In the new era of scarcity, large companies must learn how to produce higher value with fewer resources. Despite the benefits of doing more with less, large companies face significant obstacles in adopting this approach. Some of the major reasons are mentioned below.
Mindset (Top Management)
The top management is in many large companies are wedded to a previously successful ‘more for more’ strategy. However this ‘bigger is better’ approach is no longer sustainable as large companies face an increasing resource crunch and a growing number of aspirational but relatively low-income consumers seeking value-for-money offerings.
Low cost would ideally mean low income and that in return will mean low profits. They typically think that each unit sold for Rs.100 will yield them a profit of Rs.10 and if this unit is sold at Rs.80 they will earn a profit of Rs.8. Instantly reducing the profits by Rs.2 per unit. They fail to understand that the consumer is no more ready to pay Rs.100 for the unit. It would rather prefer to buy a low cost product that gives better value for money.
Technology (Engineers)
Large companies are used to spending huge sums on R&D to develop expensive, often over-engineered products for which they charge customers a hefty premium. In the past this strategy worked because the customers were ready to pay the premium price. The engineers come to work every day with a mind set to push the technology beyond its boundaries. As a result they design products that are more expensive and packed with features which the customer might not need. For instance, Auto makers could easily make the car lighter to increase the fuel efficiency. Rather they add more electronics to the cars to deliver more bells and whistles making the cars heavy and reducing the fuel efficiency.
Image of the Company (Marketers)
Marketing executives in large companies still equate ‘low-cost’ with ‘poor quality’ and are concerned that promoting low-cost offerings will damage their company’s brand image. But the marketing executives should understand that in the changing times the shift is from ‘premium goods’ to ‘value for money goods’.
Product Range (Sales)
Sales managers typically find it difficult to sell a low cost product, fearing that these products might draw consumers away from their expensive offerings. After all, selling cheaper products doesn't help them earn larger commissions. Further, a common misconception among sales managers is that the market for low-cost products is ‘too niche’ and therefore it doesn't deserve time and attention. They fail to understand that consumers themselves are moving to the lower cost offerings.
Large companies are confronted with a growing number of frugal consumers clamoring for affordable solutions, yet their existing corporate culture and incentive systems are not designed to deliver more with less.
Comments
Post a Comment