With the economy at a turning point, companies should be thinking more critically about growth—concentrating on growing better rather than simply getting bigger.
For most businesses the urge to grow is written in their DNA. Growth is a key measure of success. Financial markets demand it. However, finding opportunities to expand has been difficult lately. As inflation and costs have risen, it has become harder for most businesses to grow.
Yet that is exactly what makes this the right moment to think critically about growth. “The fact is you can’t cut your way to growth,” says Andreas von der Gathen, co-CEO of commercial growth specialists Simon-Kucher. “If you want to find growth in a world where costs are rising, the key is to understand what customers really value today and what they will value in the future.”
That chimes with the mood of financial markets. Investors will always want to see higher revenues and profits—but increasingly they are also looking for growth with purpose, growth that will foster the kind of creativity and innovation that translates into long-term sustainability. And they know that growth that leads to staff burnout and lasting corporate exhaustion is not real growth at all. Understanding how to identify and unlock better growth is the key to sustainable success in business.
The value of value
If value is key, we need to ask what value really means.
“It is a surprising fact that a lot of companies collect a lot of data, but they still don’t have an evidence base on value,” says Mark Billige, co-CEO of Simon-Kucher. “They have a lot of fine detail on sales processes, on market segments. They can tell you to the last decimal point how much something costs, but to determine how much something is actually valued is very hard. And you can’t even begin to form your growth strategy until you stand in the customer’s shoes and understand how people make trade-offs between price and something much more subtle which is perceived value.”
Some companies tend to confuse value with price, although they are very different concepts. The problem is that price is easy to state, but value is harder to calculate. For companies concerned with sustainable growth, this is best thought of as “customer lifetime value”—the long-term value the customer experiences through engaging with a seller or a brand. Price is a lever, but it is just one factor in the creation of this value.
“Firms need to understand that pricing should be a strategy, not a tactic,” says Shelle Santana, Assistant Professor of Marketing at Bentley University in Massachusetts and a Visiting Scholar at Harvard Business School, who has authored studies around how consumers respond to pricing, including The Impact of Numbers Throughout the Customer Journey. “You need to think about what information you are trying to convey with price, because price not only captures value for the consumer, it can also create value for the firm.”
Growth with purpose
Many things influence value—including brand, quality and not just what is offered to the customer, but how it is offered and when. If customers always make trade-offs in the search for value, that goes for companies, too. For example, a market-share or volume strategy can often maximize sales, but there are more subtle ways of building growth, such as reducing volumes for a greater focus on value delivery. Growth for growth’s sake is a recipe for staff burnout and overall corporate exhaustion: sustainable growth should be about creating opportunities for everyone.
Knowing how to explain value to your customers and understanding how your customer data can tell you exactly what value people are prepared to pay for and what to forego is the essence of a balanced strategy for sustainable growth, says Simon-Kucher’s Mr. Billige. “Let’s say a company could make a lot more money by charging every single customer a different price,” he says. “How would you do it and make customers believe that they were being valued? Once you have the data to show that price integrity costs you exactly this number of million dollars, but it is also worth millions of dollars in the long term, that is when you can sit down and have a conversation about meaningful strategy and the trade-offs you might want to make.”
Finding balance
The trade-offs that underlie growth strategy go to the heart of a company, shaping the kind of business it wants to be. “Better growth is about finding a growth model that treats volumes and margins in a way that keeps stakeholder interests in balance and reduces the pressure in the business,” says Mr. Billige. “If you find you can grow with purpose and actually make the same amount of money while still giving the business room to breathe and to do new things, that can be quite revolutionary.”
“What we find with companies that adopt a pure volume mindset and market-share mindset is that they often fail to see the real implications for growth,” adds Dr. von der Gathen. “It is what we call getting ‘too hungry to eat.’ Sales are growing, but the company doesn’t have enough inherent revenue stability or profitability, and eventually their business model runs out of juice.”
Creating better growth opportunities
Better growth, therefore, is about building business models with long-term, sustainable revenues and the headroom for innovation. It is about going beyond the math of market share and sales volumes, and finding a growth model designed to nurture the business as a real value-provider.
“There are plenty of businesses that come up with great ideas, but they don’t have the business model to turn those ideas into long-term sustainable businesses,” says Dr. von der Gathen. “In the end, I believe they are short-changing the world if they don’t develop a better growth model that will support purposeful endeavor. That is real growth sustainability—understanding the trade-offs that the customer makes, that the company makes, and using that understanding to get the business in balance.”
“That really is better growth.”
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