PRIORITY: PROFIT OR VALUE?

Ruchitha Perera says innovation may solve a post-pandemic business dilemma

You’re damned if you do and doomed if you don’t! Whilst the pandemic continues to strike local businesses, fortune will favour those who dare to be different. Amongst present challenges faced by businesses, two specific dilemmas have arisen: the question of lowering costs – compromising profits to be the cheapest in the market – and ignoring pricing to focus on being competitively different so that customers will overlook the selling price.

As the saying goes, ‘if you want something you’ve never had, you must be willing to do something you’ve never done.’ Therefore, businesses will have to be innovative.

COMPETITIVE STRATEGIES Among the generic strategies described by Michael Porter, cost leadership relates to having the lowest operating cost. Businesses can engage in battles by squeezing every rupee out of suppliers, minimising operating costs and raging wars against competitors – with the intention of winning every customer.

But is this a wise business move? The profit hungry C-suite of local business may disagree.

On the other hand, a differentiation strategy is about being unique in terms of value. One way to adopt differentiation is by increasing the customer’s perceived value of a specific product over that of the competition.

Another is to adapt differentiation by applying marketing innovation, which can be complicated as it demands a certain level of know-how and high implementation costs. Can businesses adopt cost leadership and at the same time, offer the best value to customers?

VALUE INNOVATION Businesses can certainly achieve low costs and differentiation at the same time through the application of value innovation, leading to a value-cost tradeoff.

Associated with the blue ocean theory, value innovation is an approach to achieve differentiation at the lowest possible cost. Customers perceive value as the benefit minus price and for business, it is revenue minus cost.

Considering the present plight of the local economy, businesses can achieve low-cost and high value innovation by aligning benefits, revenue and costs, leading to a unique competitive position in the market. Here is a path to consider.

ELIMINATE-REDUCE-RAISE-CREATE (ERRC) In a cash-strapped economy, customers will hunt for bargains in the market and be tempted only if businesses were to offer price competitiveness. Companies can enhance this advantage by crafting new value elements that have never been offered in the market before.

With the application of ERRC, businesses can undoubtedly pave the way to simultaneously reduce costs over time, offering the best customer value as well as staying afloat.


#1 Eliminating wastage that has been taken for granted can be a good start. Ditching markets with high operating costs, slimming down fancy offices or introducing digital technology to eliminate unnecessary expenditure from manufacturing to operations are also worthy practices.

For instance, many businesses use electronic customer communications to reduce paper wastage. Right sizing staff by employing freelancers who cost a fraction of full-timers is another option.

#2 Reducing financial waste below industry standards by consolidating debt and insurance policies, as well as streamlining internal purchasing, are also good practices to consider. Instead of relying on credit card debt, businesses should think about innovative community funding.

During purchase, it is time to consider ditching large companies and engaging with smaller local businesses that are willing to offer flexible terms. Purchasing pre-owned alternatives should also be considered as they work as good as brand-new.

#3 Raising the quality of products and services with improved customer touch points above the industry standards should be the norm. Reducing costs should not however, mean compromising on quality; on the contrary, it must be improved through the introduction of quality management systems and customer feedback.

Since Sri Lankan manufacturing standards are comparable in quality to China and India, it is best to use local manufacturing options that adhere to enhanced quality standards.

#4 Lastly, businesses should create value factors so that customers can easily compare them with the existing competition. Increasing customer engagement and convenience through online channels that can be faster and more efficient, improving customer service and anticipating the changing behaviour of customers are some examples of value creation.

Certain local businesses should consider creating mobile apps to facilitate convenient purchasing at a time when physical distancing is a major concern.

For value innovation to be successful, cost reduction and increased value must be applied simultaneously, and not be considered as two separate actions. Given that Sri Lanka is known for its copycat competition, businesses should continue to make every effort to apply value innovation to stay ahead of the pack.

cost reduction and increased value must be applied simultaneously