the other forces in subsequent posts, but for now I want to talk about how quickly people overlook the Threat of New Entrants.

Blockbuster

Blockbuster Video, as the legend goes, had an opportunity to buy Netflix. However, Blockbuster did not. I assume the executives at Blockbuster thought Netflix wouldn’t amount to much. Though, they were quite wrong. I do wonder if Blockbuster ever thought about any competition beyond what currently existed in that market – others who rented videos in a brick and mortar store.

Sears

Sears had one of the strongest distribution networks going with the Sears catalogue department. And then they didn’t bother to see the new entrants coming into the market – online retailers. Sears could have been a pioneer in online selling, yet they were a late adopter and it cost them.

How to prevent failure

I’m sure there are many other areas that both Blockbuster and Sears went wrong on – but having an eye on new competition or even competition that they didn’t know could exist (possible argument for Substitutes in Porter’s Five Forces model) would have served both organizations well. That said, having an eye on changing trends in technology would have also served both organizations well, possibly even better. Mcdonald’s has done very well by focussing on their customers and understanding trends versus relying too much on understanding the competition.

These are just two companies but I assure you, there are many more such tales. At the end of it all, what worked yesterday may not work tomorrow. Who your competition was yesterday, may not be the only competition tomorrow. Be on the lookout and don’t be arrogant about how good you have been. Most of all, keep an eye on the environment and see where your customer might be going. For more information on this topic please CONTACT US.