By Pradeep Anand These are tough, turbulent times in the global economy. American consumers have increased their savings rate and are spending less. The trickle down effects of this behavior has upset the global economy, and has created a new normal for the oil and gas industry. In response, the oil industry is doing everything it can to reduce costs to meet financial expectations. However, many firms have reached limits in cutting costs to improve profitability. The crisis in the oilfield is of profitable sales, not costs. To improve the quantity and quality of sales, a company would be served well by revisiting these seven criteria: 1. Ask and answer the question, “Where’s the money?” The answer: “Available money is in the supply chain with customers and competition.” Each vendor in that supply chain tries to maximize its leverage to command a higher share of the margin that flows from the consumer. a. Money is with Customers. To grow our business’ top line and margins, it is as important to shed unprofitable customers as it is to acquire and keep profitable ones. b. Money is with Competition. Our gain is going to occur at the cost of our competition. However, to get our hands on competitive money, we need to define our competition broadly, so we are not myopic in our market perspectives. Our competitors can be 1. Direct 2. Indirect (substitution, adjacencies), 3. Suppliers and 4. Customers. 2. Ask the question, “Why do customers buy from us (or our competition)?” Answer: “Because we are a unique, trusted source of delivering value to customers.” The only reason customers buy from us rather than our competition (and vice versa) is a combination of three facets. The first is that we deliver high value. The second is that we are unique, and the third is that we are trusted. A shortcoming in any dimension is a death knell in the competitive world. 3. Focus on improving pricing effectiveness. Business success comes from battling with a double-edged sword. One edge is that we have to sell that we are a trusted, unique source that delivers the highest value to our customers; the other edge is that we have to extract the highest competitive revenues and margins, for delivering that highest value to customers. Most firms fail on the second front, permanently denying themselves and their industries short- and long-term profitability. 4. Be cognizant and take advantage of market drivers. These are driven by forces that are uncontrolled by customers and competition, such as economic, political, legal, environmental, and others. A rising tide raises the fortunes of all firms in the market. However, when it ebbs, the largest players seek to stay large at the cost of the smaller players, creeping into fringe markets, especially profitable ones. We have to defend our territories. 5. Increase “margin market share”. Pursuing “revenue market share” is a common practice. However, there’s more profit in pursuing “margin market share”. There are two ways of doing so. One is to get a greater share of our existing customers’ dollars, and the second, is to get new customers and a larger share of profit dollars from the market. 6. Enter new markets. Every business should have a new markets strategy or plan. A minimum is selling “existing products in new markets.” Choose underserved or unserved markets for faster penetration and higher margins. 7. Introduce new products. A lack of new products’ revenue stream is a leading indicator of business maturity and potential margin declines. Every business should have considered a new products strategy/plan. A minimum is a “new products in existing markets” plan. The plan should focus on existing customers. Despite our best efforts, habits are hard to change. We need help from a coach, an outside advisor. That person should help look at our markets and business from the outside in, not inside out. The advisor should have had some experience with other companies and other industries and situations to give us perspectives about what worked, what didn't and why. Most important, we need an advisor who has a proven process and methodology for arriving at answers we need to be successful. Often, the process is the answer. Pradeep Anand is President of Seeta Resources (www.seeta.com). He helps Chief Executives and Senior Management of Engineering, Manufacturing, and Technology firms in accelerating revenue and margin growth. He can be reached at firstname.lastname@example.org
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