It wasn't long ago the electronic industry was strong and enjoying double-digit growth from. Back in those good old days, a well-managed company could readily show strong top-line performance by just holding onto its market share.
Beating the competition was nice, but not a necessity. Most companies just gave lip service to such initiative. After all, it was much harder to displace an entrenched supplier than win a new customer.
How times have changed. Since the burst of the dot.com bubble, the electronic industry has experienced a continuous double-digit decline in market size. Just look at all the once high-flying companies. It is not uncommon to see year-on-year sales decline of 30% or more! A lot of these companies took drastic measures to reduce cost --plant shutdowns, massive layoffs, unpaid leaves, salary reductions etc. Few have been able to stabilize their business conditions. It seems the more they cut expenses, the more they must continue to cut.
This downward spiral is not unusual. Let us assume the following steady state financial model:
Cost of Goods Sold:50%
This model indicates that it takes 30 cents in operating expenses to generate $1.00 in revenues and 20 cents in gross profit.
However, the operating expense-to-revenue ratio is not a constant at all revenue levels. There are many intangible factors involved, e.g. efficiency, morale, skill set etc.
It is hard for a company to figure out the point of equilibrium in its business -- the point where gross margin exactly covers the operating expense needed to generate it.
More importantly, over-trimming expenses could take away revenue-creation ability. Expense reduction is therefore a defensive move. If at all possible, companies should be aggressive and find ways to generate revenue despite the market downturn.
How does a company keep its revenue momentum when the market is shrinking? New products, applications and markets are important but not sufficient. It takes time for them to make a significant impact on the top line. In the short term, the only way is to "decimate competition."
Unfortunately, companies in general are not well prepared to be aggressive in this form of selling. Most companies have only their product information on their Website and in their internal databases. Potential customers typically cannot go to a company's Website, enter a competitor's product and look for a replacement.
Salespeople rely on simple flat files, if available, to do cross-referencing. And more often than not, only a selected few in the organization have the depth in product knowledge to up-sell.
Interestingly enough, in a down market, buyers are more price conscious, conduct more due diligence, and are less faithful to their original supplier. A company that is ready and well equipped to decimate the competition is positioned to capture more market share and maintain a healthy revenue line.
Here are some ideas to consider:
-Create a highly searchable database of all your products and that of your competitors;
-Enable buyers to search for your products using functional descriptions;
-Enable buyers also to search for your products using competitor's part numbers;
-Offer both "replacement" and "functional equivalent" solutions. (With the complexity of most of today's electronic products, close match is often good enough.)
-Up sell buyers on higher functionality products at the same or lower price;
-Use the same set of competitive selling algorithms to respond to request for quotes;
-Automate your sales force and channels with competitive selling tools.
Martin Shum is the president and chief executive at Aprisa, Inc., a developer of concept-to-production software for OEMs and EMS providers. Aprisa is a subsidiary of electronic-component and computer-system distributor Pioneer-Standard Electronics, Inc. For more information, visit its site.