Posted on 22/07/2016, 13:06
In order to achieve growth, many businesses get drawn into competing on price. This, inevitably, is unsustainable.
Others focus on improving their value proposition in order to create a ‘stickier’ brand or offering and thereby increase customer loyalty. There is no doubt about it; stickiness can change the game. It can transform business from a transaction-based model to a more lasting, mutually beneficial one in which companies improve their own revenues and help to improve their customers’ competitiveness.
Stickiness can be hard to create.
A primary objective for your business may be to sell more to your existing customers. However, doing so without decreasing prices and subsequent margins is difficult unless your proposition is sticky. Now, sticky can be delivered by good, old-fashioned service. It can be achieved from training, NPD and range developments that increase choice. The truth is, creating sustainable stickiness needs organisations to see the world through customers’ eyes. Otherwise stickiness just won’t happen.
In most businesses, 80% of revenue and profit generally comes from the top 20% of customers.
This, for many businesses, means that the majority of sales resource is focused on the Top 20% of customers. This has become known as the ‘Superstar’ theory. However, there is a school of thought that this theory is flawed. By focusing the majority of effort on the top 20%, the fragmented ‘tail’ of customers often gets ignored. But given the fact that these customers tend not to be promiscuous and in most instances generate higher levels of percentage margin should they not be a Key target when developing business?
Unfortunately the fragmented tail is often credit constrained; the volume and value of goods purchased is constrained to the credit limit that the supplier offers. Often the limit and duration of credit terms is insufficient to cover the trading requirements of the customer. As a consequence you find customers juggling credit limits between suppliers in order to satisfy their needs.
So, if we look at this through the eyes of your customer, what do they want?
Ideally, the provision of a credit facility that enables them to purchase what they need, accompanied by a credit period that enables them to maximise their working capital.
But … More and longer credit means higher risk?
Not necessarily… Capital On Tap’s real-time credit monitoring platform can offer more credit to your existing customers without increasing risk. COT can do this because their proprietary software enables them to refresh the credit assessment of customers every time they order. As a consequence, they have more information about the trading patterns and performance of their business allowing the provision of more credit, whilst alerting them to trading risks and potential bad debt sooner.
Capital On Tap claim, when provided with more credit and more flexible payment terms, 7 out of 10 customers buy more with increases in order size of up to 20%.
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