Issue # 9, Vol: 2
Category: Waste

Are you facing unprofitable growth patterns in your business setup?
 

Is your current positioning strategy correct?

The first step is to draw a competitive landscape map and position your organization against its competitors. This involves, among others, identifying the competitors, their profile, their service offerings, their available assets and locations of those assets. When looking at competitors market segment presence, we should ask ourselves why some competitors are present in some segments and missing in others. This will help to flush out any hidden market dynamics that are impacting/will impact your positioning strategy. To assess the long term sustainability of your positioning strategy, identify the macroeconomic factors that influence your market positioning. Regularly conduct a “what if ” scenario analysis to ensure your positioning strategy is relevant at all times. Economic growth rates have dropped and there too many players chasing the same customers No market can continually grow at high rate indefinitely. Those of us who have come from matured markets and experienced several recessions in our careers, know that growth

will return, but in the form of a more matured market. Hence it is important to frequently update your positioning strategy and to reassess your customer value proposition.

What is your customer value proposition?

It’s easy to sell a service at a lower price. If your organization is able to offer the same service as its competitors at a lower price and still be profitable, then that’s great. If not, we need to reassess our customer value proposition and discourage it from being price driven. Do we understand the client’s needs, and can we fulfill those needs? Whilst price is important, it is not the only criteria decided by the client. For large customers, environmental services are a negligible part of the company’s operations costs. Issues like reliability, quality of service, branding, convenience are also important. Those organizations with good intangibles tend to secure premium pricing as they are able to capture more of the customer’s consumer surplus.

Have you got the right type of customers and are you retaining them?

Look at your customer base carefully. Are majority of your customers expensive to serve or do not fit into your strategic framework? Changing one’s customer base is a challenging and time consuming process, but if done correctly, will set you on the path of sustainable profitable growth. If you have your correct customer base, are you able to retain them? The cost to service a customer actually drops over time taking into account the learning curve effect. Familiarity with the customer enables us to increase its wallet share, and thereby even further reduce the cost to serve the customer. In addition, familiarity with the customer creates a “psychological” barrier against other competitors who approach your customer. It may be desirable to regularly conduct a customer portfolio rebalancing exercise to ensure the correct customers are being secured, served and retained.

Are you able to build barriers to entry?

Signing long term contracts is one way to build a barrier to entry, but this must be done on a win win basis with the client and be based on transparency. For example, one could sign a service and supply contract where you sign a long term contract and agree to transfer the equipment to the client at the end of the contract. Alternative barriers to entry include embedding your people and IT processes within the client’s systems. Other examples include changing
the contract to service from a single service, for example waste management, to one from one that encompasses multiple services, for example cleansing, pest control, waste management and recycling; or do multiple location clusters contracts; or incorporating ISO/OSHA or CSR initiatives into the contract requirements.
 

Are we capturing the cost to serve correctly and quickly?

It is important to have an effective financial system to capture the financial cost to serve each customer correctly and in “real time”. In a booming market, an average costing pricing model will suffice. In a matured and competitive market, a more accurate pricing model that captures in detail each customers cost to serve is important. It may be ok to cross subsidize some services when doing a services bundling strategy with a client, as long as net off, the client is
a profitable account. An accurate financial system will track and ensure the client does not become a negative account due to increasing cross subsidization. Is there organizational alignment? Are all your departments aligned to your
organizations objectives? It’s common to see friction between the sales team and operations team. Whilst constructive friction is desirable, it’s important to ensure it does not get out of hand and impacts your ability to service the client, and/or damages the reputation of your organization. A suggestion is encourage cross functional teams and encourage them to focus on PRC (not People’s Republic of China, but Profit = Revenue – Cost.)