The Demands of the Customer Must Be Satisfied (Part 2)
World Teacher's Message No.287


The Question:

How should companies with consistent deficits transform themselves? Also, can you tell us about increasing profits, especially targeted towards smaller companies and businesses?

Jan. 27, 2016 Happy Science Headquarter


I have said many times, “Businesses that started by renting the eaves will not fail (Japanese proverb which means if you start a business with a minimum initial investment as much as possible, you won’t easily fail).” It’s a mistake, especially for a small company, to make a lump-sum investment in the beginning. This is like gambling, and there are more failures than successes that sprout from these attempts. It often portrays limitless possibilities, but if it seems like you can monopolize a market, competitors will no doubt enter this market with an abundance of capital.

This is how far you have to think to manage a business, so in order to get ahead of your competitors, certain things about your business must be disclosed while others should be kept a secret. This is the “secret sauce” or “secret ingredient” — in the end, there are certain things that should be kept on the down-low. Your business should have a differentiating factor that would take decades to replicate, and it should not be something that anyone can just watch and learn from.


Sales Is Unit Price x Quantity Sold

Next, sales revenue is basically [unit price x quantity sold]. If you have multiple products such as A, B and C, the unit price of each items may be different at $1, $2 or $3; it is a matter of how many items were sold. Thus, it is [unit price x quantity sold]. If less items are sold, sales revenue is determined by the difference in unit prices of quantities sold.

Ultimately, your sales revenue is a numeric figure that reveals how many people used or bought your products or services at a certain unit price. This figure will fluctuate for two reasons: (1) a change in the unit price of your product, and/or (2) a change in the number of people who buy or use your product. Only these two variances can be adjusted.

So when people are dealing with low-cost items, they may have discounts to decrease the price of their items; however, if you just reduce the unit price while the quantities sold remain the same, it is a complete loss. Let’s say there is a $3 burger at McDonald’s, and you reduce its price to $1 — the new unit price of the burger will be one-third its original price. Let’s also say that the number of customers who used to visit the store is 10,000. With the new price of $1, 30,000 customers must now visit for sales to remain the same as before. But, if you’ve cut the price by one-third and the number of customers isn’t tripled, maybe it’s only doubled or 1.5 times greater, sales will go down. If that’s the case, the prospects of your business are uncertain, and you can declare that the price-cut strategy was a failure.

Or, in terms of stable business management, success is also said to arise from producing a high-value-added product and selling it conservatively and steadily, instead of producing an infinite number of the product.

Both are possible ways to go about it. Some business models such as that of Seiko, a Japanese maker of watches, mass produce and sell cheap, high-quality products to accumulate market share; others manufacture luxury watches and market them to the upper class. These are two different strategies, but to reiterate what I said, sales revenue is the product of unit price and quantities sold, so you must understand and be able to use this equation.

In addition, another area where you can make an effort is the so-called cost structure. This means to look at the cost structure of your company and determine what kind of costs make up your business.

There will be rent if you’re renting a store, electricity bills, water bills, employee salary, other accessories and luxuries, raw material cost and so forth, but to improve your cost structure is to reassess these costs. It is possible to reduce them.

Kazuo Inamori was able to carry out the revival of Japan Airlines from bankruptcy, mainly by cutting costs, eliminating routes with deficits and improving its customer service. This is a very simple philosophy, but until Mr. Inamori came in, it wasn’t possible.


Precautions When Your Business Makes Headlines

Now, what do deficits show? Generally, a deficit is an evaluation in the eyes of your customers that your business lags behind your competitors in the same market. It demonstrates a difficult rate of survival for your business going forward. Even if your business shows a net profit instead of a net loss, it’s a mistake to spurge on your profit — you have to prepare for future risks.

You should be especially careful when your business gets featured by magazines, newspapers or television programs. Oftentimes, the media has a poor sense of judgement so the businesses that make headlines aren’t always the ones with good management; businesses that seem glamorous and stand out are often the ones with poor business management, doing things out of their reach.

The media tends to feature businesses that are doing things out of the ordinary or making choices that are out of reach for their businesses. Then, management becomes vulnerable, more motivated and thus create more and more bubbles that lead to bankruptcy. This is a common cycle for bankruptcies.

For example, when a magazine features a business and announces, “Look at this wonderful restaurant that just opened,” or “Here’s a luxurious product,” it is quite common to see those featured businesses go bankrupt a year later. The media views abnormal things as eye-catching, but please be aware that these businesses often go bankrupt.

In fact, a good business will steadily and unpretentiously increase the number of customers and sales. It is of utmost importance to increase the number of repeat customers. If your customers are primarily first-time customers, your business will never grow. No matter how much you advertise, it is meaningless if you only attract first-time customers.

The fact that repeat customers come again and again is an advertisement in itself. If people come repeatedly, they will invite other people through word of mouth.


Why a Japanese Inn That Served Cold Kaiseki Cuisines Was Able to Change

The other day, I went to a hot spring inn near Izu for a day trip. I used to visit this hot spring inn a long time ago, and I remember they served a very cold kaiseki cuisine. They have a high brand value and I often see their advertisement, but all the kaiseki that are served come out cold.

The reason for this was in the layout of its inn. The location gets cold in the winter, and since there’s a great distance from the kitchen to the guest rooms, the food gets colder as it is being delivered. And if chefs miss the timing of making these dishes, the food will also get cold. Therefore, they only served cold dishes and I never went back after my first visit.

This inn was always featured in travel magazines, so my secretary suggested I go there to recuperate. My secretary suggested this to me two or three times, but every time, I declined the offer.

The other day, I happened to visit the same inn without realizing, but the inn was different from before. Something changed so I thought, “Well, that’s strange,” until I found out that they had a new female innkeeper.

It seems that the number of repeat customers is rising because when the previous innkeeper got sick, the inn hired a reputable person as a “manageress” from another inn. There were also great changes made to their dishes and chefs. The inn’s customer service had changed completely, and it left me in shock because they had become popular.

Customers are very sensitive. Once they have a disappointing experience, they may never return again.

This goes true for Happy Science’s local branch temples and shojas (main temples). If people aren’t visiting or the temple is always empty, you have to self-reflect on it frequently, as people may have become disinterested.

The same principle applies for businesses, so the best thing for business prosperity is to increase the number of new customers while maintaining repeat customers. If you keep chasing new customers while your long-time customers keep leaving, management will never be stabilized. Try to carefully observe the type of customers that you are serving.

Having lots of repeat customers shows that you’re successful, but if your repeat customers are limited to certain groups of people, this is a bit concerning. Creating repeat customers is the biggest promotion, the biggest advertisement. It also leads to stable business management. Repeat customers are advertising without knowing the details of other services, so this is the main difference. You must “improve your self-judgment.”


Pricing Is Business Management

Another thing you need to know is that pricing is also part of business management. Many people aren’t aware that pricing is part of management.

They often decide to leave the task of pricing for people under them, and lower-level employees or managers tend to decide on prices. It is a mistake to randomly reduce or increase the price of your products or services. Pricing is management. In other words, a mistake in pricing will lead to bankruptcy.

Even places like McDonald’s reduced its price and created a low-cost image, but when rumors came in that their products are “defective,” even the largest flagship store in Harajuku was forced to close. A business could have a positive reputation for a long time, but if people begin to point out that “its price reduced and the quality went down” or news articles about foreign substances found in Chinese factories are released, customers will leave in the blink of an eye. Even a flagship store has to then close. Competitors are everywhere, so customers can substitute their needs elsewhere. Even if your business is doing well now, you never know how long that success will last.

In summation, keep in mind that you have to watch for repeat customers and that pricing is also management. You have to be extremely knowledgeable about your own prices, or prices of services that you are offering.

While pricing is also management, you need to know that [price x quantity] is sales in order to become a business manager. Also, being able to forecast the price and quantity is critical — this is forecasting. This is about corporate foresight.

Then, cost reduction is a basic must. Now, there are limitations of cost reduction if it results in poor services or lower qualities of products. Start by considering whether you can reduce the cost without affecting the qualities of your products or services.

Cost reduction won’t be effective if the taste of your product declines in quality or your service deteriorates. Your service will deteriorate if you keep reducing the number of employees while your customer base is growing. If you call your business “profitable” by reducing the number of employees, your business will eventually collapse. These are possible cases, so take a closer look at these “variables.”

Lastly, once you create some free time, think about the next “future product,” “future service” or “next gimmick.” This is something that you should always keep in the back of your mind. Even a prospering business may eventually go wrong, so business leaders have to think about next steps. I hope that you can use this advice as reference.

The Demands of the Customer Must Be Satisfied (Part 2)
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