Smart Business Magazine, Apr 2013
14 Smart Business Dallas April 2013 The more there is available of something the less it costs Conversely when theres a limited quantity of that same something the more its coveted and the more expensive it is This is a rudimentary concept but few companies know how to effectively manage the process to ensure they balance supply with demand in order to maintain or improve the profitability of a product or service Of course before you can maximize profitability you must have something customers want sometimes even before they know they need it Think about precious metals fine diamonds and even stocks The beauty and a portion of the intrinsic value of these things are effectively in the eyes of the beholder In reality much of their value or price is determined by the ease or difficulty of obtaining them As for equities as soon as everyone who can own a given stock has bought it then in many cases the only direction that stock can take is down because there are simply more sellers than buyers On the flip side when few people own a stock but everybody decides they want it for whatever the reason that stock may take a precipitous upward trajectory A case in point is Apple At one time when its per share price was more than 400 500 and even 600 everyone thought the sky was the limit and the majority of institutional funds and many home gamers aka small individual investors jumped on the bandwagon The stock reached 705 a share in the fall of 2012 and just when all of the market prognosticators were screaming Buy buy buy there were too few buyers left because everyone already owned it and the stock fell out of bed In many respects Apple was still the same great company with world class products but there were simply more sellers than buyers and poof the share price evaporated sending this once high flying growth stock to the woodshed for a real thrashing The question for your business is how can you manage the availability of your goods or services to maximize profit margins The oversimplified answer is once you have something of value make sure that you create the appropriate amount of tension be it requiring a waiting list to obtain the product or service or underproducing the item to create a backlog However this is a delicate balancing act because if its too hard to get then customers will quickly find an alternative and your product will become yesterdays news Some very high end fashion houses such as Chanel have it down to a science It can be very difficult to walk into a marquis retailer today and obtain one of its satchels without being made to jump through waiting game hoops just for the privilege of giving the store your money in exchange for the fancy schmancy bag That stimulates demand and keeps the price up because customers tend to want something they cant seem to get As another example if you have a service business that provides esoteric solutions to thorny issues the demand increases by having a dearth of experts who can render the unique advice In turn the billing rate stays up and clients can be made to take a number and wait their turn The same principle can apply to manufacturing If you have a market differentiating product that cant be found elsewhere you can maintain the price by making it a bit difficult to obtain Dont confuse this with price gouging double dealing or playing outside the lines Instead it is just good supply chain management These types of strategies apply to any business However to pull it off you must continue to improve your in demand product or service always staying one step ahead of the competition by investing to improve its worth either real or perceived You must also effectively position your offering in the market so existing and potential new customers can understand your differentiators The final step Dont be bashful about your advantage and create a marketing spin that showcases what you do and how you do it Remember beauty is in the eyes of the beholder and you must make sure youre constantly looking in the mirror to discover the hard to match differences Done correctly you can position your business as a cut above any wannabe interlopers and maintain your profit margins The inflection point when supply meets demand How to manage the equation for maximum profitability using a mirror Michael Feuer co founded OfficeMax in 1988 starting with one store and 20000 of his own money During a 16 year span Feuer as CEO grew the company to almost 1000 stores worldwide with annual sales of approximately 5 billion before selling this retail giant for almost 15 billion in December 2003 In 2010 Feuer launched another retail concept Max Wellness a first of its kind chain featuring more than 7000 products for head to toe care Feuer serves on a number of corporate and philanthropic boards and is a frequent speaker on business marketing and building entrepreneurial enterprises The Benevolent Dictator a book by Feuer that chronicles his step by step strategy to build business and create wealth published by John Wiley Sons is now available Reach him with comments at mfeuer@ max wellness com CLICK OR SCAN to read Michael Feuers blog on The Benevolent Dictator www benevolentdictator biz TIPS FROM THE TOP MICHAEL FEUER
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