Growth comes in many different shapes and sizes and can be accomplished several ways: through mergers and acquisitions, by enhancing existing products and services or innovating new ones, or by extending market share.
The key is paying attention to the three main drivers of growth customer satisfaction, good products and services, and pricing. Doing so can help your business overcome hurdles and be successful, but ignoring them can lead to problems down the road.
“Bottom line, you’re not going to grow fast or profitably if you don’t pay attention to these drivers,” says Jim Lane, director of GBQ Redbank Advisors.
Smart Business spoke with Lane about how to use these drivers to increase growth.
How can you overcome some of the challenges of not growing automatically?
The first problem is disaffected customers. Customers are under a lot of pressure to reduce their costs. Plus, they’re scrambling against competitors to grow, so they take it out on vendors. They ask for deeper discounts, tend to be grouchier about problems and try to force solutions. This is all costly and, eventually, if not handled properly, results in defection of customers.
Products and services that are not well thought out or appreciated by the market will be a big drain on profits. If you can’t sell what you have to the first customer, selling to the second won’t be any easier. It’s a big warning sign if you need to educate the market on your product just so they can understand it. You’ll end up spending a lot of resources to get your idea across. You have to listen to what the market is saying.
Pricing below cost is also a barrier. It may grow revenue in the short-term, but it ends up weakening your financials because you’re mortgaging all assets and converting them into costs that you’re selling. Instead of getting stronger with each sale when you sell profitably, you’re getting weaker. Eventually you will not be able to invest when shocks come along. If you sell profitably, you have reserves on hand to handle these shocks and are not forced to discard a lot of human resources that you have invested in.
How can you use customer service to drive growth?
There’s some research done by the Association for Customer Service at the University of Michigan. It produced the American Customer Service Index, which surveyed 65,000 people in 200 companies across 40 industries and ranked them according to customer satisfaction levels. It sorted these 200 companies, which are a sample out of the Standard & Poor’s 500, into strong firms from a customer satisfaction perspective. If you create an investment portfolio out of these winning firms, and compare them to the average performance of S&P 500 companies, you’ll find that they grow their market share value over three times as much as the S&P 500 does. That’s compelling information. It seems obvious, but making your customers happy really has an impact on your growth and revenue. That’s a huge driver of profitable growth.
How does innovation affect profitable growth?
You’re creating something new that hasn’t been done before when you have an innovative product or service. Right off the bat you’re going to have better control over pricing than you would in a market where the product set is known and well understood. There are no substitutions with an innovative product it’s the first of its kind, so people have to come to you to get it. This gives you a great deal of pricing freedom. You still have to stay within the bounds of the customer’s perceived value of the product, but you can charge up to that perceived value and not have pricing be an issue. It also serves as a differentiator. You won’t have any competition or competitive bids, since it’s the first of its kind. Innovation creates greater satisfaction, particularly when you combine it with listening to customers. Customers will be more pleased with new and improved product sets if you listen to them.
How can you develop a strategy to combine all three approaches, and what benefits will that produce?
It starts with listening to customers and developing listening skills across the organization. It should even extend outside the organization. Sales or customer service people tend to listen to customers with company ears. They understand the problem much better than the customer does and tend to translate naïve language the customer uses into more sophisticated, technical language to describe the situation. They end up inserting their own bias.
It’s impossible to get away from this once you’ve been inside a company. You should have someone outside do the listening someone who doesn’t understand the product or situation but understands customers. He or she writes down everything he or she hears, and can compare notes across customers. Customers tend to gravitate toward the same terms to describe similar situations. You can catch those trends across surveys and see what customers love that you should develop more, and what they don’t love that you should discontinue or change. That’s where it needs to start listening to the customer with unbiased ears.
Then you need to act on what you heard and innovate your products and services toward customers. Eliminate things that are less effective, improve the cost structure and create a value proposition that would solve your customers’ problems. This gets you into an innovative product set that will be attractive to customers and produce better pricing. Customers will continue coming back and will refer new customers, who are already one step ahead in the trust cycle. You have to get customers to trust you before they buy from you, but if they’ve already bought from you or been referred, they’ve gone through a lot of the trust through proxy. It can also reduce competition. When customers love you and your innovative products, they’re not looking for anyone else.
Jim Lane is the director of GBQ Redbank Advisors, GBQ Partners LLC. Reach him at (614) 947-5257 or email@example.com.