Most small business owners would agree on the need to have a plan for sales growth. However, too many small businesses rely on “sales push” and too few set up proper marketing strategies for sales growth.
Most marketing experts suggest three marketing strategies that are open to all businesses, large and small:
o The least cost strategy. With this strategy, a company competes by selling uniform and standard products. Market demand for these products is usually very elastic. An increase in price triggers a sharp drop in sales volume because (1) demand is low, supply is high, or (2) there are many competitors who can offer substitutes. Buyers expect price concessions, which naturally leads lower-cost firms to emphasize production at the lowest possible cost per unit.
o The differentiation strategy. A company using this strategy attempts to offer unique products that are differentiated from the competition by superior quality or service. Market demand tends to be inelastic (ie, sales volume does not vary in proportion to price). Goods are priced well above production costs. The company pursuing a differentiation strategy must invest heavily in product development and innovative promotion and packaging. And it must be closely in tune with the changing needs and desires of customers.
o The niche strategy. With this option, a company sells a higher-priced product or service to a few buyers. Unit costs are high because production is low and costs, such as labor or research and development, can be high. Brand identification and customer loyalty are the keys to success.
When adopting a marketing strategy, most small businesses should choose either the differentiation or niche strategy, or a combination of both. The lowest cost strategy is the least successful for small businesses. There’s a simple reason why: production costs.
The production costs of a company tend to decrease as it accumulates experience in the production of the product. The amount of production experience that a company has the opportunity to acquire depends on its market share. The higher your market share, the lower your costs.
Therefore, the dominant competitor in a market is in the best position to pursue a lower cost strategy. It can and will cut profit margins to drive out competitors who can’t compete on price. The market leader is sure that the more he can produce and sell regardless of price, the lower his cost will be. Therefore, the least cost strategy is often used by very large companies that have the resources to dominate a particular local, regional, national, or international market.
A clear message here is to stay away from areas where a dominant market leader already exists, unless you’re prepared for an expensive trade battle. That means drawing on your company’s own experience, pushing your competitive advantage to the limit in an effort to become the dominant competitor. You can do this by:
o Develop a new product;
o Differentiate your product to appeal to a market segment where you have the most experience; gold
o Finding a niche in a highly fragmented market where there is no clearly dominant competitor.
When developing new products, stick to your strength. There may be a virtue in staying small, at least in one sense. On the one hand, hiring a service can be cheaper than doing it yourself. Other than that, each distinctive trading feature has its own little tricks, shortcuts, and hidden traps. By starting a function from scratch, you’re committing time, money, and capital to an area where competitors, because of their greater expertise, may have a clear cost advantage.
It is a common story these days that new and high-tech products, as soon as they roll out of the designer’s “garage”, are an instant hit on the market. A production facility is quickly set up and business flourishes, until a larger competitor launches with a copycat product and takes the business.
The cause is not just the predatory nature of big business. Often, the designer’s research and development expertise does not translate into functions that are vital to success in a competitive marketplace: sales and marketing, distribution, and financing. The new business cannot come close to matching the experience and competence of the larger company in these areas. And this gives the largest company an unbeatable advantage in the marketplace.
You should consider an alternative strategy: If your company is good at R&D, consider joining a company that is good at production, sales, and marketing. If you have the advantage in a geographic region, join a company that has strong national marketing and distribution channels. Above all, focus your resources where your experience is greatest.
Another route to sales growth is differentiation. Break away from the rest and make your product stand out from the competition based on superior quality and innovation. Their goal is to maintain the unique appeal of a product to quality-conscious consumers. At the same time, look for ways to make carrying your product more attractive to wholesalers and retailers.
Profitable niches are often found in markets where there is no clear industry leader. For example, Enterprise Rent-A-Car created the world’s largest car rental agency by specializing in “replacement salvage” rentals. At the time, the market was underserved and there was no clear leader for the service. But finding the right niche can take patience. And once you find it, it’s vital to cultivate customer loyalty and trust.
