Understanding inherent value, why SOP and procedure manuals can be a waste of time & Woolworths customer loyalty strategy
15 May 2022 Newsletter
“A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain.” Robert Frost
Hope you’re Thriving!
It’s been interesting this week watching ‘assets’ without inherent value that were arguably overvalued, continue or accelerate their valuation decline.
One of the standouts was the crypto coin Terra, where if you invested $1 million 7 days ago that investment would be $1,971 at the time of writing (update it’s now $0)”
Is this a repeat of 2008 or the dot com bubble of 2000? I don’t know if we’re witnessing another 2000 or 2008, but the recurring theme throughout the previous sentences is inherent value.
What is value? According to the Merriam-Webster dictionary, value is – “a fair return or equivalent in goods, services, or money for something exchanged”.
In 2008 when banks provided mortgages to people who couldn’t pay them back, bundled them with other mortgages and sold them on, the inherent value was absent.
If 1 million people can’t pay their mortgage because they should never have been approved in the first place, then there is a lack of inherent value in the mortgage market, and the laws of economics will eventually catch up.
In 2000 when people established an internet domain name and raised large sums of money without a business model, there was no inherent value. You may be interested in this 21-minute video about The Dot com bubble: how history repeats itself.
The point? When interest rates rise, inflation increases or the market loses its confidence, ask yourself, ‘what is the inherent value of my business?’
Consider these questions:
- Is the value I bring to customers relevant to the price they pay? Will they gladly continue to pay and not consider competitors?
- Do I have a strategy that is evolving over time to increase the value I provide to customers, either by lowering prices or adding value to justify higher prices?
- Is debt servicing using too much cash, preventing me from building a cash buffer?
- Is the concentration of my customers a risk (greater than 20% of revenue from one customer)?
- Is the valuation of my business increasing due to my strategy or because the market is hot?
These are only a few questions to consider. Still, the more you consistently work on your business, improving the people, strategy, execution, and cash elements, the stronger the inherent value of your business will be. Then the less likely it is that external events will impact you.
Ecommerce reverts to the mean
Most things eventually revert to long term trends. So if indeed, a tech company with a valuation that’s 60 times revenue has a dropping valuation at the moment, it’s because it’s without inherent value to justify that valuation against a long term trend.
This week I came across an example of reversion to the mean. In the chart below, you can see E-commerce as a percentage of total retail sales. Obviously, the 2020 lockdowns caused a spike, as you can see, but now, as things are normalised, we are reverting to the longer-term trend.
Woolworths improves customer loyalty strategy
A few years ago, Woolworths had a tagline “Cheap Cheap” in Australia, which they shifted to “Always low prices” in 2015 and then to “The fresh food people” moving away from the price war with competitor Coles. But, as they learned the hard way, a strategy to offer low prices with an efficient supply chain is difficult, especially when you have competitors like Aldi.
And so it was fascinating this week to see a new initiative from Woolworths this week which walks them away from the blunt pricing instrument and further toward customer loyalty. Of course, price matters to most supermarket shoppers, but it’s not the only thing that matters. Customer loyalty is precious when customers spend hundreds of dollars every week and there are so many competing options.
For years, Woolworths has had a loyalty program called Everyday Rewards where customers would earn redeemable points with partners or discounts on shopping. But the points program, much like airlines, was the intangible item that connected individuals to the brand and kept them returning.
They’ve provided two new options within the app this week:
- The ability to pay from the app by scanning a unique QR code with your phone at a checkout, potentially removing card fees. With $63B in revenue, this could be a considerable saving!
- The ability to scan products with the app as you put them in your shopping trolley and avoid queues and payment terminals. The insights they will gain into customer buying will undoubtedly further improve the potential of customer analysis and improve customer loyalty.
How can you gain more insights into customer data and improve loyalty?
Read an interesting article about the changes here: Woolworths rolls out QR code payments system nationwide as the supermarket giant replaces checkout operators with machines
This week on The Growth Whisperers podcast
Why building SOPs and procedure manuals can be a waste of time
Many scaling companies try to capture all their Standard Operating Procedures or SOPs in an effort to do things in a more consistent manner. Unfortunately, this often doesn’t work and doesn’t produce the intended effect.
Many end up with bulky SOPs and procedures that seem ‘right’ but aren’t delivering what the company and the team really need, and the documents become unused, and simply clog up servers.
We discuss why building SOPs and procedure manuals can be a waste of time, then why this happens, and what you can do to achieve effective SOPs in your company.
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