Wednesday, May 20, 2015

The Worst Strategy in the World

I’m super open-minded about strategies.  Sure, I have a penchant for specialty strategies (because who doesn't like high margins?), but you can make a case for any strategy if you are willing to build the required competency.  There is one strategy I see far too often, though, and it scares me every time I see it.  That strategy is:  the same thing everyone else does.  I see it all the time, in big companies and small, and it’s one of the dumbest strategies you can use.
Similar strategies are almost always doomed to fail for one simple reason:  you are attempting to succeed with the same customers using the same competency that your competitor is using.  Now, if you have far more resources than your competitor, you might come out on top, eventually.  If not, you’re doomed.  But let’s look at the “more resources” approach:  if you have more resources, why wouldn't you use them to force your competitor into the LESS desirable space in your market, guaranteeing the top spot – and profits – for yourself?  There are two answers for this.  One is that sameness feels safe.  The second reason is that sameness creates the illusion that you can obliterate your competition and dominate the entire market.
Both of these reasons are nonsense.  There is nothing safe about sameness – in fact, it’s probably the most unsafe strategy you can pursue.  Faced with similar competitors, customers invariably choose the competitor with the thinnest margins – the highest cost offering sold at the lowest prices.  That’s just a recipe for poor financial performance.  And long-term, your brand loses meaning in the eyes of the market.  You become a clone rather than a distinctive, emotion-laden brand.  There’s no money in that.  The second reason is equally specious:  markets rarely tolerate complete obliteration of competition.  Don’t believe me?  Think of some of the most ballyhooed brands in recent times – they ALL still have competition.  Not one of them – not even behemoths like Apple and Wal-Mart – have escaped the world of competition.  What this means is that the sameness strategy simply transforms your existence into a struggle at a much higher level than you faced before.  You become Coke and Pepsi, duking it out over market share in a game where 0.1% is over $50 million in stakes.  It’s a playable game, but it’s not the endgame we all fantasize about.
How can you avoid the trap of sameness?  Here are three questions EVERYONE should ask when looking at their strategies:
  1. 1.       Why Us?  Why would customers find this so awesome they would flock to our brand?
  2. 2.      What is the difference?  Can you point to a SERIOUS difference between our strategy and our competitors’?
  3. 3.       How does our competency stand out?  What know-how base do we have that our competitors are unwilling or unable to match?

If you have solid, robust answers to these questions, you’re on your way to better profits.  If not, maybe it’s time to re-think HOW you come up with your strategies.

If you’d like ideas about how to come up with better and more unique strategies, drop me an email…it’s what I do, and I love it!

Friday, May 08, 2015

A Sure Sign Someone isn't thinking at Hershey's

I came across this somewhat bizarre article today which describes Hershey's legal efforts to keep British chocolates out of the US.  The base story - which is about Cadbury's - actually leaves Hershey with a leg to stand on, since they do have the legal right to sell Cadbury branded product in the US.  However...and this is a big however...the underlying story details Hershey's attempts to keep all sorts of other chocolates out on the basis of the claim that the importation of these brands (Yorkie bars and Rollo - which Hershey doesn't have any right to) will be "too confusing" for people looking for the Hershey brands.  Not only is this backward nonsense that Hershey's lawyers (and brand managers) should feel ashamed of, it completely overlooks the fact that, while Hershey brands are heavily stocked and distributed almost everywhere in the US, the British brands are rarely available outside of specialty shops and highly-marked-up foreign foods sections of grocery stores.  In other words, if you actually CAN find the British product, you'd have to be an idiot to actually confused a four dollar Yorkie Bar with a two dollar York Peppermint Patty.  So, what Hershey considers worth the considerable legal investment and public relations backlash is something that amounts to just keeping any competing product out of the US no matter what - or at least making it very expensive for them to be sold at all.
Maybe I'm missing something here - after all, I'm not a lawyer and I don't know everything about these cases - but on the surface it sure looks like anti-competitive legal maneuvering.  I'd be happy to hear the other side of the story - but to me, this isn't just poor thinking, it's poor marketing and poor strategy.  Any manager who thinks the products even exist in the same market space needs a lesson in marketing strategy, and probably needs to learn a bit about how the public views this kind of legal maneuvering.  As for the headline grabbing story about the Cadbury products - all I can say is that it's a shame that the preferences of customers weighs so little on the minds of the folks at Hershey's.  Fighting customer preferences is perhaps the surest way I can think of to waste money in any consumer market.  Maybe someone with a more strategic brain should look at this issue?

Monday, March 23, 2015

Compass Points audio!

This week, I've started producing Compass Points audio!  You can listen to the latest edition here:
  View RSS XML

Friday, January 23, 2015

Does being easy make it cheap?

I had a great conversation with my favorite coaching client a while back.  In it, I suggested that some of the things she does are incredibly valuable, and that she should be prepared to charge what they are worth.  In the ensuing conversation, it became clear that she didn't see value in them because these things were easy for her to do.  In that moment, I realized I do the same thing - I discount my own value when I do things that are easy for me, even though some are incredibly difficult for others.  One of the core ideas in strategy is that we should learn to do some things so well that what is easy for us is both valuable to customers and difficult for our competitors.  What do you do that fits this concept?  Do you charge enough for it?

Saturday, May 10, 2014

Porter’s Five Forces Model, Generic Strategies and the Saddle Curve

Most students of strategic planning are at least aware of Michael Porter’s five forces model of competitive advantage.  These forces – supplier power, customer power, threat of new entry, substitute products and industry rivalry – are an excellent way to understand the most powerful forces affecting a company’s competitive position and likelihood of profiting from a market.  In Simplified Strategic Planning, we examine the external variables which are most like to drive these forces for a company by researching the external data (such as the balance between number of customers and number of competitors in a segment, the threat of substitute products or services, and the economics of the supplier market).  Internally, a company’s strategy can be developed to adapt to, and sometimes, mold these forces as well, ideally by focusing on the use of a unique strategic competency that separates the company from competition and likely new entrants.
One great way to think about all of the five forces in your strategic planning is to think about the choices (outside of purchasing from your company) available to your customers and suppliers.  Anything that increases the choices available to customers decreases your power, and anything that decreases their choices increases your power.  

One of the key ideas we use in Simplified Strategic Planning starts with the basic question of how you can gain – or lose – market share to a competitor.  One of the most fundamental insights that affects market share is a behavior continuum we refer to as specialty and commodity behavior.  Michael Porter describes these behaviors in his “generic strategies”, but usually refers to them as “uniqueness as perceived by the customer” and “low cost position”.  As I state in the book “Simplified Strategic Planning:  A No-Nonsense Guide for Busy People Who Want Results”, both of the generic strategies that work for the specialty focused company are viable strategies for a profitable business – that is, the differentiation strategy (specialty/broad market) and part of what Porter calls the “focus” strategy (which he uses to cover both specialty and commodity/niche market).  I would contend that the commodity side of Porter’s “focus” strategy (what I call “alley shop”) is not viable – since it generally results in both low volume and low margins – and that is why we split the niche strategies into “segmentation” and “alley shop”.

saddle curve for strategic planningIn “Simplified Strategic Planning”, I noted the existence of the “Saddle Curve”, which is simply the tendency of companies to achieve higher profit on either end of the specialty/commodity continuum.  The basic idea behind this curve is that companies with a clear commodity or specialty strategy will be more profitable than those that flounder in between the two.  One of the reasons why the five forces exert such power on profitable strategies is that they tend to force companies away from the extremes of this curve and into the middle, where profit is minimized.  As an example, consider a situation where customers can choose substitute products.  The customers’ desire is inevitably to maximize value by getting better products, better service and lower prices.  Where the customer has less choice, the real-world trade-off between these can be forced into the customers’ decision-making processes (“Do I buy the expensive, better product or the cheaper, worse product?”).  Customers who have more choices can demand that these compromises not be made – which inevitable drives a company into the middle of the curve, where profit is lower.  The only force that usually does not show its main effect on the saddle curve is the power of suppliers.  When that force comes into play, the profit of the company is affected because profit can be the result of forcing suppliers to move towards the center of the curve.
Where do you see your company on this curve?  How do the five forces affect your position on the curve, and your strategies for positioning in your markets?  If you would like a straightforward, no-nonsense process for working these ideas into your strategic planning, consider attending our two-day simplified strategic planning seminar soon!

Wednesday, March 12, 2014

What is the best strategy for retailers?

There just doesn't seem to be a retail strategy that works these days.  If you've been watching the news lately, you've probably come to the conclusion that brick-and-mortar retailing is sick, if not dying.  Just check out this article:  "Everything must go".  But is this the end for retailers?  Is there any way forward?

Let's examine what looks like the biggest issue:  online sales are still growing, at the expense of traditional retail.  You don't have to be an expert in consumer behavior to understand why.  There are compelling reasons for consumers to prefer making their purchases online.  I call these the Four C's of Online Advantage:

1.  Cost - Online stores tend to be cheaper.  Without the expenses (labor and real estate) associated with brick-and-mortar, online stores can profitably offer products at lower prices.

2.  Choice - Online stores can offer a broader inventory.  Low turnover products are more practical when your traffic is virtual and you may not even have to own or store your inventory.

3.  Convenience - Bad snowstorm?  Don't feel like fighting traffic?  You can shop online without leaving your bed.

4.  Customization - Online stores get more data about shoppers more quickly and cheaply than brick-and-mortar stores.  This one is a hidden weapon, and a powerful one.  Even the smallest online retailer has better data about why traffic comes to their store and much easier means of reaching out to past customers.

With just these four advantages, brick-an-mortar retail looks like a bad bet.  Is there any way to beat these odds?  First, you have to accept a basic idea in strategy for consumer markets:  you cannot win fighting against what the customer wants.  If customers prefer the cost, choice, convenience and customization, they will prefer online.  Strategically, you can attempt to match these advantages, but you will be matching your weakness to the strength of online shopping.  This is not to say that you shouldn't try to be competitive in these areas, but rather that attempting to be equal will cost you more than it is worth.

So what are the advantages brick-and-mortar can bring to the battle?  There are several tremendous advantages you should be using in your retail business.

1.  Experience - No matter how great a website or shopping app is, it is simple not physical presence.  Customers can only see and perhaps hear a website.  In brick-and-mortar, customers can also feel, touch, smell, taste and physically interact with your store, products and people.

2.  Immediacy - Customers can walk into a brick-and-mortar store and walk out with a product in a matter of minutes.  Even the best online distribution systems can't perform that well for physical products. 

3.  Social contact - brick-and-mortar stores enable customers to interact with staff and each other.  In some cases, there is a social life centered around traditional retail that is hard to replicate online.  In all cases, customers get to conduct transactions with human beings, which is a preferred mode for some purchases.

4.  Distribution - in some markets, such as fresh produce, delivering the right product to the customer at the right time is a very difficult challenge.  Online distribution systems, especially the last leg from the retailer to the customer, face great difficulty delivering such products efficiently.

These four areas make up the basic reasons why some customers will always prefer brick-and-mortar for certain transactions.  By implication, there are some retail experiences that may always be local rather than online - farmers markets, bars and fitness centers, to name a few.

But what if you are in one of the retail markets that is more prone to online shopping?  The strategic options for those retailers become much more difficult.  Basically, to compete effectively with online retail, a brick-and-mortar store must deliver greater value from its advantages than it loses to disadvantages for each customer it seeks to win.  Mathematically, traditional retailers cannot win every contested customer, but they must win enough of those customers to create sustainable turnover.  Here are a few options that make sense:

1.  Give up the commodity customer - some customers will always seek the cheapest source, no matter what.  In many markets, these are simply not the right customer for brick-and-mortar.  The cost of getting these customers in the door far exceeds the margin you can make from them long term. 

2.  Make the store an experience - if the store is enjoyable, some customers may prefer the sensory stimulation and social experience.

3.  Put more social in the store - I am not referring to social networking, which may help, but rather making the store a focal point for the community it serves.  A store that facilitates community will be preferred by some customers.

4.  Emphasize the immediate interaction - a store that delivers value because the last leg of the transaction is nearly instantaneous gains a big advantage over online competition.

Examining these four ideas suggests that certain models of brick-and-mortar retail are going to be more successful than others.  Commodity strategies, such as those commonly seen in big box retail, will be more challenged than the strategies of niche stores.  Customers will not look favorably upon a bland, impersonal warehouse filled with products if they can get a better deal with wider selection online.  They will also not abide ill-trained and uncaring retail staff, since an impersonal transaction can be done much more efficiently online.

The road ahead for brick-and-mortar retail is not easy.  Some costs may go up, while many will feel tremendous pricing pressure from online competitors.  A clear strategy that targets and caters to a specific group of customers is required to succeed in the changing retail world.  Any retailer who fails at this is doomed - but those who succeed will find a strong long-term position in their markets.  Strategic planning is the key to finding this success.

Tuesday, October 08, 2013

What you mean vs. what you say in your strategic plan

Sometimes, in the strategic planning process, I encounter a situation where someone in the team - often the CEO - says "That's what we want, but we don't want to put that in our strategic plan".  This makes me cringe.  Your strategic plan is intended to be a clear, concise statement of where your organization is going.  There are two possible uses for a blatant omission in your plan - 1) You want to mislead your competition and 2) You want to mislead your customers, stockholders, employees or suppliers.  I could think of a case or two where the first use MIGHT be sanctioned - but, to me, this is also a big warning sign that we are putting tactics in our plan rather than strategies.  The second use is almost certain to backfire - even more today than, say, 10 years ago.  People HATE being misled, and to do so in your strategic plan is about the worst place I can think of to do it.
So...take a look at your strategic plan.  Is the truth in there, or does it contain elements you added strictly for PR purposes?  Why would you be willing to pay the price for something like this?