In general, businesses thrive, when the purchasing power of the consuming public is high. Sadly, the current global drop in purchasing power, a consequence of the unabating COVID-19 pandemic, is so deep that the closest to this was about 150 years.
Most businesses are established to return incremental cash to owners, co-venturers, and shareholders. It is therefore not enough to only plug the leakages within your business (focus of my last series), but to also explore money-making opportunities. This article is not a post COVID-19 strategy for businesses but about what entrepreneurs can do right away.
Here are my 5 strategies for increased market share – Accentuating, Differentiating, Dissociating, Discriminating & Innovating
Accentuating:
In this context, to accentuate is to upsell; that is to sell products with higher margins or profits over those with lower margins.
Business owners and decision-makers should begin to consciously accentuate products & services with higher margins. Sales Directors use the word, “upsell”. Unfortunately, many entrepreneurs make the mistake of focusing on cash receipts per product (or revenue per product or selling price) without fully considering the cost of making such products (ie unit cost or the cost component of the product or service).
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According to a recent Mckinsey & Company publication, “When Companies under-estimate lowcost rivals” , businesses that focus on unit cost for the whole business usually disrupt industries for example, Ryanair(aviation), Huawei (Telecoms), and even LCD TV sub-sector (Vizio). These companies ultimately focus on products & services that return the highest profits, letting go of high-cost offerings, making more money.
Accenture’s recent publication, “Channel Shift: Prioritizing Digital Commerce”, confirms that businesses the world over are currently scrambling to meet the immediate needs of their respective marketplaces. SMES are presently unable to produce at capacity as they are severely limited by raw materials, staff, and even customers. To successfully accentuate your most profitable products, therefore, you need to have a good handle of your cost. You need to know every cost that goes into the production of each item and assess each item using the profitability ratio (PR). The PR can be calculated simply by using the formula, (Selling Price – Cost Price)/ Cost Price. You then rank your products according to their PR. I have gone through this simple process with a few entrepreneurs and we are usually amazed at the top contenders on the list.
While it is expected to promote the most profitable products, my experience is that entrepreneurs and business leaders tend to, unknowingly, accentuate more “glamorous products” over profitable ones. That hurts the bottomline.
A counter-intuitive example to demonstrate the fact that promoting the most profitable product is not a given – while I was the International Commercial Manager for an airline, we observed that business class passengers on a certain regional route with a price ceiling were actually “high maintenance”. We were making less operational profit per passenger compared to the average economy passenger. We paid for lounge access at the airports, offered a generous baggage allowance (which we could have sold to traders by the way), served them expensive meals from porcelain plates & glass cups which broke often and a few other perks. We were proud to have business class passengers as the revenue per passenger was significantly higher than that of the economy cabin. Further analysis by the revenue management team however revealed that we made more money from economy “no-frills” passengers than the high maintenance business class passengers. “Accentuate” or “Sell Up”, in this sense, is to sell more economy tickets and not business class seats.
Think deeply. Do not take things for granted. The products with the greatest impact on your profitability may not be the obvious ones. Take a hard look at your unit cost and make decisions that will immediately impact bottomline positively. Focus on what brings more profit not what brings in more cash.
Look out for Part 2, The Science of Product Differentiation, on the 26th November 2020
About the Author:
Akin Monehin is a thought leader, speaker, and business strategist. A 2015 recipient of Choiseul Institut France’s Award of Top 100 African Business Leaders under 40 Years old, he hosts the thought leadership conversation on Youtube, “Make or Mar Moments with Monehin”. He is privileged to have worked in over 10 countries including French and Arabic speaking ones and in leading organisations like British Airways, Virgin Atlantic & Nigeria LNG Ltd. He currently works for an International Oil Company (IOC).
Akin can be reached on akin. monehin@chicagobooth.edu Views expressed in this article are personal and do not represent the views of any institution .
