At Turlough Hill in Co. Wicklow, Ireland there is a Pump Storage power generation plant. The method of power generation stores energy in the form of water, pumped from a lower elevation reservoir to a higher elevation. Low-cost off-peak electric power is used to run the pumps. During periods of high electrical demand, the stored water is released through turbines. The net effect is that supply of power is constant and the grids ‘additional requirement’ curve starts to smooth.
All service based businesses have periods of high demand and times when they carry manpower costs
Reducing Your Available Capacity With Planned Marketing
without sufficient supply of work. Unlike the national grid, we rarely plan to carry a backup reserve solution. What our businesses need is a stored supply of work to help smooth our business cost/production graph as very quickly three months of profit can get wiped out by one month of slow orders.
Recently I have been working with two small (20+ people) service businesses, one in the software sector and the other involved in landscaping. They both had the common problem of employing staff (incurring necessary cost) when the business wasn’t busy. During times of high staff availability they resorted to the method of panic, taking any job they could in order to cover costs. The commercial team became diverted from more profitable long term work in search of an early fix. Once orders recovered, the sales team found it hard to recover their value proposition, charging higher fees and securing better quality work.
Upon identification of this business process problem we set about creating a marketing strategy that actually planned for this eventuality. The marketing process prompted the customer to avail of a low cost solution to non-urgent projects. Customers were encouraged to think of projects that they would like to get done that weren’t urgent and place the order. The least urgent projects got the lowest price (around £210 per day) and the projects that were needed within the year got a slightly higher price (£260 per day), but still a fraction of the full price (£520 per day).
The marketing strategy involved communicating the proposition in an open and direct way that the company had special rates to help fill dip-dates. The customer was accepting and immediately understood the proposition as this kind of variable supply/demand pricing is evident in the airline industry among others.
After two months of marketing, the net result was that both organisations had enough work pumped into storage to fill demand shortages for around six months in advance, smoothing their forecasting and cashflow. Customers also started to identify new work that they would like to get produced at a lower cost but at no pre-determined time. At no stage did revenues per client dip or clients move critical work into the ‘nice to have’ delivery method. The order books simply expanded.
Our natural temptation is to market for growth and so we should. My argument is that taking a longer term view of how we market and preparing for the inevitable demand/supply mismatch may actually help supply the extra energy our businesses need.