Page 160 - Accelerating out of the Great Recession

GO ON THE OFFENSIVE

total shareholder return premium of 8.5 percentage points over
their industry rivals and 6.8 percentage points over those compa-
nies completing simple process or product innovation. After five
years, the premium was 6 percentage points. In a difficult, com-
petitive environment, such an advantage is very significant.
There are many examples of business model innovation,
some of which are even more naturally suited to the current
times than they were to previous downturns. Let us now
describe some of these innovations.

Adopt a Low-Cost Business Model

With customers trading down and businesses cutting back, now
could be the right time to develop a low-cost business model.
Aside from any potential to achieve greater sales volumes on the
back of lower prices, low-cost business models promote man-
agement discipline and unambiguous value propositions for
customers and can even generate customer loyalty. Low-cost
business models can work in good economic times or in tough
ones, but launching such a model when growth is slow can pro-
tect margins or allow for much more competitive pricing.
There are four essential elements to operating a typical low-
cost business model:

1. Relentlessly pursue the lowest possible price. Eliminate all
noncritical features, and do not maintain costly loyalty
programs.
2. Focus on cost savings in all areas except for advertising and
marketing. (And even then, smart procurement can reduce
the effective cost.) Developing permanent and revolving
cost-cutting routines is helpful, and price should be cen-
tral to the advertising and marketing message.

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