Customer Satisfaction Research
No. 5:
Market Research for New Products
No. 3:
Creating New Product Categories
No. 2:
Decision Making in Hard Times
No. 1:
Brands and Crafting Strategy
|
No. 2:
Decision Making in Hard Times |
| |
| title: |
Creating a Strategic Opportunity Mindset During Hard Times |
| author: |
Tom Brown |
| article: |
Hard Times – No Kidding!
While the employment rate is showing signs of improving somewhat, the fact is that ‘Hard Times’ are here, and it looks like one of the most severe downdrafts will linger, if not get worse. The New York Times observed last Friday “Almost a year after the economy began growing again, the nation continues to suffer through a broad jobs slump that has spread the pain more evenly than almost any downturn on record.” The same article reflected on a recent NYT/CBS poll that showed, 66 percent of respondents said the economy was in bad condition, up from 39 percent in June, and 39 percent saying the economy was worsening. Last week, Carl Claunch of Gartner Group predicted that 50% of software companies would go under within two years. No more cataloging of data is needed here.
Actions for Business Strategy
These are the times that business strategists, CEO’s on down, must earn their keep, by not only managing for survival, but also looking for the openings for market share growth. For the astute players, large payoffs and lower risks may be at hand for to build market share now. It may be the best of times for strategists having a mindset and toolset to unearth paydirt.
It’s like a futures trader seeking an edge.
It some sense, it’s similar to how a futures trader in the commodity exchange pits searches for opportunities to ‘buy low and sell high.’ In the trading pits of the futures and commodity exchanges, a seasoned trader looks for great opportunities to buy when everyone else is “selling.” When his ‘competition’ – other traders – are in panic mode and dumping positions is when he’s on the look out for repositioning for a market reversal. Oddly, his risk can be lower than ever, and the payoffs can be huge. Of course, it is not child’s play and he must remain awake to the reality of marketplace. It’s all about having a mindset continually scanning for opportunities.
For a business strategist, they live in a trading pit of their own. Instead of futures contracts or options, the business strategist trades in market share points. The typical market share metric calculation takes revenue as a percentage of the total available market (TAM) of all possible segments. A refinement of the metric is or total relevant market (TRM) which pares down TAM to the target segments of focus. The share metric is vital to track because 1) it directly shows your competitive horsepower versus your competition, and 2) the direct positive correlation between share and profitability.
The PIMS Discovery – Share affects ROI.
The Boston Consulting Group in its benchmark PIMS study (PIMS meaning Profit Implications of Market Share) identified how vital market share points were to the overall health of a competitive player in any industry. The PIMS study showed that business units with larger market shares had greater net profitability. Customers were more loyal, more ready to consider the large-share player for even more business, and so it goes. The bigger share has a disproportionate flow of success. Therefore, share matters a lot.
As the futures trader invests dollars in contracts with hopes of rising prices, the business strategist invests in “buying” market share points. She invests with the intention of capturing greater share. These investments are like picking the futures contracts that will yield a positive net gain: advertising, new product development, higher efficiency plant to reduce costs and penetrate more segments. Of course, competitors are doing the same thing and in the battle for market share, it is a constant sum game: there are only 100 share points total.
Downdraft Psychology and the Opportunity Mindset
In a sizzling economy, players are pushed to meet demand; sales growth is easy; customers accept pricing increases in order to fulfill their demand. Even weak competitors do moderately well. The focus is on increasing capacity to meet demand. Since most all are doing well, management tends to take the eye off the market share ball. The marketplace is tight.
When the economy reverses, competitors tend to run for cover. The marketplace is in flux. As the economy dives, however, a strategic irony begins to take hold. In this environment, the strategic irony is that opportunities emerge. Growing market-share costs less, is less risky, and can yield higher payoffs than when the economy is sizzling.
Here are the reasons and the fundamental opportunities:
- Some competitors may slack off, retreat from certain segments, or disappear altogether ;
- Market size contract, yet at the same time begin to bulge with pent up demand; and ;
- The nature of demand can change qualitatively as buyer motivations shift and new customer priorities surface.
Actions for Decision Makers
When management is struggling with issues of how to manage downsizing, cash flow, or wholesale restructuring attention may divert away from the opportunities for market share growth. Here are some action steps to consider.
- Keep paying attention to the idea of opportunity scanning. Know what new opportunities are surfacing. Keep an eye out for emerging new segments.
- Understand how the needs of your customers and prospective customers might be changing – their need systems, wants, and desires. This data can drive the focus for share building and repositioning of products and services to match customer needs.
- Be selective yet concentrate awareness building and promotion in the share building areas you’ve uncovered. You may need to spend less because revenues are down, so make informed choices to achieve maximum punch.
- Using market intelligence, know which segments your competitors may be abandoning and orchestrate tactical and strategic moves that may harvest easy share points when the dust settles.
Conclusion
Look up, not down. This is a good time to plant seeds for big gains in market position. Scan. Generate ideas internally. Be rigorous in finding pathways for share gains now.
References for More Ideas
Opportunity Scanning
Motivation Research
Competitive Intelligence
|
| |
|
