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Why Customers Seem Scarce - Part 1

May 3, 2012 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

Far too many sellers suffer believe that customers are scarce and that they can't raise prices for fear of losing the customers they have.

There are several explanations for this fear:

• It's real, they are in an industry where supply outstrips demand.
• They see the advantages in competitors' offerings, but only the weaknesses in their own.
• They're ineffective at communicating value.

In this, the first of a three-part series, we're going to examine each of these fears in greater detail.

Supply outstrips demand

Typically supply outstrips demand for one of two reasons:

• Companies overbuilt capacity in response to high demand.
• The industry is dying.

Overbuilt capacity

We saw this kind of overbuilding in the telecommunications industry when fiber optics was the leading technology. It's an ongoing problem in the healthcare field where hospitals and doctors groups keep adding capacity in an attempt to be "competitive."

In essence, companies that participate in these races to oversupply are doing so because they share the same philosophy i.e. all business is good business. It's this misguided belief that places industries into self-inflicted recessions, industry consolidations and business bankruptcies. How do we avoid this problem?

• Be clear about your value proposition.
• Target those customers who are willing to pay a premium to get that value.
• Communicate clearly and often what that value proposition is.
• Hold, better yet, raise your prices to reflect the the value you provide.

Interestingly, companies that are able to quantify their value and communicate it effectively, command higher prices and grow their customer base despite the excess capacity in their industry.

Dying industry

The buggy whip example is the one most often cited when it comes to an industry failing to acknowledge changes going on in the world. In more recent times we've seen pay phones virtually eliminated and a steady decline in land lines in homes and small offices.

The difference between these two examples is that buggy whip producers, according to legend, didn't adapt to meet the needs of drivers of horseless carriages whereas all of the major phone companies are driving the new wireless phone/data technologies.

The key is innovation. You've got to identify unfulfilled needs that your customers have and fill them. Over the years I've learned that there are many commodity products, but few commodity businesses. In other words, there are few products that can't be enhanced by adding services that fulfill customers' desires.

If you're in a dying industry, don't follow your competitors in a race to zero. Take what resources you amassed during good times and invest them in new ways to serve your best customers.

Next week we'll explore how our perception of competitors offerings can make customers seem scarce. In the meantime, please share your thoughts, experiences and recommendations with us whether you agree or disagree.

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