Situation: A company produces a consumable product which provides its primary revenue stream. They have developed a new delivery system for the consumable that potentially competes with products sold by its largest distributor. As a defensive move, the CEO wants to expand its customer base. How do you expand your customer base?
Advice from the CEOs:
- Take a lesson from Hewlett-Packard. HP’s primary revenue stream comes from ink, not the printers. They assume that their cartridges will be copied but design a new cartridge for each generation of equipment, with rapid equipment upgrades. By focusing on upgrades to the latest equipment, HP understands that if customers keep equipment for 3 years, they will likely use cloned cartridges.
- If the company is going to alienate a key customer by selling the new technology, then they are going to be alienated. Don’t let them know in advance until the new technology is ready for launch.
- There is no reason to alienate the large customer. Once the new technology is ready for the market, ask if they want to carry it. If the equipment is good, they may well say yes!
- Given the concern about alienating this one large customer, start to develop other customers NOW, not later.
- Currently the company does not serve the “mom and pop” market. Could money be made here? If they require technical support, charge for this. Use the software market model and sell single hours or bundles of hours of support.
- Most questions will likely be elementary, as smaller customers will not be sophisticated users. Use current staff to handle service needs at one price. If higher levels are support are required, warn customers that this is more expensive.
- The work that has been put into the new technology should qualify for the R&D Tax Credit.
- This credit can be used against taxes payable. This may defer tax liability until the company starts to make money on the new technology.
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