Once a business is up and running, an owner faces other concerns which naturally come from the evolvement of the business. One of those major concerns is the operational side of the business. A business owner is generally faced with decisions involving the balancing of costs, liabilities, and profits. Most owners lean towards increasing the latter, sometimes to the detriment of others and the business. It is understood that the motivation for starting a business is to make a profit. However, that objective can still be accomplished without shortchanging on others in the process. Below are the top methods that will allow you to effectively drive down costs while at the same time providing a quality service/product and maintaining strong bonds with consumers, and employees alike.
First, we will address the commonly used ineffective methods of cutting costs. These measures alienate consumers, employees and contradict fair business practice.
Invariably this has been done a number of ways including cutting employee hours, firing, laying off.
These measures are ineffective because they place a strain on the resources of the business. A business that requires three employees does not all of the sudden adjust when the owner decides to make do with two. In fact, if it adds an extra burden on the remaining employees; strains the employer-employee relationship; alienates current clientele and could potentially stagnate the growth of the business. Suppose, you are a customer who always get coffee from the Pro-Organic coffee shop and you arrange to meet a friend there. Instead of the usual 5- to 7- minutes wait to get the coffee you are waiting 15-17 minutes to get a cup of coffee. Needless to say, you will be tempted to go across the street to Starbucks for faster service. In the same vein, the business may also lose out on the possibility of gaining a loyal customer in the friend.
The second commonly used method is curtailing service by means of increasing price or providing less for the same price.
This is counterproductive because it risks losing the loyal clientele and jeopardizes the chances of gaining new ones. Any increase in price will force a loyal customer to question his decision to patron your business. Research shows that consumers often feel slighted when there is a price increase. Instead of thinking that this might be needed for your survival, consumers will likely to see your business as a complicit part of a system that is stacked up against them. Think of the last time you used to buy something for a set price when all of the sudden, the price goes up. It wasn’t a pleasant feeling, right?
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A consumer’s first instinct under these circumstances is to find the same product at the previously lower price. Unless you have price fixing arrangements with everyone in your industry, chances are some other business will probably have a lower price than yours. Some might argue that the true loyal customers will remain faithful to the business and that may be true. However, when you have struggling business you cannot acquiesce to any scenario that could potentially alienate your current clientele because you cannot afford to lose even one customer. If anything, your goal is to enlist more customers. You can do that by choosing the customer over the bottom line and Re-valuing your business through the eyes of the customer.
Choose your Customer Over the Bottom Line
When you choose the customer over the bottom line of the business, you put the customer first. Because of the symbiotic relationship between the business’ bottom line and the customer, taking care of one should be synonymous with taking care of the other. This will happen when you invest your resources to create such quality and uniqueness in the service or product that you provide causing your customers seek you out and remain loyal to the point that when it comes to your business or somebody else, they will always choose you. [Refer to creating a brand article: “ The 5W’s of Branding”]. In essence, you chose the customer over the bottom line when you expend your resources to create a brand that is synonymous with quality. You must continue that campaign in spite of costs or rationalization that the money might be better spent on other aspects of the business.
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By focusing on the quality of the service that you are providing, i.e. Choosing your Customer Over the Bottom Line, you will find that the customers will take care of the rest. As the reputation of the business increases for the quality of the service or product that you offer, you will see the amount expended on building a brand will even itself out and at some point exceed the amount spent. That may sound risky to a business that is already struggling and you may wonder how that scenario would play out. There are several different ways a business can apply this principle and the ideas and methods will vary across industries.
Let’s think back to our usual scenario of the Pro-Organic coffee shop, suppose the coffee shop is finding itself operating at a deficit and faces the decision between letting go of one barista to break even.
Instead of doing that, Pro-Organic can choose the customer over the bottom line by increasing the quality of the product or service that the consumer used to get without increasing the price. For example, the shop may give customers and additional 3 oz of coffee for every large coffee purchased; or hire one additional barista for peak hours to decrease the amount of time customers wait in line. Either measure is guaranteed to increase customer traffic thus, taking care of the bottom and even increasing profits in the long haul.
Re-Value your Business Through the Eyes of the Customer
When a consumer believes that you are trying to take away something that they feel entitled to, their tendency is to pull back. Accordingly, any scenario where a customer is getting less than he was accustomed to will be seen as a drawback to patronizing your business. Instead of doing that, you have to Re-Value your Business Through the Eyes of the Customer. That means that you have to allow your consumers to put a price on your service or product by customizing alternatives to the existing ones. Again, this is risky, but you are already in the thick of it by being at a deficit, so risk aversion should not be a strong suit. You must spend some time evaluating what is important to the ideal customer. Is it faster service, cheaper alternative or variety? Once you figure that out, spend more time to decide how to align your services to meet those important customer expectations.
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One of the ways to do that with the coffee shop would be to consider alternatives to your current services/products that customers would value enough to allow some customized pricing. This is not increase in price for the same services you currently have. You are creating whole new services. For example, you may decide to create a VIP coffee club where these customers can pre-order their usual order of late, mocha or whatever drinks, five minutes before pick up, or you may create pre-paid weekly monthly packages so that customers don’t have to dig their purse every single day for a latte. Whatever your ideas are, if they bring added value to the customer, they will be willing to pay for it. This will not only allow you to please the current clientele but also attract new ones, and in a roundabout way take care of the bottom line.
About the Author:
Catherine Delcin works as a business consultant empowering entrepreneurs with the necessary tools and resources to bring their entrepreneurial aspiration to success. She holds Juris Doctorate degree of law specializing in Business and has extensive experience with all aspects of business formation. Connect with Catherine at Catherine.firstname.lastname@example.org, or connect with her on Twitter at http://twitter.com/CatherineDelcin.