Minding My Own Business

Dealing with the Curve

July 22, 2008

Every industry is myopic to some extent. That is, business people tend to focus exclusively on the trends and challenges of their own company and industry, failing to recognize that their issues are inherently similar to those faced by executives in completely different markets.

Consider the following statement uttered by an executive quoted in a magazine article this past May describing the economic conditions facing his business and industry:

"While mergers may play a role in solving some of the fragmentation and capacity problems that plague the industry, they are not the panacea for solving all the industry's problems and may create a few new ones. But that doesn't mean we aren't looking or don't have options."

The article's author describes the executive and, with tongue planted firmly in cheek, asks the reader to pity the executive of a company in this industry. "He can't control his biggest costs. He can't really control the prices he charges."

Given the economics of the described industry and business issues, a converter or supplier could be forgiven for assuming that the article is focusing on the label printing marketplace. The article is, in fact, discussing the domestic airline industry, and the individual quoted is Gerard Arpey, the embattled CEO of American Airlines. According to analysts, American Airlines has been losing approximately $3.3 million per day since January. As managers in the label industry can attest, your difficulties need not be that large to feel Arpey's pain.

"There is no business that can go on forever selling its product for less than the cost to produce it," Arpey points out, and that is certainly a most astute observation, even for an airline executive. It is ironic, economically speaking, that in a highly competitive industry with overcapacity, such as the airline or label printing industries, rising input costs such as raw materials and fuel inevitably result in lower prices and, therefore, much lower margins. This happens because the owners of the very assets that produce the industry's overcapacity can't resist the pressure to cut prices in order to keep those assets operating and producing revenue. But given their asset base and fixed cost structure, is there an alternative quick-return strategy to pursue?

Our intimate familiarity with the basic supply and demand graph instructs us that when the supply of your product exceeds the demand for it, your selling price (P) will drop (see graph).

The strategic question is what counter-measures can you take to avoid the seemingly inevitable reduction in volume, pricing, and profitability when you are in an industry characterized by overcapacity and perceived commoditization? Let's face it: You've already trimmed your organizational fat and operations are as lean as can be. In short, you can't attack the problem by seeking to reduce costs any further. The solution must in some way improve the top line without hurting the bottom line.

In general, companies that take the time to develop and implement long term strategies and defendable business models with measurable performance metrics tend to be more successful in avoiding the temptation to cut prices. In the airline industry, Southwest Airlines is a prime example of how a domestic carrier can weather even the rockiest supply and demand interaction to remain consistently profitable. The label industry certainly has its share of stalwart companies of all sizes who succeed on the basis of strategic planning, realistic implementation, and a rolling pipeline of creative solutions for business challenges.

In this space, rather than concentrate on the longer term revenue increasing strategies which are critical to your business plan, (i.e., marketing, niche attacking, benefit branding, competitive positioning, etc.), I thought I'd offer a handful of practical and easy-to-implement actions whose effective execution could give your business a short term competitive boost.

Tell Compelling Stories:

You could have Thomas L. Friedman write your brochures and website copy and it wouldn't be able to hold a candle to the effectiveness of a simple-to-understand, real life case study showcasing a customer of yours within the context of how its business improved as a result of your contribution. The key is finding the right customer and story, and utilizing the appropriate method of communicating it to your targeted marketplace. Testimonials, when crafted with elegance and just a touch of subtlety and humility, demonstrate value and trigger demand. In our industry, vendors large (i.e., HP) and smaller (i.e., Tailored Solutions) have incorporated customer success stories into their sales and marketing activities and materials which, in my opinion, have been a critical contributor to their continued growth and success.

Show Them the Proof:

Make comparisons easy for your targeted customer. I have personally found this method to be extremely important, both when I ran a label converting company and an industrial products manufacturer. We developed exhibits establishing the side-by-side superiority of our product, and made them the focal point of trade show exhibits and sales presentations. If possible, develop this in a format that you can easily provide to your prospect, making sure that the exhibit calls attention to the features in your product that are both decision-making variables for the buyer and demonstrably superior to those of your competition.

Invite Them to Your Plant:

There are many buyers who insist on visiting their suppliers' plants. There are also many buyers who rarely budge from behind their desks. I recommend creating a mechanism to bring as many buyers as possible to tour your plant, meet your people, observe your production, and be convinced of your commitment to quality and service. Whether you prefer to do this on a one-to-one basis or in the form of an open house event, if you provide an informative, entertaining (and culinary) experience, you will do no worse than strengthen the ties between your customers and your company, and perhaps open their eyes to capabilities (both production and service) that you offer and which can benefit their businesses.

Build the Case of Value and Creativity:

Can you provide data showing how product or service enhancements that you have made for your customers have benefited their businesses? Do you have any statistics from your customers that show how these enhancements boosted sales and profits or lowered costs or time to market? If you have them, promote the heck out of them. If you don't, start compiling. Surely you have one or two customers who can show wonderful results they achieved from using your products and services.

Executive Interest:

Almost every successful company features senior managers who personally interact with customers who ask them what they want. If you are an owner or senior manager, you will impress your customer by your engaging interest. And by shutting up and listening to your customers, you just might learn what drives their demand for your products and services, how they perceive your company versus your competitors, and what they value and don't value.

Throw a Wild Pitch:

Every once in a while, take off your vendor hat and put on your customer's hat and, knowing all of your capabilities and possibilities, try to come up with a plan that will greatly enhance your customer's business. If you do this conscientiously, sensitively (i.e., don't tell your customers that they don't know what they are doing!), and bring creativity and intelligence to the process, even if your customer rejects the proposal, it could open a dialogue for other changes and or additional pieces of business. The key here, obviously, is choosing the right customer and developing a legitimate proposal to better its situation. And for goodness sake, if the customer goes with your proposal, allow him or her to take credit for it!

Finally, one of the most important business strategies to employ involves positioning your perceived weaknesses into perceived strengths. The hallmark of managerial excellence is the innate ability to turn lemons into lemonade. For example, if you are a small company competing against a large company, focus not on breadth of capabilities, geographic coverage, or financial firepower but on personalized service, close relationships with senior management, and present the attraction of the customer being the large fish in your pond rather than just another small fish in your large competitors ocean.

Perhaps you've heard of the fellow who interviews with the vice president of a large company. He hands the executive his resume, and the VP immediately notices that the applicant has been fired from every single job listed. "Your employment history is flat out terrible," points out the executive, "You'vebeen fired from every job you've ever had."

"That is absolutely true," confirms the applicant.

"Well I don't see anything positive in that," opines the executive.

"Well," insists the applicant, looking the VP straight in the eye. "It's proof that I'm not aquitter."

Elisha Tropper is president and CEO of T3 Associates, a New York based strategic consulting firm, and the former president of Prestige Label, a North Carolina converter. He can be reached at et@t3associates.net.
  • Materials Handling

    Materials Handling

    Steve Katz, Editor||April 7, 2017
    Working without these products may cause employee injury, damaged goods and lost revenue.

  • The Future of Flexo

    The Future of Flexo

    Steve Katz, Editor||April 7, 2017
    Recruitment and proper training are paramount to the health and future of flexography.

  • Narrow Web Profile:  Liberty Marking Systems

    Narrow Web Profile: Liberty Marking Systems

    Greg Hrinya, Associate Editor||April 7, 2017
    The Cincinnati converter has enjoyed recent growth and expansion.