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August 9, 2023

Your Handbook To Developing A Sustainable Business Model

# Sustainability
# Business Management

Key strategies for long-term sustainability

In the current volatile business environment that holds many uncertainties due to global crises, increasing prices and rising inflation rate, how do businesses stay sustainable? To many people, being sustainable or sustainability is a green definition - think "eco" and you know what I mean. Recycling, using lesser plastic and energy or other products and adopting practices that are not harmful to the environment.

However, when you do a search on Google, you will find that sustainability has dual definitions. The first one is what was mentioned earlier - the eco definition and the second one is the ability to continue or to be continued for a long time. For businesses, it means having the ability to enjoy continued longevity.

There are many factors that affect sustainability and we are going to talk about the critical ones today. The most important one to consider first should always be your business USP (Unique Selling Point/ Proposition). Due to advancing technology, evolving customer habits and the availability of global suppliers, business has become in general, very competitive. When customers shop, the first thing that will capture their attention other than price and deliverables is your USP.

What Is Your USP?

Your USP is a marketing statement that differentiates your product, service or brand from competitors. It might be having a special material, the most cutting edge technology or the lowest cost. In short, it is something that your competitors do not have.

These following tips can help you know you know and/or define your USP:

• Look at your customer base - The vertical market they operate in, their geographical location, the size of their business, what they buy, who the individual buyers are within those businesses and their individual roles.

• The needs and pain points of your buyers - Customers are always driven to buy on the emotional level.

• Your USP should solve their pain points - Eg. Many printers can have an offset machine but what they do with the machine and the solutions they provide are critically important.

• Be loud and proud of your wins especially in a competitive industry like the print industry - If your wins single you out in some way, incorporate those and make them known publicly.

• Think outside the box - Instead of saying you are "a printer that prints a large number of employee handbooks", say that you are "a specialist provider of employee communications".

So you have defined your USP but your next concern is "The market is saturated" aka commoditization. In today's fast changing world, you will find that almost any single market is saturated. However, a saturated market does not equal commoditization.

What Commoditization Really Is

In layman terms, commoditization is referring to a process in which goods and/or services become indistinguishable from the same offerings given by a competitor. Commoditized products and/ or services within specific categories are so similar that they can only be distinguished by their prices - basically a game of who is offering the cheapest price.

Anything that is commoditized must fulfill the following criteria:

• It is standardized in the "raw" state

• It must be usable upon delivery

• Its price will change to justify creating a market

A great example of commoditization is the iPhone. In 2007, Apple Inc. (APPL) introduced the iPhone to the world which boasted differentiating features such as a touch screen interface and multitasking capabilities that lets users surf the internet while engaged on a phone call. This was a revolutionary product, the first of its kind.

However, when competitors started copying these cutting edge mobile phone features, the once-unique features became mainstream and were available everywhere, also known as commoditization. Products and/ or services that lack distinguishing features will eventually decline in user value and in price, leading to decreasing profit margins. So how do businesses supposedly in saturated markets survive when pricing is a major concern for customers?

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Different Pricing Strategies

Pricing is one of the factors that customers always look at and can be at times, the most decisive factor in their buying decisions. It remains a common challenge for many businesses. If your price is set too high, you will miss out on valuable sales but if it is set too low, you will miss out on valuable revenue and higher profit margins. Thankfully, pricing is not a one off thing or shot in the dark. There are many pricing strategies available to help you better understand how to set the right pricing for your customers and revenue goals.

Here are the top 7 pricing strategies:

• Value-based pricing - Prices are set according to what your customers think your product and/ or service is worth. This is highly popular for SaaS (Software as a Service) businesses.

• Competitive pricing - This is based on what the competition is charging and depending on circumstances, it can be a good strategy especially for new businesses though it does not allow room for much growth.

• Cost-plus pricing - Known as one of the simplest pricing strategies, it is taking the product and/ or service production cost and adding a certain percentage to it. This is more suitable for physical products.

• Price skimming - Prices are set as high as the market can possibly tolerate and are lowered over time. The goal of price skimming is to skim the top off the market and then use the lower prices to reach everyone else. With the right product and/ or service, it can work but should be exercised with caution.

• Penetration pricing - In highly competitive markets, it can be challenging for new companies to get a foothold so one way to overcome this is to push new products and/ or services by offering prices that are much lower than the competition. It will help you gain new customers and pretty decent sales volume but you will need to achieve a lot of sales and you will need the customers to stick around when your prices increase in the future.

• Economic pricing - Highly popular in the commodity goods sector, this is to price a product cheaper than the competition and earn the money back with increased volume. While it is a good method, it does not work for SaaS and subscription businesses.

• Dynamic pricing - In certain industries, you can probably get away with changing your prices constantly to match the current demand. However, it will not work for SaaS and subscription businesses because customers are used to and expect monthly or yearly expenses.

Value Added Services

One great recommendation to mitigate customers' pricing concerns besides pricing strategies is to offer value added services. This term is used to refer to options that complement a core product and/ or service offering from a company but is not as important or necessary. It is commonly offered in many industries to amplify the customer experience, increase customer satisfaction and drive business growth. Value added services are often introduced to customers after they have purchased the core products and/ or services around which these ancillary offerings are created.

In some instances, a value added service is a complimentary service that is provided to the customer whereas at other times, it is offered to a customer for an extra fee. The actual pricing structure about a value added service usually depends on whether the provider thinks the service is an amenity to build stronger rapport or as a source of additional revenue. It could also be looking at the customer's lifetime value in the long run.

Within the printing industry, value added services are mainly classified in 2 main categories: print-related and non print-related value added services. Most non print-related services are ancillary to print but are not directly related (design, finishing, photography) while print-related services are often vital to the delivery of a print order.

"But almost every competitor is doing the same thing", you may think. Ultimately, value comes in the form of a lasting impression. It could be using soy ink or digital printing for your print-related services or it could be having gold embossing on your printed materials. It is about people remembering you and might not only necessarily mean the type of ink or material used. It could also mean bindering, personalization, mailing or fulfillment.

One great tip to further differentiate your business is to improve your non print-related services because they are key to future growth. Modern customers like a one stop provider so if you can minimise the number of steps in their buying journey from start to finish, they will most likely buy from you. As you keep your product and/ or service offerings relevant and fresh in accordance with the evolving customer landscape, it helps steer customers' focus away from the pricing and more on the value you can provide which equals your competitive advantage.

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Create Your Competitive Advantage

In a saturated market, creating your competitive advantage is key to overcoming this problem and crucial to sustainability. It is a combination of the above factors mentioned and others. But how do you do that?

Here are 10 tips to creating your competitive advantage:

• Find or create your USP - There are many print service providers (PSPs) so you must have a special sauce to make customers keep coming back to you. It could be delivery speed, specific material, design, data, fulfillment etc. Having 1 to 3 USPs are sufficient.

• Focus on your niche - Mass markets are very appealing but narrowing your target can make your first business steps faster. Eg. You have a digital printing machine and there are a few providers in the neighbourhood. You can be a printing service provider that does only print on paper but print on fabric (silk, chiffon, velvet, lycra and more). There may be only 1000 people in your city but you already have a guaranteed interest of 1000 prospects.

• Study your competitors - You cannot win the war unless you know both the strengths and weaknesses of your competitors. If you cannot compete with price, offer better service.

• Focus on the user - Customer needs and pain points matter so tell your brand story as if the customer is the hero and you are their guide.

• Simplify the buying process - Make the customer journey as seamless as possible and only ask for essential information. Be transparent in your policies and respond quickly to questions. You can also put a FAQs section on your website so customers get the information they need hassle free.

• Improve your pricing strategy - There is no "one size fits all" approach and depending on your market segment and customer base, you can conduct research and try a few pricing strategies until you find the one with optimal results.

• Provide awesome customer service - It is not just about having polite manners, it is also about providing answers or solutions when customers need them. Ensure your front-facing employees are trained and can empathise with customers, giving them the appropriate solutions when they reach out to your business so they feel valued and know that you care.

• Make users your brand ambassadors - Do you agree that customer satisfaction determines how fast your business grows? Because reputation spreads quickly. Satisfied customers will recommend your business and more often than not, customers now mostly turn to Google reviews before making a buying decision. So do your best to satisfy or exceed the customer expectations and deliver what you promised.

• Learn to handle criticism constructively - No matter what, there will always be unsatisfied customers. The best way to react is doing it with respect. Always maintain a professional tone of voice.

• Keep testing marketing strategies - There is no right or wrong marketing strategy and marketing is a continuous process of trial and error because customer behaviour evolves and industry trends change. Use the one that delivers the best results.

Types Of Business Models

All these elements will help you determine the type of business model for your business and play a major role in sustainability. A business model is a holistic framework that defines, understands and designs your business in the industry. Having a business model is one of the best ways to streamline your business processes. It is the foundation on how your business operates, acts and performs.

Here are 9 different types of business models:

• Retailer - This is the most common business model and many people interact with it regularly. A retailer is the last entity along a supply chain because they often buy finished goods from manufacturers or distributors and interact directly with customers.

• Manufacturer - Responsible for sourcing the raw materials and manufacturing finished products by leveraging on machinery, internal manpower and equipment. The goods can be custom made or highly replicated, mass manufactured products. A manufacturer can also sell goods directly to distributors, retailers and customers.

• Fee for Service - This business model is mainly centered around labour and providing services. An hourly rate or a fixed cost for a specific agreement can be charged. Fee for Service providers are usually specialized, offering valuable and unique insights or may require specific training.

• Subscription - This is in the hopes of attracting customers and converting them into long-time loyal patrons. They offer a product and/ or service that requires ongoing payment, usually for a fixed duration of benefits. They are popular for both digital and physical goods and/ or services.

• Bundling - This is usually done when a company is concerned about the cost of getting a single customer. Hence products and/ or services may be bundled to a single customer. Bundling mainly capitalizes on existing customers by cross-selling or up-selling, often incentivized by offering pricing discounts for multiple products and/ or services.

• Marketplace - In exchange for giving businesses a platform to sell their products and/ or services, the marketplace receives compensation. This makes transacting faster, easier and safer.

• Affiliate - This is based on marketing and the broad reach of a particular entity or person's platform. Companies pay an entity to promote products and/ or services and the entity often receives compensation in exchange for their promotion. The compensation may be a percentage of sales derived from the promotion, a fixed amount or both.

• Razor Blade - This business model aims to sell a robust product below cost to generate high-margin sales of a disposable component of that product. Also known as the "razor and blade model", razor blade companies may give away expensive blade handles with the assumption that customers need to continually buy razor blades in the long run.

• Pay As You Go - Some companies may adopt a pay as you go business model where the amount charged depends on how much of the product and/ or service was used instead of a fixed fee. However, an additional fixed fee may be charged for offering the service on top of the amount that was consumed each month.

In summary, creating a sustainable business model is not instant but will take trial and error before determining the best one for your business over a period of time. A sustainable business model will help you stay agile even in unforeseen circumstances and enjoy continual business longevity.

(Image credits: Canva)

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