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Author: pippa@aurik.com

Onion Peeler

The Onion Peeler

Written by pippa@aurik.com on . Posted in Leadership.

Pavlo Phitidis has a method to make decisions in any business that he calls: The Onion Peeler. Listen to the podcast of his discussion about this on The Money Show on 702 & CapeTalk

The backstory:

Some years back, Pavlo was introduced to the CEO of one of the biggest mining companies in the world. When asked what Pavlo thought of his mining company, Pavlo replied: It’s like a giant onion!

The mining boss was unsettled and asked what he meant and Pavlo unpacked his theory that uses the analogy of the 3 major parts of any onion:

  1. The inner core where the flavour lies
  2. The middle layers where the burn comes to life
  3. The outer layer – the skin

Applying it to the mining business evolved a theory that Pavlo has been using ever since to make decisions quickly when a snap evaluation is necessary to take advantage of an opportunity.

Value stack

Before you apply the Onion Peeler, you need to understand your value stack: It’s everything you have hold and possess. This includes:

  • Relationships: There’s value in the relationships you’ve built with staff, suppliers, customers, institutions, even competitors.
  • Assets: plant, equipment, stock, cash, property and anything else you own.
  • Momentum: Ideally these would be recurring revenues, but all businesses should be bringing some cash in.
  • Time in the game: your experience is invaluable, if you stay within your industry and deepen your understanding of how it works and who to work with.
  • Your team: There are so many stories of employees who have done things for employers that no-one knows about. Those credits are earned.
  • Experience: Every crisis you lead your business through enriches and empowers you as the business owner in a different way.

THE ONION

Once you understand your value stack you can apply the method.

The core: Strategic and core

Everything strategic and core to your business’s existence.
Example: A business intelligence business needs two fundamental skills: One is the ability to slice and dice data, to be smart with numbers. The other is a competency in data visualisation and presentation to communicate those numbers meaningfully to clients and audiences.

Everything else sits in the other layers. When you look at an opportunity you need to know what is core and strategic to your business, and know that everything else is not.

Middle layer: strategic but not core.

Example: the hardware that you use – computers, printers, software even. This is necessary to deliver your solution so it is strategic, but it is not core to what the business is or does, so you do not need to own it. This can be hired or outsourced.

Outer layer: Everything that is not strategic or core.

This is everything you can discard and still function. It includes the pencils, coffee and tea, maybe even offices now that we have all adapted to working from home.

These things make things more comfortable and easier but you don’t personally need to invest anything more than the minimum in them. It’s a pricing game for everything in the outer layer.

So how does this apply to decisions?

When you’re considering a service, for example: advertising and marketing – if you think it is core and strategic you would hire in-house. This moves those functions from the middle layer to the core.

Anything that moves from the middle to the inner layer expands the core, increases costs and dilutes the focus on the core of the business. In times of crisis, if the core is not lean, you carry significant costs here.

If something is not strategic and core, it needs to be kept in the middle and outer layers. It is that simple, but the process of understanding your value stack, what is and isn’t core may take some time and effort.

If you need to decide what is core and strategic in your business, contact us.

3 sales approaches

3 clustered sales approach to speed up sales in a tough economy

Written by pippa@aurik.com on . Posted in Lead generation and conversion, Mindset, Positioning.

Even before Covid hit, you might have noticed that it takes longer to get deals done. What took 6 weeks is taking 12 to 16 weeks; what took 3 months is now taking 9 months if not a year. There are many reasons for it, but the reality is that to get deals done, you have sell across three domains.

Today, you need product value propositions, mindset value propositions and economic value propositions. Missing out one of them will double up on the time it usually takes you to do your deals.

Listen to the podcast here:

1. Product mindset value proposition

Products are great but seldom do they set you apart for a sustained period. There is simply too much competition to hold such an advantage unless you have patents. If you do, you’d better get a big bank account too. A patent is only worth your ability to protect it.

Having said this, why do people buy anything? They do so to solve a problem that they have. A problem not solved is a cost to that customer. It may take the form of hard cash for example a dripping tap costs money for so long as it drips. It might take the form of time. A good example is an old, tired computer whose hardware has run too many miles and cannot keep up with the demands of updating software. Alternatively, it could take the form of an opportunity cost. A tatty old suit might not leave a funder impressed with your request for investment.

Be sure you have understood what problem you solve and for who. Not everyone has the same problem or put differently, not everyone experiences the problem in the same way. Once you have understood the problem, cost it out. A problem that cannot be quantified is not well enough understood. That means, you are probably still suck in a product, not problem, value proposition. In understanding the cost of the problem, consider the cost of your product or service. the gap between the two is the value you have to offer and that’s what people and businesses buy.

In stressful times and economic apprehension, people only act and spend in relation to their immediate felt needs. Identifying and quantifying a problem that you can solve for them means you become their priority on attention and spend.

2. External/economic value proposition:

In a zero-growth economy you need to find growth and make things happen differently to when the economy is growing. Here are three areas that you can find growth in.

Change your value proposition to be relevant

A tough economy means things change for everyone. Think about unemployment rising; its impact touches everyone in that economy. When people loose access to money, they turn to family and friends for support. This means those who had the money now have less to spend. That means that the things they budgeted to buy – from new furniture to holidays, educational support or home improvements – all go on the back burner. It feels grim but only if you are selling in one dimension, the product dimension. It’s a great opportunity if you are able, with your current product or service, to understand its value differently.

Think of a landscaping and gardening business. It booms in times of plenty and is the first service cut in times of stress. A proposition that says invest in your garden now is unlikely to work when cash is tight. Or is it? What if the proposition suggests investing in your garden now at a fraction of what the family holiday would cost since it means summer fun around the pool at home instead? A different proposition, solving a new problem, emerging from an environment of financial stress, that disabled the former proposition that worked in times of plenty.

Outcompeting your competitors

In a tough, stressed economy, all your competitors feel the pressure. Sustained negativity and apprehension disables people and businesses. Consumer and business spending has, like a tap of flowing water, switched on and off consistently, and almost immediately with each Brexit announcement. In South Africa, we have literally become immune to political announcements since they happen at such a ferocious pace. Most people have resigned themselves to any action. That’s where the opportunity arises. Your customers want to buy services from a company that is positive and is investing. Those customers being served by negative competitors are the customers up for grabs. Approaching them today will increase your marketing and sales response rates.

Taking business from corporates

In this tough economy, the rate and pace of change from an emotional and financial perspective is seeing markets fragment. Corporates struggle in these instances. In addition, they are big, heavy, complex and slow-moving. Look at who your corporate competitors serve and approach them with a more flexible, faster-acting service offering and response. You will get reaction there.

3. Mindset proposition: Move from denial through anger, acceptance, change to adaptability

Who’s in control

Behind every business client is a person. Inside of every customer is a person. In a poor, negative economy you must add a psychological dimension to your sales activities. The best way to shift negative people is to help them see that they have full control over their futures. By far, most people are in the same space and by far, most are waiting for things to happen before they strike on deals. Whether it be for the elections to come and go or the sun to rise and set. Acting gives you power and acting over things you have control is extremely empowering. Have the conversation.

Fear versus gain

Loss carries more weight in cations than gain. It’s well known. Most people would rather act to first prevent loss, then act to attain a gain. Create an urgency by focusing on the cost of not having a problem solved. This spurs action far faster than promising a hoped-for utopian outcome in the future.

Logic

Finally, logic. Use logic to get people to act. This only works if you understand who your customer is, what problem they have that you can solve, what the cost of not having the problem solved is and how you can provide real value in getting it done.

Business today must stretch itself across all three domains. And it’s a great thing. You get better when you succeed in this. Your business grows and when the economy turns, you’ve developed habits and a way of working that sees you excel. After all, excellence is a habit.

Because we work with clients that come to us to grow, we are already in a good headspace. Because we pride ourselves in our ability to deliver growth, we eek out all the angles, arguments and opportunities to make it happen. Because we like to do so at scale, we work with you to build the systems to make this happen. It’s tough out there, don’t make it tougher. Let’s work together to take advantage of this period whilst it lasts so that when it fades, acceleration will be your norm.

 

business exit

Why, when and how to sell your business

Written by pippa@aurik.com on . Posted in Exits.

Every business only has two destinations: it closes, or you successfully sell it. Globally, however, 94.6% of all businesses that begin, never get sold. This is tragic for business owners, because they pour their life, energy, and attention into a building a business that should serve them and offer them financial security. But why would you sell your business, and when is the right time to do so? On The Money Show with Bruce Whitfield, Pavlo Phitidis outlined a plan for how to sell your business:

Listen to the podcast here:

Join Pavlo for an online forum to discuss business exits on 12 August 2020. Register here

WHY DO YOU DO WHAT YOU DO?

Starting and building a business isn’t something you enter lightly. Adopting an entrepreneurial approach to your business, and building an asset of value, with the view to selling it at some point, is essential. If you’re concerned as a business owner that you need to reconfigure the way you’ve built your business, so that you can look towards selling it and securing your future, now’s the time to return to the basics of your business and remember why you do what you do. You may have discovered an opportunity that was the catalyst for building your business, or you opted to create a business out of necessity. Either way, the passion you felt for your business in the beginning serves as a guide for helping you ready your business for sale and plan your exit strategy, but it cannot be the sole shaping force. If you began your business out of necessity, it forces you to fully engage with your business, digging deep into it – I often find that the most driven business owners are indeed the ones whose drive was borne out of necessity. Passion, in and of itself, is not enough to build (and then sell) a successful business. You may be deeply passionate about a sector or industry, or you may feel inspired by the momentum within building a business, but passion alone is not a sustainable business building tool. It may help you to drive momentum within your business, but it can also make you blinkered. Passion may get you started, but passion combined with purpose, will enable you to build an asset of value. Your business should be built to sell, rather than built in the hope of one day selling it. Plan your exit strategy at the beginning, and you’ll be relatively assured of a successful sale, when the time is right.

WHEN DO YOU SELL?

The right time to sell your business doesn’t just come around by accident. There are several variables that drive that process, and they often influence your plan for how to sell your business. Because your business is an extension of yourself, changes in your world view, health, energy levels, attitude, or other circumstances, can directly influence your decision to sell your business. Factors somewhat external to your business can also directly influence your plan for how to sell your business. Changes in your sector or industry, or  shifting trends in technology and legislation, can lead you towards wanting to end the cycle of breaking and rebuilding your business to stay aligned with your customers’ changing needs. Moreover, the lifecycle of your business plays an important role in helping you choose the right time, and how, to sell your business. As your business grows, so too does its value change and grow. Your business’ lifecycle is not driven by how long it’s been in operation – some businesses reach their peak early on, while others take longer to mature: the peak of your business’ life cycle is always a good time to sell. The lifecycle stages can be influenced by the size of your business, the arrival of new competitors, a shifting customer base, or new buyers taking interest in your business. An interested corporate buyer will have a completely different budget and purpose for wanting to buy your business, when compared with a private buyer. Particularly, the size of your business will influence buyers’ interest in, and ability to, buy your business.

HOW TO SELL YOUR BUSINESS

As a business owner, you should always be building an asset of value, enabling you to ensure that your business can be sold at any point. Make it a habit to investigate and consider what you want for your business, and what you need to extract from it. For the former, consider what you’re still equipped to give to it, and for the latter, undertake a financial valuation or assessment of your business, at least once a year. Consider how much money you would need to maintain your lifestyle once you sell your business and to cover your retirement, and then assess how much money you would like to make from the sale of your business. Those two figures will help you to define how much you would like to sell your business for, and how close you are to achieving that goal. Thereafter, consider the current financial valuation of your business, including the three levers of valuation, each of which can be built into your business:

  • What makes you different to your competitors?
  • How long into the future your business can continue to grow?
  • What seam of free cash flow can your business generate?

Once you’ve built those levels of valuation into your business, and been able to assess your financial objectives, you’ll be equipped to build your exit strategy, and define how to sell your business.

Are you considering how to sell your business? Aurik can help. Let’s start talking, and we’ll help you build an asset of value.

global business

Now is the perfect time to build an international business out of SA

Written by pippa@aurik.com on . Posted in Aurik Business, Innovation, Leadership, Positioning.

Covid-19 has brought together 7 elements that Pavlo Phitidis says create the perfect opportunity for mid-size South African businesses to take advantage of, to service markets beyond our borders.

Listen to his discussion about this on The Money Show on 702 & CapeTalk:

  1. Resilience

We have a resilience in South Africa that comes from years of operating in a no growth economy, and living with constant political and energy uncertainty. It’s been a business-unfriendly environment, yet the business owners we work with aren’t even aware of it! It has become normal and we overcome these challenges without even thinking about it. When Pavlo compares South African business owners with those he has worked with in the UK, USA and Europe through Covid, he’s noticed a stark difference. There, they are waiting for economic policies and remedial plans to roll out, here we are battle ready, fit and capable both mentally and emotionally to cope with an uncertain environment.

  1. It’s not personal

The Covid crisis is not personal!  Pre-Covid South Africa’s crises hit one after the next, from all the scandals of the Zuma administration, to load shedding, to downgrades – they all felt personal as other economies were growing, and even booming in some places.

Covid is universal. Every country has suffered under lockdown. It has forced change in the way people behave and businesses engage. It’s creates a whole new set of problems and whoever served those customers before, needs to change the way they serve them now, or they won’t be relevant. People are primed for change.

  1. Our dual economy:

South Africa has both a well-developed and informal economy. In our developed economy we have the ability build products and services suited to other developed economies, and we can do it in the tall grass of SA, where no-one is paying us any attention, so we can test it and get it right. This is in contrast to high profile economies where competition springs up overnight to compete with any new offering.

  1. Exchange rate

The weak currency at the moment means we can export very cost effectively.

  1. World class tech skills

We have global standard technology skills, which means we can build out global standard tech solutions. Why this is so important now? Because crises always accelerate digitisation, and Covid has been no different. We have had to work remotely, which has shown us we can work from anywhere in the world, with anyone in the world. And we have the added bonus of speaking English, which is the language of international business conversations.

  1. Necessity is the mother of invention

Pavlo compared businesses he’s working with in South Africa with those in the UK, EU and USA, where he has also been active through lockdown. The amount of economic support offered to SMEs in the UK in particular is eyewatering. For example, furlough in the UK allows businesses to put their staff on ‘leave’ during lockdown and the government pays 80% of salaries up to a certain threshold. And they mandated that landlords could not evict tenants for 3 months.

This meant the business owners had little motivation to do anything but take some time off during lockdown.

In South Africa, because we have no social net and SMEs bore the brunt of the economic shutdown – we had to keep going, we had to re-strategise, and find new opportunities, and these businesses are emerging now with different capabilities and opportunities to take advantage of. We haven’t been slowed down by the comfort of social support.

  1. Mindset

The Kubler Ross grief curve is still relevant – and it shows that you need to ACT to get through the depression stage. You will never see opportunities in this stage. Most business owners in South Africa have had to just get on with it. That action has forced them through the grief curve, to a point where we are able to see possibilities that those who were furloughed, could not.

 

If you’re looking to grow your business across our borders, get in touch.

 

 

conflict resolution

Conflict resolution in times of remote working

Written by pippa@aurik.com on . Posted in Aurik Business, Leadership, Team.

Remote work and its dependence on digital engagement have changed the way we communicate with customers and with our teams. Add to this the sheer hours we now spend in online meetings, the stress of living through a pandemic, and the stress of living, working and schooling from one place – we need to give a lot more thought to how we manage conflict, digitally.

Listen to Pavlo Phitidis discuss this on The Money Show on 702 & CapeTalk:

Customer conflict resolution

Pavlo described a personal experience he’s had through the lockdown, as his computer had an actual meltdown, necessitating the purchase of a new one. The first one froze repeatedly in the first week, and was replaced with another within a few days. The second one had the exact same fault, and a quick search revealed that customers across the globe have experienced this same issue. However, Pavlo had to chase repeatedly to secure a meeting with a complaint resolution manager who then refused to switch on her camera for the meeting, and left him with no resolution whatsoever.

This is generally our experience of dealing with big corporates – we have to invest our time energy and resources to secure an engagement, and even more time, energy and resources to achieve the outcome we believe we have earned.

As business owners of small and medium sized businesses we have an opportunity to compete and win on conflict resolution, and understanding how to get it right, online is necessary for a social distancing world.

Using Pavlo’s recent experience, there are 2 immediate lessons to be taken:

  1. Be seen. Turn on your camera so that your customer can see you on the other end of the screen. Through the camera you can create empathy, show care and concern.
  2. Prepare for the call and frame the experience for the customer. Send them a confirmation of the appointment with an agenda for the meeting, so that they understand that there are certain steps that need to be worked through in order to reach the resolution. It also shows that the desired outcome IS a resolution.

Team conflict resolution

Pavlo shared an example of an operations manager who, instead of speaking one-on-one to a team member who had done something incorrectly, chose to write an email, copying in the whole team of 8 members.

This email made its way into 8 homes, where 8 frazzled individuals had been working tirelessly through lockdown, often while homeschooling and homekeeping, during these stressful times. The impact of a negative email like this affected the whole team badly, not just the individual it was intended for.

In an office environment it would have been resolved in a 2 minute chat, but on email it created more strife than the underlying issue was worth.

Pavlo recommends restructuring team engagements, understanding the different types of communication that are necessary:

  1. Strategic comms: The once a month meeting that used to happen in the boardroom must still happen online. Even if there is no news, it reassures the team that there are no major changes, and in a time when retrenchments are very common – their jobs are safe.
  2. Tactical comms around specific issues: We have successfully gotten most of our clients to use a ticketing system for task allocation and issue resolution. The system ensures the messages are clear, through structured fields, rather than open to emotion. It also helps you to manage the output of a team that is working remotely.

Why no email?

Emails are easily misunderstood, there’s a gap that doesn’t convey humour or sarcasm.

There’s also the  issue of copying in – both up and down the hierarchy. Pavlo notes that ‘CC’ indicates that the team has lost the ability to communicate – it says ‘I need help because I’m not being heard, I’m not being obeyed, and I need your intervention to resolve this.’

If you’re struggling to get your communication strategy right in an online world, contact us.

change

Three levers of change re-shaping the future – and how to get your business ahead of the change

Written by pippa@aurik.com on . Posted in Aurik Business, Innovation, Leadership, Trends.

 

Covid has certainly fundamentally changed the environment we live and operate in, but before and beyond Covid there are three major trends that remain relevant. As a business owner you need to understand these, and develop an approach to your business that is likely to position it as relevant to the future.

The noise can be reduced to three main levers of change that are reshaping the business environment of tomorrow.

Listen to the podcast from The Money Show on 702 & CapeTalk :

What are the three levers of change?

  1. Environment

From Carbon emissions to plastic, the world is waking up. Militant reactions to perceived threats to the environment will escalate at an accelerated level across the globe. From water, where the next battle will begin affecting all industries linked to its consumption and contamination, to energy. Conscious abuse and unconscious misuse will be punished by consumer responses.

  1. Economic exclusion

Global growing economic disparities are enabling populist reactions. Corporate entities that accumulate too much perceived wealth and give little back are being targeted. The EU and now, in the lead up to the American primaries in 2020, we have already seen sights set on the global tech firms. Profit without taxes is no longer acceptable and even then, beyond a certain size or market presence, taxes are not enough.

  1. Technology

The rate and pace of digitisation, mechanisation and automation is unstoppable. The race to lead the global economy is being fought through technology as evidenced in the trade wars and America’s attempt to halt the adoption of Chinese 5G technology. In the UK, an intensifying focus on revenue/employee is being used to create incentives for businesses to modernise through digitisation, automation and mechanisation for fear of being excluded from the global economic value chain. This carries attendant implications to jobs, balance of payment issues and the currency etc.


What framework can you apply to position successfully into the future?

An Asset of Value™ is a business that is well positioned, supported by systems and people and releases your time to be strategically focused away from the noise of daily operations. It’s also a business that is very responsive to customer activity. Changes in customer behaviour will be felt and translated through the systems of an Asset of Value™, acting as signals of future opportunities.

 

We work with established business owners to grow their businesses into Assets of Value™. The nature of this work has exposed us to all sectors and industries across 4 continents. This helps us lend perspective. Once a direction is agreed, we work with you to successfully reshape your business into the future. Let’s talk and build tomorrow, today.

Storm

How do we Innovate and what do we innovate to survive the storm?

Written by pippa@aurik.com on . Posted in Aurik Business, Innovation, Leadership, Mindset, Positioning.

When a hurricane hits an island it hits with its most violent force, and everyone has to literally baton the hatches: lock yourself inside and board up the doors and windows. You then have very few options but to hope and pray it will pass so that you can go out again.

Once the hurricane is over, it is often followed by a storm, which brings torrential rains that cause massive destruction to infrastructure, deadly mudslides and cause as much if not more, damage.

As a business owner, this analogy should be in our minds now.

The lockdown was the hurricane but this emergence into the economy is the storm, which is leaving an environment profoundly different and uncertain.

Listen to the podcast of Pavlo Phitidis’ discussion about this on 702 & CapeTalk:

Just as there were very different behaviours in lockdown – with clear winners and losers, so there are going to be different behaviours now, which will impact on who wins going forward.

Mindset

The first point of strength or weakness resides within you as a business owner – it is in your mindset and attitude. There are broadly two different mindsets, and you can see the telltale signs of who is who immediately. If I start talking about innovation and finding the opportunities in the new environment, and I find that the business owner focuses on what the government, banks, landlords and other external sources of support are or aren’t doing, then I know this individual is operating on hope and fear.

If the session starts with small talk around the big macroeconomic issues but swiftly focuses on their customers, what the customer is doing differently, and what their new lived experience is – I know this is the earliest stage of innovation. And this individual is driven by the right mindset.

The crisis is not over, it is just changing shape, and we can’t escape it.

Growth

A business owner noted, correctly that the environment is going to be uncertain for a long while yet, years even, and he asked Pavlo how he could rationally make the investment Pavlo suggested at a time like this.

Pavlo’s response is that sometimes growing is not spending and expanding. It may be contracting and re-shaping but always guided not opportunity not fear. It is a deliberate process to preserve capital that will be able to cushion the business against future shocks and simplifies the business which makes it more manageable.

Shrink in a smart way, to be more focused on who you serve rather than the knee-jerk reaction to do whatever it is that can make money right now. If you jump at anything, you’ll soon get caught out as delivering to and servicing this new market will inevitably result in rising costs as it’s not your core business.

Digitise

Regardless of what you’re doing – don’t let go of your early stage digital gains that you were forced to make during lockdown. This has to be doubled down on to ensure you stay competitive.

Innovation

Innovation is talked about at length, but what is it?

If you want to become more innovative you need to do two things:

  1. Ask yourself why you do what you do. If you’re in it purely to make money, you’ll chase the transaction rather than the business. But if you have a longer term view to build something with a legacy, you’ll go to the source of innovation: your customer.
  2. Customers will give you the answers. Speak to them, listen to them, understand their needs: this is the seed of innovation.

 

Aurik works with business owners to help them to find their seeds of innovation, to set their mindset right and to build their businesses into Assets of Value. Contact us to see how we can work together to do the same for you.

 

Webinar: How to manage your people through uncertainty

Written by pippa@aurik.com on . Posted in Aurik Business, Leadership, Mindset, Team.

One of the most difficult parts of a business to manage through Covid-19 or any crisis, is your team, and the human relationships you have with your network including clients and suppliers.

Pavlo Phitidis hosted 2 webinars to offer practical insights on how to work with the human beings around you, who are also feeling anxious and uncertain.

In the first he focused on the human level:

  • How to get up again after you’ve been knocked down
  • Understand where you are, emotionally
  • Understand the different realities your team members are dealing with
  • Use 3 tools to take control of yourself, in order to lead your teams through this difficult time.

WATCH:

 

In his second webinar, Pavlo focused on more pragmatic matters including:

  • How to engage your team over this period
  • How to redirect the work they do over this period
  • How to assign and manage tasks
  • How to right-size your team given your business
  • How to lead and manage the process to get to the other side ready to grow.

WATCH:

Upside of Down with Bruce Whitfield

The Upside of Down: book launch with Bruce Whitfield

Written by pippa@aurik.com on . Posted in Innovation, Leadership, Mindset.

Bruce Whitfield’s book, The Upside of Down looks at the opportunities amid uncertainties. Certainly, it could not have come out at a more apt time, just as we were thrust into the Corona Economy. Pavlo Phitidis, a regular on Bruce’s show on 702 and CapeTalk, spoke to Bruce right at the beginning of lockdown about the relevance of the stories and principles in the book, to our current circumstances.

The book is available at all good book stores, from takealot.com or as an e-book from Amazon.com

Tune in to 702 or CapeTalk each Thursday night from 19h30 to hear Bruce and Pavlo discuss an issue relevant to building your business into an Asset of Value.

Pricing

Building a pricing strategy to grow your business

Written by pippa@aurik.com on . Posted in Aurik Business, Lead generation and conversion, Positioning.

Pricing sensitivity has driven innovation for years. Because the economy is a massive, complex ecosystem, everything in it is linked and poor growth drives pricing pressures on us all. Yet, the fundamentals of pricing are static. How then do you deal with pricing in this economy when you face the challenges stated in the message below?

This is a Twitter message from a listener “The pricing game is emotional…Suppliers raise prices and you are forced to decide:
1. Do you segment and risk alienating the very people you want to be serving or,
2. Run at a loss until economies of scale kick-in and you can negotiate better bulk cost price. HELP”

Listen to the podcast here:


Pricing can become very emotional. A challenge to your pricing feels personal, especially when you are in the early phase of your business growth cycle. But it never is. Pressure from a customer on your pricing might be real or part of the game in business. Figuring out which one it is and understanding the levers you must manage for your pricing are both science and art…. but mostly science.

Pricing Pressure – real or game?

Customers negotiate pricing for several reasons: Affordability, better pricing elsewhere, just because it’s in their nature, corrupt intentions, alternative substitutes that come in at a better price, perceptions of value are a few.

For so long as someone negotiates, they want to engage. People who are unhappy about pricing and simply walk away, rob you of the opportunity to improve and grow your business. Seldom is it personal.

Understanding the reasons are vital because in them lies real value for you to respond in a meaningful way. For example:

Nature

Customers who have a trading mentality and legacy have negotiation built into their DNA. Its how they see the world and how they operate and respond to the world. They will negotiate despite themselves. In many industries and in cultures around the world, trading and negotiation is part of what makes business fun and engaging. It builds relationships and creates commercial social engagements and in that, friendships, and relationships.

Value

Customers cannot see the value you are offering. That’s your fault and the blame stays with you. Value is a hard thing to demonstrate. It does not come from a product and its features. There are many products out there with similar if not better features. Value comes from effective messaging and communications from your marketing and sales process. It is then amplified or destroyed by your fulfilment and delivery process which should get the promised service or product to your customer. It is an experience as much as it is perceived and its real as much as it’s quantified.

Competition

Everyone faces competition. This is when your product faces comparison with another product. Mostly you can compare feature to feature, for example, a car. If you want a 1.8 sedan, there are loads in the market across many brands. Competition on the product is direct and real and big price differences swing the buying decision.

Substitutes

This will come from products or services that deliver a similar outcome for the customer. For example, a substitute service to the horse in 1902 was the car. Both achieve a similar outcome, getting you from A to B. If the car is dramatically more costly than the horse, then the horse would’ve remained in play. In today’s terms, think Uber versus buying a new car.

What are the levers of pricing?

The pricing of your product has three technical levers and one artistic lever. Technical levers include the costs and competition.

Costs

You must cost out your product or service. If you are making something, it’s easier to cost out as opposed to a service that you have created. Both have input costs including raw materials, manufacture and production, fulfilment and delivery. Everything from the pencil to the power you use to produce this product must be costed and understood.

Competition

You must understand the difference between you and your competitors. If you have a product company, then product comparisons are likely and so features and abilities of the products are a big deal. That’s half the game.

The other half lies in understanding the final experience the customer will have and costing that out too. Once you have this understanding, position yourself in the market to win as best as you can. Remember, your pricing will enforce that positioning. You cannot be the cheapest and best quality. Both carry costs and those costs add to the final price you offer your customer along with the promise of the experience that they’ll have from you.

Value

This is hard to get right. Most businesses claiming to offer value rely on marketing messaging but have no real answer to how value is calculated and sold. There is a formula for this and here it is: Value = Difference between a customer’s problem not being sold and the cost of your solution to that customer.

Quantifying a customer’s problem requires a few things:

  1. A profound and deep understanding of your customer and the problem you solve for them. there is no such thing as a luxury buy from a customer. Everything anyone and everyone buys, solves a problem for them. if you can’t articulate that problem, you do not understand both your business and your customer. Read more on getting this right HERE.
  2. Costing out that problem in real money is the true test to which you understand the customer and the problem you claim to solve for them. It must include everything leading up to the problem, everything in the problem and everything after the problem – all solved. For example: Competing with Chinese imported products should be calculated not only on the product but the entire cost of doing business to get that product into store, sold and serviced thereafter.
  3. Get the math right – persist in understanding the maths and be sure that your costing strives to continuously improve the accuracy of these costs.

Your artistic lever is how you ascribe and communicate your value.

This lever is all about wrapping. You have a beautiful product/service, make sure you communicate it widely and simply. The extent to which you achieve this is entirely dependent on who your customer is, how they buy, why they buy, when they buy and so on. You can see why trying to be all things to all people and serving all customers will lead you to become nothing to anyone, resorting to a haggling, price negotiation on each sale.

What if you’ve done it all and still can’t win?

There are a number of alternative strategies but consider these two for now:

Dead End

Then your business is flawed. Some products and services require massive muscle to succeed. These are the generic, commodity businesses. Baked beans are a pricing game in urban areas. Fynbos infused tissue oil is not.

Innovate

Innovation is all about necessity. If you can’t win by playing by the rules, change the rules. That’s what Uber did, you could do it too. But we have already discussed how to get that right. Check it out HERE.

If you have a great product or service and you can see it solving 101 problems for 101 customers, let’s talk. If you have a good business that’s done well in the past and is now facing formidable pricing pressures, let’s talk. Leaving both “conditions” unattended will take you to the edge of the precipice. Then little can be done to run that fateful next step into a new direction, and with that, a business that thrives once more. We call this journey building an Asset of Value. It’s all you should be doing, all the time and its something we’d be glad to do with you.