Lower prices as a prelude to declining activity.

   

   Price cutting and war is a symptom of loss of competitiveness, and to remedy it, most companies choose to reduce their costs through Efficiency and Quality techniques, without realizing that they are entering a downward spiral that leads their own companies to " commodification". in that it requires a lot of effort to reduce money, this situation requires a 180-degree turn of the innovation strategy where the goal is scale, sustainability and profitability. 

Price reduction is a resource widely used by companies and businesses to attract customers and sales in highly competitive environments, today's globalized world pushes companies to engage in price wars with their competitors to survive in the market, which forces them to look for ways to reduce. streamlines its processes to guarantee a better price with better quality while trying to maintain positive profit margins. Sound familiar?

In recent decades, since the 1980s, there has been a strong influence of Japanese techniques to improve business competitiveness, which have become very important in Mexico. Who hasn't heard of ISO 9000? Quality?, “Lean Manufacturing”, “Kanban”, etc…

On closer inspection, all these techniques and more aim to: Lower quality costs, Lower inventory costs, Lower product costs, Lower personnel costs, etc., Provide lower and lower prices in the face of strong competition. This is called the downward spiral that takes the company to "commodity hell", losing profitability over time. Falling prices are only the first symptom.

It is necessary to emphasize the following fact: Japan ranks last in OECD profitability, (source: "Simon Kucher and Partners"), what does this mean? Remember that after World War II, Japan became what China is today, that is, one big maquiladora. The strategy of a maquiladora is to offer very low costs with very small profit margins to sell volumes in already competitive markets with the same product offering.

Recently, a Minister of Economy launched a program called Pyme Jica Consultants, based on a Japanese methodology, but taking the data above, I personally do not think it is the best option.

So what is the way? The business strategy in Mexico must move from the concepts of "Quality", "Efficiency" and "Low Price" to "Sustainability", "Expansion" and "Performance".

Some recent studies claim that the fastest growing companies get more than half of their sales from innovative products developed in the last 5 years! See the recent case of Apple with the iPod, iPhone and iPad now accounting for over 60% of its sales that were once computers.

The company's bet in this new era must be a different management model:

1.- Vision oriented towards expanding the company through innovation.

2.- Business model based on innovation.

3.- The process of developing new innovative products and/or services.

4.- Appropriately selected intellectual capital.

Unfortunately, in Mexico there are very few consulting firms with experience to carry out these processes, because obviously Mexico's experience in innovation is very poor, and it shows in the investments in the technological development of the country compared to other economies.

However, there is a basic key to be able to correctly select the consultant of your choice:

1.- You must have experience in developing product and service innovations in preferably American or European companies and you must be able to provide product examples or market services that they have developed themselves.

2.- It is important that your experience has been in research areas or technological product development centers.

3.- This experience is preferably directed to the research and development departments of companies, I specify, and not to researchers from universities or government research centers because their experience is more academic.

4.- It is important that the consultant's methodologies are innovative.

Lower prices 

16 august 2022
Nicolae Ceausescu opposition to Moscow
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