Separating Your Business From the Competition
Question: Our company distributes computer keyboards, mainly to wholesalers and computer systems companies. Recently, the market has slowed and become more competitive and profit margins have dropped. I’ve tried selling online and marketing to retailers without success. I find advertising in computer magazines too costly. Can you give me any advice on ways to improve profit and sales volume?
--J.T., Riverside
Answer: What is happening to your business is a common situation: It is called the maturing of the industry. During this part of the business cycle, competition becomes fierce as the market is crowded with competitors, and at the same time, the market levels out and eventually starts to shrink. Sales become more difficult and price becomes a key weapon. The low-cost producers, distributors and retailers stay in the market and the rest go out of business or are gobbled up.
Most U.S. industries are in this part of the cycle. Look at car manufacturing, airlines and the retail supermarket business in Southern California.
The key to recovery and ongoing success for you will be to uncover your unique selling proposition (USP), which provides your customers with the answer to, “Why should I do business with you and not some other company?” Another way to look at this is to ask yourself, “What are the tiebreakers that my customers look for? Which ones do I have now, which ones can I gain and which ones will my competition have?”
Do you have an edge on quality or customer service? Speedy delivery? Exclusive access to a particular manufacturer or product? Price should not be the primary factor, because if it is, you are likely to find that there is always someone who can sell competing products cheaper.
Now is a good time to start taking a long look at the competition as well as talking with your customers to answer these critical questions. If you find a way to be successful, you can extend your company’s life and turn the corner on your business. But if you cannot find a tiebreaker, and your USP is a “me too,” then I would suggest it is time to exit this business.
--Kenneth W. Keller,
small-business consultant,
Keller & Associates, Valencia
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Q: I want to start a “Welcome to the City” business for new families that move into my area. I would distribute a welcome basket that includes recommendations for local restaurants, coffeehouses and entertainment, but I’m not sure who to charge or how to set my fees.
--Michelle Lemus, Burbank
A: Because of high distribution costs and relatively low contact rates, this sounds like a tough concept. Try to project the cost of assembling a gift basket, including some gift items, and mailing or hand-delivering it to each new resident in your community. Will you have to charge your advertisers so much to be included that it may not be worth it for them--let alone for you? Perhaps if you rethink your concept and scale it up, you may be able to make a viable business out of it.
I suggest you back up and determine exactly who your customers would be if you start this business. An easy way to do this is to look at your competition. Traditionally, advertising mailers stuffed with coupons from local businesses and professionals are among the first pieces of mail received by new residents.
Determine which individuals and companies are advertising in these mailers and contact them. Or better yet, invite them to a focus-group meeting--and ask them whether they would be interested in what you’re proposing, and if so, how much they would pay to have their materials included. Find out what they are paying to be included in the direct-marketing mailers and what kind of response they get. Then figure out whether you can give them as much or more with your program. Ask them what they would like to see in terms of local advertising opportunities.
One idea you might explore is to take this concept and make it an electronic gift basket, rather than a traditional gift basket. Your costs would be dramatically reduced, since you wouldn’t have to purchase or deliver hard goods. And if you purchased the new-resident listings from your local utility companies or the Internet service providers in your area, you would have access to large e-mail lists. Perhaps a local utility would out-source its e-mail welcome program to you and pay you to handle it for them as part of your business.
New residents could download your electronic gift basket, which might include coupons such as 2-for-1 dinners at local restaurants, $5 off dry-cleaning service and discounts at local attractions. You could also include links to local informational, educational and entertainment Web sites as a way for new residents to connect with the community.
Explore high-transaction opportunities as well. When new residents move into certain neighborhoods, are they likely to spend several thousand dollars on landscaping, a swimming pool or country club membership? Will they be paying to put their children in private schools? Even though the market may be smaller, the higher-ticket items will bring you more ad revenue.
And don’t forget follow-up. Are there ongoing reasons to contact these potential clients with updates and additional coupons and marketing materials in the future? Rethink your concept, and if you can scale up your reach and find a way to be more cost-effective, you may find a program that will work for your sponsors and for you.
--John Rooney, entrepreneurial
consultant and professor,
Marshall School of Business, USC
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If you have a question about starting or operating a small business, mail it to Karen E. Klein, Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or e-mail it to kklein6349@aol.com. Include your name, address and telephone number. This column is designed to answer questions of general interest. It should not be construed as legal advice.
