Winter 2008 Newsletter: by Brent Banda, MBA

If You Sell To Businesses... Your Marketing Strategy for an Uncertain Economy

As the financial markets tighten and consumer spending declines, your customers and vendors will have less money to spend. Less cash means companies change how they do business and how they plan for the future. Business relationships will change, creating opportunities for growth and improving profitability.

Consider how your company can work with the factors in your industry that are under your control:

Evaluate Your Product Line
In a strong market, a manufacturer can be too busy filling orders to realize that one of its product lines actually loses money. Make sure your operations are efficient and lean. That may not mean layoffs or cutbacks, but it definitely means efficiency.

Solidify Relationships
Your key suppliers, distributors and customers face uncertainty. Now is the time to shore up your relationships with these companies. Let them know your company is prepared to roll with the punches if needed. Tell them you intend to maintain open communication and support their business. This can pay off in the short term, as businesses will begin to refocus on key partners. In the long term, they will remember who was willing to support them through tough times.

"Actions speak louder than words." For example, if one of your vendors is clearly having difficult times, offer to pay your account quicker than required. Strengthening key relationships pays dividends.

Replace Your Competitors
Strong revenue hides bad decisions. Companies that lack efficiency will likely face financial problems as revenue drops. Capital will be more difficult to access, and companies in trouble may have their loans called by banks. Watch for competitors who begin to lay off sales representatives, hold deep pricing promotions to clear out inventory, and generally behave abnormally. These competitors will make mistakes, and their relationships with customers will deteriorate. Look for the signs and search for opportunities to acquire their customers or form partnerships with their traditional vendors.

Replace Your Customers
Evaluate where your profit is generated. Over time the nature of each customer's business will evolve and of course profitability will change as well. Consider what each customer truly values and make adjustments to improve profitability by cutting unnecessary features or adjusting the working relationship. Then replace the remaining unprofitable customers with ones that are willing to pay your price.

This exercise may require a significant change in other areas of your business. A proper analysis of your customers will often point to an underperforming product line or regional office. Deal with it.

Buy Your Competitors and Industry Partners
As companies become weak or fail, the industry channel will reorganize itself. That will mean opportunities to buy poorly managed companies that nonetheless have valuable physical assets and talented employees.

Several industries will enter a period of consolidation. As healthy companies begin to enter acquisition mode, consider how it impacts your operating environment. Your suppliers may become larger and gain more negotiating power. Your local competitors may be purchased by multinationals with a more aggressive business philosophy and deeper resources. The rules will change.

Manage Your Balance Sheet
Keep a strong balance sheet during tough times. With limited funds to lend, banks will focus on the highest quality business clients; if you do need financing, you want to be a favourable candidate with strong cash flow, high quality receivables and inventory liquidity.

If credit tightens, consider selling your receivables to a factoring company for a small fee of a few percent of invoice value. Your benefit is cash in the bank instead of uncertain receivables.

A strong balance sheet can be a competitive advantage. Financing expansion will obviously become more difficult for everyone. That's a good thing if you are better financed than your competition. If your competitor's hands are tied, you may have an open market to pursue.

Reconsider Your Distribution Channel
When times are tough, people may change where they shop. If you are a food processor and have focused on specialty food retailers, consider how consumers may reduce luxury purchases and seek out value in mainstream grocery chains. Which sales agents, distributors or retailers will connect with your target market?

Reorganize Your Distribution Channel
Cost pressure has forced some manufacturers to bypass regional distributors and sell directly to the retailer. In some industrial industries (such as mining) the manufacturer can bypass their sales agent and sell directly to the end user.

This strategy is obviously destructive to the established distribution network in an industry. In many industries it simply will not be accepted by people in the business. However, the fact remains that many manufacturers have to use an alternative route to the customer to preserve their profits.

- Brent Banda is a Senior Consultant with Banda Marketing Group

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