29/07/2010

By John Rosling, UK CEO of Shirlaws

In this article I will discuss a fundamental aspect of every business and therefore a vital component to consider in any growth strategy. I am referring to your Product Portfolio.

What you sell – be it a product or service – is the foundation of your business. It also supports the positioning of your company in its market. The stronger your position or brand, the easier it is to attract the best talent to work for you, the more other organisations want to be associated with your company and importantly, the stronger your positioning the more you build customer loyalty, which in turn makes any new offerings you introduce attractive and desirable.

Many SME (Small Medium Enterprise) companies have one product or service — which we call P1 — and distribute it to one type of client or distribution base, which we call D1. The more products and distribution channels you can build, the more profitable and valuable in equity terms will be your business. When you introduce another product (P2) to the same customer base, you are lowering the cost of that sale because you already have the loyalty of customers who know you and will be ready to accept the product. You are therefore able to get a higher margin on your P2 products.

Sometimes organisations think they have diversified in a market when in fact they haven’t. For example an accountancy practice may think it has three products (P3): tax returns, audits and a company structures and advice service. As far as its clients are concerned these are all seen to be the same thing, just one product. If however, the accountancy practice establishes an IFA division selling financial services to the same customer base, then it has developed a second product.

As another example, a distributor of organic vegetables was looking for ways to grow its business. Stocking a few more varieties of vegetables would not constitute a multiple product range — selling vegetables is what it did. To develop real, profitable growth it needed to look for something else it could sell to its existing customer base, many of whom were catering outlets. Its solution was to set up a training section teaching chefs new ways to cook vegetables, particularly the more exotic varieties. It had already established credibility in providing quality produce and had loyalty from its existing customers, so the new training division quickly proved successful.

If you build a range of products and sell into one client or distribution base, we say your business model is P5/D1 (ie 5+ Products/1Distribution channel).

An alternative business model might be to have just one product and to develop a variety of distribution channels across which to sell it. We would call this P1/D5.

The third model would be to develop multiple products and sell them across multiple channels which we refer to as P5/D5.

Which business model you choose has implications for the value of your business. In terms of building equity these models have a hierarchy:

Most valuable: P5/D5 — then
P1/D5 — then
P5/D1 — then
P2/D1 — then
Lease valuable P1/D1

A multiple product and multiple distribution (P5/D5) growth plan for an SME business would be a fairly long term strategy and one that would need careful implementation, but if you are currently a one product, one customer base (P1/D1) business then introducing a second product will positively impact on growth and profits.

Another strategy to consider alongside this is bundling or unbundling packages. Are there ways you could bundle two or three items together? You might reduce margins with this route but increase the volume of sales which will be more profitable. Alternatively you might be able to break down your core product and expand the offerings, for example if you provide a service to clients can you develop training sessions or workshops to run alongside your main activity?

A proactive strategy to product development is key to any growing business. By looking at your Product Portfolio you will enable your business to grow its customer base and span wide-ranging markets, a necessary requirement not only for immediate profit but also a strategy to develop longer term equity.

In the next article in this series I will be looking at product innovation. Recessions are times when product innovations have defined the success of great companies. If your business is selling the same product/service as two years ago, you should consider product innovation.

Shirlaws is an international business coaching firm that specialises in helping businesses to grow, no matter what stage of development they are at. Founded in Australia in 1999, it has since grown to have bases in Europe, North America, New Zealand and the UAE servicing approximately 600 clients.

We work alongside entrepreneurs and business owners to drive both commercial and cultural change, enabling our clients to experience:

• increased revenues and profits;

• improved business culture and personal lifestyle; and

• a sustainable business that is less reliant on key stakeholders.

www.shirlawsonline.com
shirlawsuk@shirlawscoaching.com

John Rosling will be speaking at Fresh Business Thinking LIVE!. His session will explore: how successful businesses understand the unique “intellectual property” that is the rocket fuel of their business; how they use that knowledge to drive extraordinary future revenues; why innovating the way you package what you sell is the fastest way to secure new markets at this stage in the cycle; how product evolution and looking “beyond service” will create clients for life; and how the businesses that fail will be the ones that simply carry on selling the same product in the same way at the same price.

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