Customer: Who is your customer? Have you done your market research to determine how much they would be willing to pay for your product or service? Which customers do you want to attract? Is your product or service aimed at a smaller group of customers willing to pay a higher price for a premium offering? Or does it have mass appeal? In which case you might be looking more at budget pricing.
Competition: You need to analyse your competition; and their pricing structure. Because you can bet your bottom dollar that’s exactly what your potential customers will be doing. That’s not to say you should always price match; indeed this can be a risky policy for small businesses as competitive pricing results in a narrower profit margin, making your business vulnerable if costs rise. As a smaller business think about value pricing, what are you offering that your competitors are not?
Costs: A fundamental consideration in pricing is that you need to cover your costs and make a profit. After all, we’re all in business to make money. How much does your product cost you? Don’t forget that the cost of a product is more than the actual cost of an item, you’ll need to factor in your overheads. Here at Johnston Associates South we can help you determine the prices you should be setting for your product or service by ensuring you have a fuller understanding of your costs and overheads.
Only by integrating these three, a sustained competitive advantage can exist. Ohmae refers to these key factors as the three Cs or strategic triangle.
Customers have wants and needs. The company recognises these and offers a basic product. To cater to their expectations and also to differentiate from competitors, companies try to offer differentiated products. Similarly, competitors attempt to offer differentiated products to generate profits and growth.
There is also a new 3 Cs model emerging which centers on sustainability. This model is:
Clients are the base of any strategy according to Ohmae. Therefore, the primary goal is supposed to be the interest of the customer and not those of the shareholders for example. In the long run, a company that is genuinely interested in its customers will be interesting for its investors and take care of their interests automatically. Segmentation is helping to understand the customer.
Segmenting by objectives
The differentiation is done in terms of the different ways that various customers use a product. Customer thinking is not one of the prime functions for consideration.
Segmenting by customer coverage
This segmentation normally emerges from a trade-off study of marketing costs versus market coverage. There appears always to be a point of diminishing returns in the cost versus coverage relationship. The corporation’s task is to optimize its range of market coverage, geographically and/ or channel wise.
Segmenting the market once more
In fierce competition, competitors are likely to be dissecting the market in similar ways. Over an extended period of time, the effectiveness of a given initial strategic segmentation will tend to decline. In such situations it is useful to pick a small group of customers and reexamine what it is that they are really looking for.
A market segment change occurs where the market forces are altering the distribution of the user-mix over time by influencing demography, distribution channels, customer size, etc. This kind of change means that the allocation of corporate resources must be shifted and/ or the absolute level of resources committed in the business must be changed.
Competitor based strategies can be constructed by looking at possible sources of differentiation in functions such as: purchasing, design, engineering, sales and servicing. The following aspects show ways in order to achieve this differentiation:
Making it big in the industry
A favorite phrase of Japanese business planners is hito-kane-mono, standing for people, money and things. They believe that streamlined corporate management is achieved when these three critical resources are in balance without surplus or waste. For example: Cash over and beyond what competent people can intelligently expend is wasted. Of the three critical resources, funds should be allocated last. The corporation should firstly allocate management talent, based on the available mono (things): plant, machinery, technology, process know-how and functional strength. Once these hito (people) have developed creative and imaginative ideas to capture the business’s upward potential, the kane (money) should be given to the specific ideas and programs generated by the individual managers.
The Corporation (The industry)
Selectivity and sequencing
The corporation does not have to excel in every function to win. If it can gain a decisive edge in one key function, it will eventually be able to improve its other functions which are now average.
Make or buy
In case of rapidly rising wage costs, it becomes a critical decision for a company to subcontract a major share of its assembly operations. If its competitors are unable to shift production so rapidly to subcontractors and vendors, the resulting difference in cost structure and/ or in the company’s ability to cope with demand fluctuations may have significant strategic implications.
In essence, the company should seek to stay ahead of competition by either outsourcing some of its activities that are quite costly but do not have direct value addition or it should apply backward integration techniques for its core business areas.