Situation: A company is resource constrained and faced with a serious trade-off: do they focus on short term cash needs – immediate product improvements that will speed new product iterations to boost sales; or longer term strategic concerns – assuring that they have good IP protection on their technology before they launch new versions? When you are resource constrained, does it make more sense to focus on initiatives that will quickly produce cash or strategic concerns that will protect your future?
Advice from the CEOs:
Build two timelines – one for shoring up the patent portfolio so that you can safely build and launch new IP-protected versions of your technology and one for quickly completing product improvements to speed development of new product iterations which will generate cash. Assess both the energy requirements and the dollar risks and implications of each timeline. If you do not have the resources to do both in parallel, this analysis will help you to determine your best course of action. The risk analysis of each timeline should take into account what would happen if another company were to duplicate your technology and get to market with improvements before you do.
As a compliment to the above exercise, ask what happens if I don’t do either A or B? Do a SWOT and investment analysis on both. Which is the greater risk – launching with insufficiently protected IP or risking not being first to market?
These analyses will help you assess whether it may be feasible to accomplish part or all of either task with dollars in lieu of your own resources.
Situation: A key customer just asked for a price reduction. Our raw materials costs have increased and eroded our margins. What is the best way to respond?
Advice from the CEOs:
Are you selling a commodity or a unique and differentiated product?
Commodities rarely command a premium above market unless you can bundle with differentiated delivery.
Unique or differentiated products justify a premium because the customer has only two choices: purchase at your price or try to develop an alternate source.
The customer may have valid reasons to request a lower price.
Counter with a combination lower price and lower level product to retain your margins.
If the sale involves service, assign less expensive resources in return for a lower price to preserve margins.
Define the trade-off to the customer so that it becomes their decision, not yours.
Adjust your terminology. Use “run rate” vs. “price,” and speak of balancing resources assigned. Avoid cheapening or commoditizing your offering to meet the customer’s price demand.
Don’t assume that there is such a thing as a “fair price” or “fair margin.” The price is whatever the customer is willing to pay for your offering. The price increases the more unique it is, and the more critical to the customer’s needs.
Do NOT share your cost and margin information – as company policy.
Consider combinations of pricing, terms and delivery that keep you whole while offering the customer different price points.