Do you really know your customers?

 

In a few short years, rapid advances in technology have transformed the way we all conduct business.

Much of business is today conducted in the so-called virtual world of paperless trading. However, we should never forget that essentially commerce is about people trading together.

Whilst Computer “stop loss” mechanisms are the order of the day for “paper trading” the reality of the real world is that goods need to be moved from point of production to point of consumption and obviously this cannot be achieved via a computer terminal.

There is an old adage “know your customer,” this dictate has never been more important than in these uncertain and dangerous times. One of the biggest problems associated with the rise of e-commerce has been the accompanying lack of personal contact between a company and its customers.

Obviously this is not an issue for an online retailers selling products over the net and being paid via a Debit Card or Pay Pal etc.

However, there is an increasing tendency for B2B sales to be concluded by email or even SMS. The personal element has been lost and so has the identity and customer relationship. The surest way to avoid problems is by knowing your customer and understanding their business.

It is not possible to nurture this relationship and mutual understanding thru a key pad and email ordering system.

 

Challenging times for the food industry

As affluent consumers in China and India demand a more Western style diet we are seeing the effects on the price of meat and other foodstuffs. The price of cocoa has been driven to a three-year high with consumers in China and India getting a taste for chocolate.

China will continue to be a major buyer in the international markets in response to demand from its burgeoning middle classes.

By 2020 China’s consumers will be spending an annual £ £3,830 billion and their Indian counterpart’s £2,200 billion contrast this with British consumers who spent £937 billion last year.

A Chinese person born in 2009 will consume 38 times as much over his lifetime compared to one born in 1960.

With a population in excess of 1.3 billion (approximately 20% of the world’s population) imagine the implication for Western consumers should an early morning cup of coffee become the beverage of choice.

Meantime European Food manufacturers find that they are caught in a vice; the buying pattern for many continues to be “just in time” reflecting the need to keep inventories as low as possible.

However without the safeguard of a “buffer stock” they are now more than ever exposed to the harsh reality of having to “pay up” in order to secure the raw materials to keep their facilities in production.

At the same time suppliers will continue to face the problems of operating in the current economic background with buyers seeking to delay payment, renegotiate contracts etc.

 

Opportunity versus risk - the ying and yang of commerce

 

All commercial transactions contains an element of risk, yet at the same time how adequate are the mechanics and systems that are in place to manage these risks?

In recent years we have witnessed just how costly the laissez faire attitude to risk was in many institutions be they large corporations or smaller SME’s.

In the never ending quest for larger profits many of the saner measures of business were jettisoned.

An analysis of the most spectacular flame outs all have one common denominator– the architects of these calamities were oblivious to the risks that their organisations were exposed to.

Counter party and accompanying market risk should be under constant evaluation. All areas of exposure need to be constantly policed.

A forensic analysis of the current Debtors Book might make for uncomfortable reading but like most unpleasant tasks it should not be ducked.

It is always preferable to take remedial action such as a write down whilst you are in control of your own destiny rather than have a third party appointed to do it for you.

 

Don’t ignore the tell tale signs

Inevitably when a problem comes home to roost it prompts a round of head scratching and the standard response “why did that go wrong?”

The answer is all too often glaringly obvious and boils down to companies failing to address problem issues early enough to avoid the oncoming crisis.

The signs of a troubled business are all too apparent – these include lack of controls, lack of strategic vision, a demotivated workforce and obsolete or valueless stocks etc

Instead of grasping these nettles, often the preferred option is to engage in a totally pointless exercise such as a rebranding campaign or the launch of another product range destined to fail for the above reasons.

The operating style of many doomed companies can be compared to Nero’s pastime of fiddling whilst Rome burns.

 

Strategy overhaul

 

When attempting to boost the bottom line there are two obvious courses of action, cut operating costs and generate additional revenue.

Many organisations opt to reduce staffing numbers as a quick fix but there is a danger that in line with reduced personnel there is an accompanying decline in operating standards. In such circumstances customers often choose to vote with their feet.

The sales director only has one shot in his/her armoury namely increase sales. Sales targets can always be raised but a sense of commercial realism also needs to be applied.

If you are marketing a totally unique product or service the task is easier but for the most part there are many companies offering a similar range of products in a broadly similar price range.

In many instances companies would be advised to make customer service their USP but this requires the commitment of a dedicated work force not one that is pre-occupied with the spectre of further redundancies.

21st Century leviathan

 

The recent commissioning of the world’s largest container ship the Maersk's Majestic underscores the competitive nature of international logistics.

The vessel is a quarter of a mile long and has the capacity to transport 18,000 20-foot containers.

Manufacturers of electronics and mobile phones are shipping cargo by sea because competition was eroding their profit margins focussing their attention on cutting delivery costs.

Each 20 foot container can hold 13,000 smart phones with a transportation cost from China to Europe of 7 pence per unit and a transit time of approximately 25 days.

Currently there are over 6000 container vessels operating with a significant number engaged in the East to West trade routes.

China’s economic success remains export driven as illustrated by the cost of shipping a container. Inward from China to Europe costs around US$1500 with the reverse journey only commanding a rate of around US$700.

Traffic will continue to moving onto the water because moving goods by air is very energy-intensive and the high cost of jet fuel makes air freight too expensive.

 

Diversification - not a guaranteed silver bullet

 

Without doubt one of the most difficult challenges a business faces is diversification.

Often a company is faced with the dilemma of diminishing revenue returns and a tired business model which is either irrelevant or obsolete.

Diversification is seen as the solution to this dilemma. However, the mechanism for achieving this objective can be particularly difficult.

The first step is examining why the current business model is not working. This requires an honest appraisal from the management in respect of their performance.

Then the areas of diversification have to be closely considered, it is a common mistake for people to plunge into businesses in which they have little knowledge or experience and the results pretty quickly show up these deficiencies.

Thirdly one should always respect geography. It may be very tempting to consider that there are opportunities just waiting to be picked up but to underestimate the advantage of local knowledge and conditions can again prove costly.

In essence diversification can provide the answer to a company’s need for increased revenue but without a clearly defined strategy and executed business plan it can equally provide another drain on an already vulnerable balance sheet.