Don’t Let a Weak Economy Go to Waste

The official recession may be over, but predictions of a slow economic recovery are tempting some technology vendors, distributors, and their channel partners to say, "Wake me up when it's over." However, successful companies know that you don't let a weak economy go to waste. 

Now is the time to re-evaluate pricing strategies, target the companies that are buying technology now, and invest in relationships with future buyers.

Let's look at pricing first. Many technology vendors and their channel partners cope with a downturn by slashing prices. For companies that need cash right now, that may be their only hope. However, cutting prices will create a longterm problem. Unless companies position their price cuts just right, customers will expect these lower prices next time they want to buy. It may be a challenge to raise them again when companies really need to.

That is why vendors and channel partners may be way better off raising prices instead of slashing them.

Imagine for a moment that a vendor's channel partner is making a 20 percent margin. If either the vendor or the channel partner cuts the price by 10 percent — all other things being equal-that price reduction comes directly out of profits.

The partner will have to double sales to bring in the same amount of profit. However, how likely is it that anyone in the technology industry will be able to double sales with just a 10 percent decrease? Not very.

Now consider this: If channel partners increase their price by 10 percent — all other things being equal — that additional profit goes directly to the bottom line. One third of their sales can disappear before they lose the same amount of profit dollars compared to the lower price. And then vendors can make up the margin on the back end.

Will channel partners lose 33 percent of their customers with a 10 percent price increase? Probably not. Instead, they will establish value leadership in the market, critical for a profitable recovery.

Second is knowing who is either buying technology today or will be soon. Within companies, there are always departments that have budgets they must use.

Mission-critical systems for manufacturing, sales and customers service are required to maintain the business. In fact, service organizations often see an increase in demand because customers have time to follow up on open issues, choose to repair versus replace, and may not have in-house expertise because of staff reductions.

Aging infrastructure is another area. When system reliability is causing downtime, or products are at end-of-support life, vendors and their channel partners will find motivated buyers.

Look into data storage and archiving and disaster recovery requirements. After all, with disaster recovery, there's a highly motivated management staff and an insurance check to spend.

Opportunities also exist with departments facing government-, industry-, or customer-mandated regulations. For these groups, waiting until tomorrow is rarely an option.

Certain industries also tend to continue buying throughout a weak economy. Healthcare is one of the strongest markets. People will always need health services, and it continues to be a growth industry with deep pockets. Other areas include the pharmaceutical industry, which takes a long-range view, and market sectors that provide the basic infrastructure services others need to run their businesses-such as legal firms, telecommunications (particularly wireless providers), and transportation companies.

Other markets are getting ready to spend funds as the economic turnaround begins to build steam. First are those taking advantage of government economic incentives, such as state and local education initiatives and civil engineering projects for road repairs, bridges, and other infrastructure.

Companies providing customer "must-haves" in green technology and services, entertainment, and cutting-edge communication are likely to invest in new technology soon as are start-up companies and entrepreneurs.

The third important component is cultivating long-term customers — after all, how can you be viewed as a trusted advisor if the customer hasn't seen you for months? 

If a customer says, "I don't have any money to spend," then ask, "When do you expect this to turn around?" If customers respond with an answer of less than six months, they have strong hope and are probably working out their next plans.

The follow-up question is one of the most powerful in sales. By asking "How can I help?," companies open up opportunities to discuss options such as advantageous financing, trade-in towards purchase, manufacture refurbished items at lower cost, services contract consolidation, and off-season deals.

The magic of this response is that vendors and their channel partners can frequently find immediate sales opportunities during the plan review that the customer wasn't even aware of.

The return to rapid market growth may be slow. However, through pricing strategies that strengthen value leadership, a strategic focus on markets current and emerging sales opportunities, and a commitment to cultivating long-term customers today, vendors and their channel partners can position themselves as leaders of tomorrow.

About the Author

Mark S.A. Smith (mark.smith@oceinc.com) is the cofounder of Outsource Channel Executives, Inc., the premier partner in channel enablement. An electrical engineer, computer programmer, hardware salesman, and software marketer, Mark delivers innovative, unconventional strategies to help technology providers get more business out of their distribution channels. He is the author of more than 350 articles on sales and marketing. 

Please note that the Viewpoints listed in CRM magazine and appearing on destinationCRM.com represent the perspective of the authors, and not necessarily those of the magazine or its editors. You may leave a public comment regarding this article by clicking on "Comments" at the top.

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