Is your company facing increasing price pressure? Then you are in good company: In a survey by the German Engineering Federation (VDMA), around 70 percent of machine builders cited growing price competition as a major future challenge (Commerzbank: Industry Report 'Mechanical Engineering in Germany', April 2021). What can be done about it? Basically, there are two strategic options: Either you try to survive on the market with lower prices than the competition or you offer innovative solutions with substantial added value. A low-price strategy always carries the risk that competitors will enter the market with even lower-priced offers and start a price war in which everyone loses in the end. Not every customer is prepared to pay for added value. It is therefore useful to segment customers based on their needs and willingness to pay. As a rule, two groups of customers emerge here: buyers who tend to purchase on the basis of value and who want a close personal relationship with the supplier, and customers who buy exclusively on the basis of price.
Do you have a plan for the future – a strategy which will keep your company still relevant 5 years from now? Admittedly, it is difficult, if not impossible, to make plans in a turbulent environment. Short-term survival is the first priority. But managing a business without a strategy is like flying blind without instruments: Upcoming dangers are not recognized in time and the imminent crash is pre-programmed!
Customer loyalty is high on the corporate agenda: Loyal customers buy bigger quantities, they buy more frequently and they recommend a company to others. This leads to recurring business and boosts financial success. Often, customer retention is unilaterally initiated by suppliers and it seems that they profit more from the relationship than their customers. However, a well functioning, long-term relationship is based on the same rules as a good partnership in private life: There must be trust and the relationship has to be considered fair. In a business context, fairness means that the resulting added value for both parties is financially quantified and equitably shared. Customers should not feel ´locked-in´ by a relationship, with only a small chance to escape, because they technologically or contractually depend on a supplier. Rather, both parties should aim to build a long-term partnership where they jointly create value.
When you ask salespeople if they know their company´s strategy, you often get mixed results: Some will cite objectives, such as ´growth´ or ´profit´ (instead of describing a strategy). Others often don´t know their company´s strategy at all. In many cases, there is a lack of clarity about what strategy is. Therefore, here is a pragmatic definition: A strategy is a plan. It includes clear decisions about what a company does (e.g. exclusively serving a luxury segment) and does not do (e.g. not serving a low-price segment.) Based on these decisions, strategic initiatives (actions) are initiated to build competitive advantage and reach growth goals (turnover, profit, market share). The sum of all decisions and strategic initiatives constitutes the strategy.
When it comes to Strategic Excellence, Google, Apple, Amazon and Facebook are often cited as best practice examples. What makes these companies so successful? In his book ´The Four´, Author Scott Galloway shows that they have not only discovered new business models - they also satisfy basic needs and concentrate on what is essential: Amazon activates our archaic hunter-gatherer instinct, Google addresses our urge for knowledge, Facebook satisfies the need to connect with other people and Apple meets our desire to stand out from the crowd (Handelsblatt, August 31, 2018). However, there are also excellent small and medium-sized companies in Germany, whose success should inspire business leaders.