Are you cost cutting, or value creating? Maybe you’re neither.

Most businesses naturally cut costs. In the same breath, they will say they need to create long term value.

Often, it’s not clear to your people what the path to success is.

In October 2008, internet sales as a percentage of total retail sales amounted to 5.3%. A decade later the share of internet sales was 18% (1). Since the turn of the new millennium, the UK retail and service sectors have seen a profound impact from the appearance of online competitors in two ways; disruption of the existing retailer model and high street retailers creating more intense competition with each other.

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Without the overheads associated with a high street presence, the internet-based retailers have been able to undercut prices and the response of mainstream retailers has been to match or even undercut those prices in order to win back market share.

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Many would say that in this "race to the bottom", everyone will lose out - shareholders, management, employees and customers. If all that matters is price, your product has become a commodity. 

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To avoid becoming a commodity, these recommendations are common: 

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Rather than cut-price, add value. The value in retail comes in many forms whether it is the smiling face of the retail assistant, the opportunity to try the product before buying, or the in-depth knowledge of a technical support team. All this adds value to a transaction and consumers are willing to pay that little bit extra for advice and support.

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Don't automatically discount products. All you're doing is conditioning your customers to wait for the discount. Furthermore, what does discounting say about your belief in the products you sell? Have faith in your products and the value you bring with them.

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You can't cut your way to growth. The instinctive move by many organisations faced with falling profits is to start cutting costs. There's bound to be some scope for rationalisation, but your most important stakeholders, your customers, will soon notice cuts in your forward-facing services. Once your customer service reputation takes a hit, it becomes a spiral of diminishing services, less profit and more cuts. Cuts are the least effective way of recovering your profits.

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Many companies are wrestling with this, but here’s the problem. It’s neither short term cuts, nor longer term value, that will give you the answer. 

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In order to make change happen, whatever that change is, people need to experience what the change means for themselves, and make it their own. This factor is absent from most forms of training. People get the concept, but they don’t experience the highs and lows of making the decisions, and seeing the outcomes of their decisions play out in front of them. 

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Added to this, it isn’t clear how individual decisions impact the whole. Having a shared understanding of value, and how that word plays out in your business, in precise terms, is critical to your success. 

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Sometimes, the conversation should absolutely be about cutting, if that reinforces the strategy. It’s about showing people how their actions can directly contribute to the outcomes your business wants. 

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To really stem the so-called race to the bottom, we need to create a common language of ‘value’ in our organisations, and help our people to experience in real terms how their actions contribute directly to the whole. 

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1.https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi  (consulted 14/12/2018)

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