Michelle looked at this month’s sales. It was the worst month yet for her online gift boutique. People just didn’t seem to have any money to spend and competitors were selling similar products below Michelle’s cost. She needed to do something. And, she needed to do it quickly. But, where should she start?
Cranking up the effort
In a recession, the most common response to dwindling sales and profits is to kick up promotions and cut costs. Trouble is, this strategy doesn’t really solve the problem. Promotions fail because customers no longer have money to spend. Stealing customers with money to spend from competitors is not an option. Competitors are slashing prices and increasing promotional efforts in an attempt to hang on to their own dwindling base of customers. And, they have trimmed their operations to the bare bones to keep costs at a minimum.
The problem with “cranking up the effort” in response to dwindling sales and profits in a recessionary economy is that it just doesn’t work. The time and money spent on promotions designed to capture a larger portion of a dwindling customer base will typically exceed any additional sales revenue that these promotions can realistically generate, especially when the competitive climate is intense. And, with most businesses having already engaged in cost-cutting measures, further cost reductions may eliminate quality and features in products and services that customers value causing sales to decline even further.
Back to basics
To survive and prosper in a recessionary economy, the small business owner must reinvent their business. They must find the opportunities a recessionary economy presents and use the strengths of their business to pursue those opportunities. It is not enough to simply take shelter and wait for the storm to pass. This most recent recession is not a “blip” on the radar screen. It represents a major restructuring of our economy.
A business must identify those customers who have money to spend on satisfying some need, preferably a very intense need. The business must then identify a package of products and services that it can sell to these customers at a profit, despite intense competition. This may mean changing the customer base. It may mean changing what is sold. The business must find a “match” between what customers will spend money on and what a business can sell.
Questions to ask
Michelle should start by asking herself some basic questions. If she doesn’t know the answers, she should actively seek out information that will allow her to answer these questions with confidence. These questions will allow Michelle to focus on the opportunities that the recession has to offer.
1.What are the industry trends and opportunities?
Most people forget to periodically check out the industry summaries that are readily available online, for free, through most any public library. Understanding the trends in the markets, particularly trends with customers, helps a small business stay current and focused on customers with money to spend.
2.Why do customers purchase?
It is not enough to understand what types of products and services customers spend money on. It is important to understand why they purchase the products and services they do. Understanding a customer’s underlying motivations enables a business to identify those products and services that can compete.
3.Are the products and services aligned with customer motivations?
This is the most difficult question to ask and answer. The economy has changed. It may be that your business no longer sells products and services customers are motivated to buy. It could be that competitors have grown at your expense. Or, it could be that your customer base no longer has money to spend. Change is inevitable. The success of your business depends on your ability to identify new opportunities that your business can realistically pursue and focus your limited time and resources on pursuing those opportunities.
Michelle may not succeed in the new economy. But, spending her time and energy on strategies that worked in the old economy is likely to be an expensive waste of her time. Michelle needs to take a fresh look at the world, the economy and her business. She needs to find new and promising opportunities to pursue. Michelle needs to reinvent.