COMPETING IN RETAIL - David Vs Goliath
By: Richard Peters
The retail industry and retail strategy have been major influences on the
marketing and sales operations of a number of the companies with which I have
been involved. I marvel at the innovation and creativity shown by some small
retailers in the face of what may appear to be insurmountable competitive threats
from much larger players. Probably the largest single threatening development
facing small retailers are the “big box stores” the most notable of which is Wal-Mart and the niche
market “category killers” such as
Best Buy and Future Shop in the technology retail sector.
I want to share a few examples, which I believe, you will find to be inspiring and motivating competitive
advantage stories. These are cases where small retail owner/operators have
grown and prospered by turning potential adversity into opportunity at a time
when their peers were folding their tents in face of what they perceived as
impossible odds.
As I write this case study, I am reminded of the bestselling book
entitled “Who Moved My Cheese?” If
you have not read this book, you must.
CATEGORY KILLERS
I have spent over 10 years helping software, hardware and internet
organizations brand and market their products and services. In that time, I dealt with dozens of retailers who either
exclusively or primarily sold computers and related technology. As this
industry started to consolidate “category killers” such as Best Buy and Future
Shop became the nemesis of small technology retailers. Aggressive pricing and extensive product
selection caused numerous smaller retailers to close their doors.
Here are few examples of small IT retailers who through innovation
managed to survive despite the odds.
1. As Best Buy and Future Shop were expanding and smaller retailers were
closing their doors, one of our IT retailer’s was actually opening. If memory
serves me correctly, he had 3 or 4 stores. I noticed that they were located
very close to if not directly across the street from a Best Buy or a Future
Shop. I asked him about the wisdom of this strategy. His perspective was that
the big guys were either an opportunity or a threat and he chose to capitalize
on viewing them as an opportunity
His competitive strategy focused on what he perceived were weaknesses
or deficiencies in the big
store business model. These were:
- When a consumer purchased a computer, TV etc. from
a big store, they would invariably end up being sold cables etc. to accompany
their major purchase. Often the additional cost of these ad-on items could be a
few hundred dollars. The store owner
advised me that the prices being charged for these cables etc. were
significantly marked up from what they had originally cost the store. Actually,
the cables etc. were relatively inexpensive to the retailer but provided a significant margin
opportunity. The same, by the way, is true of the “extended warranties” often purchased when someone buys a new
computer etc. These warranties represent significant bottom line revenue for
retailers.This store owner began to advertise that, at his store, the cables etc. were included in the purchase price of any equipment. The owner noticed that while his big ticket items prices were fairly competitive with the big stores, his clients were willing to pay a little more for these major items to avoid the additional cost of the add-on items. In many cases, despite the fact that some of his big ticket item price was higher, when the customer factored in the “free” cables and accessories, that they would be required to buy a “big store” , the total cost was less at the small retailer.
- Another competitive advantage was his “knowledgeable staff” and outstanding customer service. In his stores he hired what he referred to affectionately as “nerds” who lived and breathed IT. The big stores on the other hand were less inclined to do so. The big operators offered clients access to in-store tech services such as “Geek Squad”at Best Buy who, if they were unable to deal with your issue in the store would visit your home or office and, for an hourly fee, would resolve whatever issues you had. The smaller operator also offered to send a technician to a customer’s home “free-of-charge” to help them setup whatever new equipment had been purchased as well as resolve issues with existing equipment. He also opened his stores earlier and closed later than the big stores. He encouraged people to stop by on their way to work and on their way home.
The retailer found that people quickly discovered where he was.
Word-of-mouth and referrals were a significant source of business. Once new
customers did business with him, he found they tended to check with him before
visiting the big stores for future purchases.
2. Another IT retailer had his stores
located in close proximity to supermarkets. He noticed that men were less
inclined to want to spend time shopping with their wives or partners if they
had someplace to which they could easily escape after parking the car and kill
time while their other half was shopping. He trained his staff not to pressure
people to buy but to create an atmosphere where people could come to relax,
check out the equipment, have coffee, relax, ask questions and feel
comfortable. He found that he developed a dedicated clientele who felt a
loyalty to his store where they had developed relationships. They were even
willing to pay slightly higher prices to shop there because of the level of
service, customer relationship practices and convenience.
THE
WAL-MART ADVANTAGE
Media and public interest groups have
ensured we are well acquainted with the plight of small retailers as they face the “big box”
effect caused by large operators moving into their markets. Wal-Mart, of
course, has come to define everything that is evil about these big box
operations. However, there have been instances where smaller retailers have
risen to the challenge and turned even Wal-Mart adversity into opportunity.
A few months ago I read a story about a
small “general merchandise” store in Alberta which had the misfortune to be
located across from a new Wal-Mart location. The store had been operating for
years prior to the Wal-Mart opening its doors but the effect of discounts and
expansive product lines was taking its toll on the small store’s business. The
owner decided that closing her doors was the final option but not the only one.
She looked for opportunities that her new neighbor might provide. She came to
realization that by altering her product line to consist of products not sold
in Wal-Mart, she could take advantage of the traffic coming to Wal-Mart to also
visit her store.
The Wal-Mart parking lot became her store’s parking lot and
her business did better with the Wal-Mart next store than it had before the Wal-Mart
arrived.
CONCLUSION
In all these cases, the store owners
looked out their store windows and did not see potential customers shopping
somewhere else but rather people arriving in their neighbourhood looking for opportunities to spend
money.
Other case studies by Richard Peters:
- How Your Site R.A.T.E.S.
- Owning The Client Relationship
- Achieve and Maintain Competitive Advantage
- The Anatomy of a Turnaround
- Ancillary Business Opportunties
HOW YOUR SITE R.A.T.E.S.
By: Richard Peters
I have had the good fortune to not only have been witness to the evolution of the internet but also to have participated in its application in numerous B2B, B2C and C2C market or business scenarios. In both corporate and entrepreneurial environments, I have played key roles strategically and tactically in the development, branding, marketing and operations of numerous web based businesses. Based on this experience, I have developed some guidelines or rating principles I refer to when assessing the viability of a proposed or existing web based business opportunity.
These rating principles are used to identify the strengths and weaknesses of a site. How the site R.A.T.E.S. helps determine the strength of its competitive advantages, vulnerabilities and where to focus improvements in order to ensure the site’s ability to survive and thrive. The degree of emphasis placed on individual rating elements is influenced by the role the site plays in your company or product’s branding strategy and the role of the site as a revenue generator (e.g. generate advertising or provide e-commerce facility to buy /sell products and services) and/or as an information provider.
R.A.T.E.S.(Relevance, Accessibility, Thoroughness,
Ease of Use, Social Networking).
- RELEVANCE: This is a measure of your site’s ability to meet the product and service expectations of your target markets as established through your brand.
Your
site is integral to your brand message which is your promise to your customer.
Your brand tells them what they can expect from your products and services, and
it differentiates your offering from your competitors'. Your brand is derived
from who you are, who you want to be and who people perceive you to be.
Your site needs to reinforce and reaffirm your brand message.
Your site needs to reinforce and reaffirm your brand message.
- ACCESSIBILITY: The primary question that needs to be asked: “Is the information accessible via all the modes of digital delivery currently popular with its target audience(s)?”
There
is a plethora of digital delivery options (e.g. smart phones, I pads, I pods
etc.) available. Acquaint yourself with those that are popular with your target
segments and ensure your site is “friendly” with these favoured technologies.
- THOROUGHNESS: This measure focuses on depth of information rather than breadth. The ability of the site to be “Relevant” will bring brand supporters to your site. The ability of the site to be “Thorough” will bring these users back and reinforce brand loyalty.
I
have seen many cases where the site was regarded as an ancillary activity and
was not managed as an integral part of the primary product or service branding
strategy. The marginalizing of the role of the website exposes the online
option as a viable competitive opportunity. I have used this opportunity many
times to attack a competitor which otherwise had a very strong offline brand
position.
- EASE OF USE: The ability of a user to be able to quickly and easily source what they need is paramount. How quickly the relevant content can be sourced depends on how intuitive and extensive the structure of the search capabilities of the site are.
The
best way to ensure that the site’s search function is optimal is to have the
capability to:
·
track or measure the users
experience searching the site
·
assess what this information is
telling you
·
take whatever steps are
necessary to optimize the user experience.
Good
analytical tools will provide valuable data regarding the user experience;
however, often the underlying causes of the users experience are difficult to
discern. Typical research and analysis procedures can take time and be
expensive. Social media/networking can
provide a real time capability to assess the users experience and gain insights
on what needs to be added or changed. In
other words, if the site is getting strong audience participation and the
audience is able to socialize (express opinions, share experiences, ask
questions etc.) overtly or subliminally they will provide insights about what
is good and bad about the site. They are
also very likely to offer insights regarding the pros and cons of competitive
sites.
Often
the competitive advantage of one service over another can have more to do with
the way information is presented than with the information itself. I have been
involved in a number of markets (e.g. law, finance, construction, real estate,
healthcare) where the competitors are providing similar if not identical
content. Their ability to co-exist and to compete is heavily influenced by how
they present their information. Preference for one service provider over another
is based on how user friendly or intuitive is the presentation of the
information.
The
same principle applies to other forms of content. As you learn more about the
patterns of usage you start to identify usage habits or preferences among
groups or audience segments. This can provide the opportunity to refine or
revise how the content is presented so as to improve the efficiency of its use.
Being
vigilant about the ease of use and application of the data can also produce new
or ancillary revenue opportunities.
- SOCIAL NETWORKING: Competitive environments and user behaviour are highly volatile especially in the fast paced world of the internet. Whether your site’s primary role is provide an e-commerce capability or information, it is mission critical to keep on top of the selection or sourcing criteria your audience employs. Social media needs to play a major role. These networking tools, properly architected and managed will not only be seen as a significant added value by the users but will also provide a very effective and efficient way to monitor market trends and user preferences. Social media tools also provide you with opportunities to identify the appropriate response(s). It is a very powerful way to get up close and personal with your audience where you can watch, listen, learn and react.
The user centric, unstructured, self- organized nature of how content is
managed via social networking enables the user to:
- socialize (discuss, provide opinion, feedback) the structured content that the site provides,
- add new structured content (i.e. share articles and other third party content) they may source and feel is relevant to a topic or discussion
- provide their own bottom-up content using blogs, forums, focused or special interest groups, 1 to 1 discussions
- basically satisfy their need to share, trade ideas or tips, or experience the thrill of being publishers themselves.
All of this makes the
site experience more intimate, engaging, timely, relevant and certainly
immersive.
I
believe social networking or media is an extremely valuable tool for creating
and maintaining brand loyalty. I also believe that there is a first strike
advantage to this. An effective social media strategy gives the user a sense of
empowerment, they see the site as “theirs” and they feel a sense of community
or membership. The organization that is
first to step up to the plate and establish this foothold with the user has a
significant competitive advantage.
The
major caveat is that you, as the service provider, must be ready, willing and
able to continue to “feed the appetite” that you create. A critical feature
affecting the competitive positioning of a site is having the capability to
proactively and reactively respond, in a timely fashion, to changing market
conditions, especially as these relate to competitive landscape and user
preferences. This is a common area of weakness for many sites and ultimately
the vulnerability that leaves an opening for competition.
Anatomy of a Turnaround
Ancillary Business Opportunities
Achieve and Maintain Competitive Advantage
Owning The Client Relationship
ANCILLARY BUSINESS OPPORTUNITIES
In almost every organization in which I have been involved, ancillary business
opportunities have often provided, what I describe as, low hanging new revenue
sources.
In most of our businesses, our primary focus is on the mainstream
products and services our companies offer. These provide the bulk of any
organization’s revenue growth. They are the mother nest business. We train our
sales forces to doggedly pursue growth in these revenue centres. Our sales staff
is rewarded on their success achieving their targets. But what would happen if we stood occasionally
and objectively looked at our operations and analyzed the operations of our
clients with the objective of identifying what else we could be doing with the
assets we already have to provide additional products and services to the
client. Let the thought process move in every direction in search for new
opportunities. You might be amazed at the revenue opportunities that exist
which require very little additional investment and could represent significant
high margin business.
I use several key parameters when prioritizing ancillary opportunities:
- Is there additional revenue to be made that we ordinarily would not have earned?
- Are we already knocking on the doors?
- I recommend looking beyond just sales staff activity, examine all aspects of your operation. I recently was involved in discussions regarding a company that had service staff entering the offices of over 30,000 small, medium and large businesses on a monthly basis to fulfill their service requirements. This company was not in the delivery business but we did identify a number of opportunities where these service reps could be used to provide deliver services for other non-competitive companies.
- Is the additional investment minimal both in terms of money and human resources?
- Does the opportunity have the potential for synergies beyond just revenue?
- There may be circumstances where your organization can provide a service that may not directly generate revenue but strengthens your brand, competitive position, customer relationships or provides opportunities for you to generate new challenges for underutilized staff or management that you may be at risk of losing.
Here are some examples based on my experience that you may find helpful:
1. When I was in charge of Trader Classified Media in
Quebec, we published close to 75 classified advertising magazines, directories
and associated websites that provided Quebec businesses and consumers with
critical data on the used car, truck, recreational vehicle, motorcycle, boat
and real estate markets. These publications and their websites were highly
regarded sourcing tools or buying guides for anyone wanting to purchase
previously owned items. The Trader products and services were the market
leaders.
- The data was already being collected due to the nature of Trader’s ongoing mainstream operations.
- There was very little additional administrative expense required to operate this ancillary business.
- The service was provided online so there were none of the usual publications costs involved.
2. The real estate market provided another
lucrative opportunity. We published approximately 24 real estate titles in
Quebec. The primary advertisers were real estate agents selling residential
properties. The site we operated was called Visinet. This site was the third
most visited site in Quebec after MLS and, I believe, ReMax. The main reason
for the site’s popularity was the nature of its content. The site advertised
real estate from any agent or agency that wanted to advertise. Unlike most
other sites, such as Remax, our site was not restricted to carrying product
being sold by one company. Consumers liked the site because they could search a
large portion of the real estate market by visiting only one site.
- We managed to get additional revenue from the real estate professionals that we were already dealing with.
- We kept these agents “in the family” as we helped them develop their own web identities. This allowed us to continue to nurture existing relationships and identify value add opportunities.
- Even with their own websites, they tended to stay committed to us because we could constantly offer upgrades to their web capabilities that they could not afford to do independently.
- Their exposure on Visitnet drove traffic to their own site but they liked the synergy of having their business exposed on both sites.
- This made good business sense to us because we already had made the investment in web development and hosting assets. To do this work for the agents was not a huge strain or require significant additional cost. The real estate professionals selected their web design from templates we had pre-designed and hosting requires very little administration or cost. It provided us with opportunities to better utilize existing staff or add new staff that we could not have rationalized based on just our internal requirements.
- The value adds we were providing solidified our customer relationships.
- We created additional revenue opportunities for sales staff.
3. I was the head of business development for a
market leading conference management organization. They organized over 100
conferences per year. The attendees at their conferences were professionals
mainly lawyers, investment bankers. While their events were well attended, they
realized that in any given firm only 1 or 2 professionals would attend an
event. Efforts to attract more attendees were unsuccessful.
The answer was to assemble the
proceedings from each event into a publication. Wait a few weeks after the
event was over and then make the publication available to others in firms that
had sent a delegate to the event. The rationale was that those who attended the
event would return to their offices and discuss the event. Ideally this would
stimulate a demand for the information from the event. Delegates would be able
to reap the benefits of the knowledge or information they acquired from the
event for a week or two before the opportunity to acquire the proceedings was
given to their colleagues. The proceedings were sold to the colleagues at about
half the price of the event. The only people eligible to buy the proceedings
were members of firms that had sent a delegate to the actual event.
- It re-purposed the proceedings providing the opportunity to generate revenue beyond the event itself.
- The margin of the sale of the proceedings was high because the costs associated with preparing the publication were quite a bit less that organizing an event.
- The publication would be passed around within the respective firm and thus continue to promote not only the event but also the event organization. Basically the client was paying for the privilege to promote the event company.
4. I was COO with a new-media company that provided products and services to the “enterprise software development” community. Their website was an intriguing example of ancillary revenue generation. Those who contributed content to the site were paid based on a fee schedule that had fixed and variable elements. The company broke their content into categories (articles, news posts, interviews etc.) established a core value on each category (the company established a fixed fee for each type of content based on degree of effort....e.g. an article was worth more than an interview etc.). They paid that set amount plus a variable amount based on views of the specific piece. They would generate approximately 150 new pieces of original content/topics monthly. Their content just kept getting better and more relevant because they could continually monitor its popularity and the contributors were motivated to keep abreast of what were popular topics because it was in their best interests to give the readers more of what they wanted. The company also aggressively tagged all content (probably 4-5 tags per topic). The tagging allowed for cross referencing to items for sale such as online books (most of these books were custom written just for their audience), lead generation assets etc. They could target advertisers or product/service providers based on readership patterns. Client products or ads would be posted on pages where articles or other content appeared that contained words or phrases tagged to their product or service offering.
The
company also published e-books. E-book titles were selected based on an
analysis of the traffic. Since the site had a B2B focus, the content of the
books tended to be need-to-know information.
The writers that created the online editorial content were the authors
of the books. Management tracked a given writer’s popularity with readers and
because of their tagging and tracking they could identify which of the writer’s
subject categories were most popular. The
writer would then be contracted to write a book on a specific topic. The books
were then sold as e-books or they could be purchased in print through Amazon.
Companies that sold products or services that were relevant or related to a
book’s content were invited to sponsor the book if they wished. The sponsorship
deal could take 2 forms. One form was for the sponsoring company to pay a
sponsoring fee. The other arrangement would be for the company sponsoring the
e-book to have it made available as a free download but the e-book customer was
required to register for the download and the company sponsoring the e-book got
the registration. The client company paid the site operator for the leads that
were generated.
CASE STUDY
ANATOMY OF A TURNAROUND
BACKGROUND
A few years ago, a business acquaintance referred me to a European
multinational media organization which was looking for someone to takeover
leadership of one of their major Canadian media operations. The parent
organization operated over 300 publications, 60 websites in 21 countries. North
America was their largest market and Canada represented approximately 95% of
their North American business. The particular Canadian operation that I was
asked to lead was causing them significant challenges. The most notable of
which was the fact that it had become their largest money loser globally.
This business unit operated approximately 14 regional and national magazines
and newspapers, 3 websites, employed approximately 50 people, was headquartered
in Toronto and had 7 regional offices. It was a market leader with a
circulation of over 700,000 publications monthly. The publications were printed
in 4 different locations across the country and distributed through 7,500
locations nationwide.
In the 5 years prior to my arrival, the senior leadership role of this
Canadian company had changed several times. The management team (i.e.
department heads) had been negatively impacted by this ever changing
leadership. The individual managers, for the most part, while capable within
their respective areas of responsibility, suffered from a lack of leadership
and as a result had developed a noticeable “silo” approach to handling problems
and making decisions. In other words, there did not appear to be any noticeable
team approach to dealing with issues and challenges. Each department
implemented their individual solution when it came to dealing with situations
that were of a more general nature. This had resulted in situations where the
actions of one department negatively impacted the ability of another to
function properly. There was a fair degree of acrimony among some department
heads and, on my first day, I was informed that a few key department heads had
submitted written or verbal resignations.
Financially the business was in bad shape:
- there was a significant operating loss and had been for a number of years.
- bad debt was in the double digit range.
- some accounts receivable were over 180 days past due and, of these, several owed well over $150,000.
- many of these larger bad debt accounts were still booking business with the company despite their outstanding debt situation.
- the company’s cost structure had gotten out of control in some areas. For example, websites were locked into a cost structure of $75,000 a month, produced no discernible revenue benefits and were experiencing declining traffic.
The company’s European head office was losing patience with the
operation and I was advised that I was the last “kick-at-the-can” for this
business. Upon my arrival, I was given several briefings by head office senior
management on their views of what needed to be done which included a list of
which members of the management team should be replaced and where costs should
be slashed.
SITUATION
My assessment of the challenges I faced was:
- My superiors wanted to see developments quickly.NOTE: The global COO, to whom North America reported, met with me 2 weeks after I joined the company and within an hour of our meeting advised me that “my vacation period” was over and I was to send him, within 48 hours, a list of my 10 quick fixes for the business.
- I did not want to immediately act on the suggestions made by my superiors. I needed to be able to make my own decisions regarding my management team.
- There were a few members of my management team who had indicated their intention to leave. I needed to convince these individuals to stay.
- I had a reluctant and battle scared management team. Many of whom were convinced that my primary responsibility was to wind down the operation at the behest of my superiors. The management team’s buy-in and commitment was integral to any transformation strategy for the business. The challenge was to find a mechanism for achieving this immediately despite their misgivings.
- I needed to produce identifiable and meaningful
short-term progress in order to reassure my superiors that my decision to not
implement their suggestions immediately was a proper course of action.
STRATEGY
It was important to get the management team involved in the problem
solving and decision making process at the outset. They needed to feel
empowered and involved if I wanted them to stay around, take ownership and be
part of the turnaround process.
In hindsight, I guess I was implementing a cross functional team style approach.
The benefits associated with this approach, included:
- Faster problem solving and decision making
- Increased level of by-in or commitment to the resultant action plan by those who crafted the solution.
- Increased ability to get multiple situations dealt with simultaneously. A cross functional approach should require less senior management involvement in each problem solving and decision making circumstance. In my case, I worked with individual managers to help identify the key issues or problems and then turned the matter over to teams who would return to me when they had arrived at what they felt were implementable solutions. This allowed me to have a number of problems being worked on simultaneously without personally being involved in every detail and running the risk of being the source of delay.
- Opportunities to assess the quality of the management talent by observing them in real work situations. It can be a very effective way to measure how individuals function in a team, their leadership or potential leadership qualities, problem solving and decision making skills, organizational capabilities and overall work ethic.
- Improved customer relationships resulting in increased sales and brand strengthening. I have on occasion put inside and outside sales together with finance to manage aspects of the sales process and experienced surprising benefits.
This idea first came
to me when I was running a company that was facing a particularly aggressive
competitive environment. We were losing sales because the sales reps,
especially the outside sales reps, when trying to cut deals with clients were
required to contact their supervisors for approval before they were permitted
to wander off the official pricing schedule.
The solution was to
have the sales management team and finance department work together to come up
with a pricing management process that would provide the field reps with the
latitude to make pricing decisions while sitting with the clients while at the
same time safe guard the businesses margin requirements. Finance and sales
management structured a pricing practice that, while riskier in terms of
maintaining margins, ensured that our reps left very little money on the table
for competitors.
In addition to the
direct benefits in terms of increased sales, clients were impressed that our
reps were empowered to make these decisions and to make them quickly. This reflected
well on the reps individually as well as the company.
IMPLEMENTATION
Beginning the day I arrived, I spent most of my time meeting with my
managers one-on-one to discuss their departments and to get their perspective
on what they felt was required to get things back on track. These meetings were
always held in their offices, never in mine. I needed to get them to accept my
presence and this was the best way to reinforce that I was part of their team
and my role was to remove obstacles as well as help and support them. I had no
hesitation in telling them that they were the experts when it came to their
departments. Through these initial sessions and ensuing discussions, I believe
it became evident to the management team that I had high level of confidence in
their ability to get this organization back on its feet.
Initially, I was greeted with a litany of “won’t, don’t and can’t” responses to my suggestions on how we could attack a problem. This was not entirely unexpected, I had experienced this type of resistance in previous roles. Most of what I was suggesting were actions that these managers had requested under previous administrations but their requests had been met with resistance and traditional risk averse rationalizations. What I was now hearing was the re-iteration of what they perceived as the parent company’s resistance to these ideas.
NOTE: I always find it amazing that when
companies or business units find themselves in dire circumstances the senior
management often adheres to “safe” practices that probably got them into their difficult
situation in the first place. A major
portion of my career has involved being recruited into organizations to lead
management teams that are underutilized and, often, have become demotivated due
to being subjected to risk averse senior level decision making and problem
solving practices. The major challenge I usually face is transforming these teams
into motivated, energized groups that embrace innovation, make the tough decisions and zealously pursue
being best-in-class.
I seldom have encountered managers who do not want to take a risk. What
I have encountered managers who have been discouraged from taking risks because
of a lack of senior management support. Someone once expressed it best when
they said “senior management want us to take risks but not to risk anything”.
Changing or transforming an indigenous team can be difficult and not
without its challenges. Often it is preferred to replace all or part of the
existing team with known talent that you may have worked with previously. It
has been my experience that the management team that was in place when an
organization went off the rails can be the best team to get it back on track.
It seldom is the front line management or department heads who have caused the
problems, they are just the ones asked to accept the blame. Given the
opportunity and the proper environment they often quickly rise to the
challenge.
RESULTS
With a few exceptions, I was able to keep the original team intact and
in the first 12 months the team was able to accomplish the following:
- The company, after years of losses, was returned to profitability.
- Bad debt plummeted from double digit to low single digit.
o
Finance was given control over all bad debt
accounts.
o
Sales was required to get finance’s
authorization before they could accept business from bad debt accounts. This
authorization was absolute. I refused to personally get involved dealing with
exceptions without finance’s approval.
o
More onerous sales commission claw-back
provisions were introduced.
- Production costs dropped $1,000,000.
o
Production was centralized to Toronto from
several regional locations.
o
Print contracts were re-negotiated and, in some
cases, new printers were contracted. A factor in selecting printers was their
locations in relation to distribution points.
o
Production was given the authority to refuse
last minute ads if accepting late ads meant missing print production schedules
or incurring overtime.
o
Production was significantly automated thus
reducing timelines and manpower.
o
Production and sales worked with clients to
automate the client’s process for submitting ads. This eased and helped
streamline our production processes.
- New products were introduced.
- Web costs were reduced almost $50,000 per month and the websites were restructured to be revenue contributors.
o
Publication advertisers were given the option to
pay a little more and have their print ad appear online.
o
The sites were modified to allow for this to occur
as a simple pass through from production. In other words, once an ad was setup
for the print product it could be digitally placed on the site with no or
minimal manipulation thereby producing additional revenue with negligible additional
cost.
o
In addition to wanting to develop more
contemporary and relevant web sites, a priority in redesigning the sites was to
eliminate the need for costly out-sourced service contracts.
- Magazines and newspapers were redesigned to make them more relevant to market needs, to reduce paper costs and to optimize the use of ad space. Studies were conducted regarding readers preference for size and aspects of layout. The objective was to reduce paper costs by reducing publication size but not lose ad revenue by reducing ad sizes excessively.
NOTE: We also carried out
a number of studies regarding the quality of paper used for the print products.
But despite the results, we were somewhat restricted in using lesser quality,
less expensive paper.
Over the years, I
have been responsible for the publication of close to 100 titles including
consumer, industry and trade publications. I have never seen a study that
showed that the reader or the advertiser for that matter would actually stop
buying or advertising in the publication due to the quality of its paper. The
real opponents of lesser quality stock were ad agencies. They were usually the
ones who refused to put a client’s ads in a publication that did not publish on
high quality expensive stock despite what the studies showed.
Because we needed to
deal with agencies we were often required to use expensive paper.
- Editorial costs were reduced 25% while maintaining quantity and quality of content.
o
A big contributor to this process was reducing
editorial staff and relying more on freelancers. I believe we reduced our fulltime
editorial staff almost 50% and ended up sourcing our content from a group of 75
freelancers.
o
The system for compensating freelancers was
changed from a “per word” fee schedule to a fee schedule based on the specific
piece of content being provided. Managing Editors would negotiate with freelance
writers to pay according to the experience of the writer, importance or
relevance of the piece and the managing editor’s judgment regarding how many
words the article should require.
- Distribution was re-engineered.
Case Study: Achieve and Maintain Competitive Advantage
By: Richard Peters
http://ca.linkedin.com/in/richardpeters2/
Competition is a reality
for every business. Even when a company introduces a revolutionary new product
or pioneers an innovative technology, the window of opportunity provided by
being first-to-market is limited. In my experience, in both corporate and small
business environments, when I examine an organization’s competitive strategy, I
am constantly amazed at the lack of innovative thinking in terms of
anticipating increased competition and planning for it.
If you want to maintain
competitive advantage, you should constantly be vigilant of the following:
- The success of your product or service will attract competitors. There is always room and opportunity for a competitor.
- You create the window of opportunity for a competitor to exist and to thrive.
To
assess your competitive vulnerabilities assume:
- Whatever values or benefits your product or service brings to the market, someone else can do it better.
- Your product’s success could create a market demand that you will eventually lack the capacity to meet. In other words, assume your product will eventually increase demand at a pace which will exceed your ability to supply.
- Your product or service has weak points. You are not meeting the market’s entire need. Your competitor(s) will use your product or product strategy shortcomings or omissions as their point of entry and their competitive advantage.
- Product
or service innovation needs to be a constant and done on a proactive basis rather
than reactive. (Note: This applies
to products and services of all types not just technology products. This a
major area of vulnerability for most companies. Being first-to-market with
innovations is as important to maintaining competitive advantage as being
first-to-market with the initial offering. Employ tools such as social media to
keep apprised of how your market is reacting to your product and to those of
your competitors. Through the effective use of social media tools, your market
will give you heads-up regarding opportunities for innovations.)
Admittedly these
observations are based on hindsight. Over the years, I have gained the benefits
associated with developing and implementing successful and not so successful
competitive strategies. Having spent time in leadership and executive positions
in a variety industries including media, software, insurance, consumer packaged
goods, digital and social enterprise, I feel qualified to say that competitive strategies
and tactics are highly transferable.
Over the next week, I
would like to share with you a few case studies that are based on situations in
which I have been involved. These are cases that I have often referred to when implementing
and advising on competitive strategies. I have found that the lessons they contain
are transferable to just about all industry verticals.
CASE 1
KEEPING
ONE STEP AHEAD
A number of years ago, I
co-founded a venture that provided branding and marketing services to the
software industry. The clients comprised recently launched B2B software
companies or B2B software products that targeted the office automation technology
requirements of companies operating across an array of verticals. For the most
part, the technology being marketed was innovative and leading edge. A primary tool
for selling these products was “in-your-face-marketing” which involved
assembling 100-150 corporate decision makers in a room and having the client
organization pitch its wares. My organization branded itself as best-in-class when
it came to designing and delivering roadshow programs for B2B software
companies.
When we entered this
market, new or early stage software companies were plentiful and well financed;
however, they were largely being ignored by the major ad agencies and the more
established marketing services groups. Very few agencies even targeted software
companies as a potential market, especially B2B focused software companies. For
the first year, business was good and we seemed to be establishing ourselves in
the industry. Then things got a bit more challenging. Our success drew the
attention of others who decided to give this market increased attention. We found ourselves pitching new business
against much larger, more established industry players. Our closing rate was
diminishing. Competitors were starting to gain a foothold on our turf.
Another significant development
arose with one of our lead clients. We recognized that this client issue while
specific to one client had the potential to be the harbinger of future client
difficulties. The client in question called us to a meeting to inform us that
they were considering dropping our company from their service provider list.
Their explanation was that despite our services the timeline for their sales
cycle had not declined, sales had not increased and therefore they were
considering other options.
Basically we were
threatened with losing our key competitive advantages:
·
First-To- Market Advantage: Others had awakened to the opportunity we had
identified. While our existing clients were reasonably secure, we had neither
the track record nor resources to compete against large agencies when pitching
new clients. Anything we said we could do they could easily sell a new client
on how they could do it better.
·
Brand Positioning – The threat of losing a major client
had implications far beyond this one client. We had neglected a fundamental
principle - “never lose sight of the client’s measure of success.” Our criteria
for measuring “best in class” differed from what mattered most to the client.
“GIVE THEM MORE OF WHAT
THEY WANT AND LESS OF WHAT YOU THINK THEY NEED!”
We had an outstanding reputation for developing and delivering well organized, memorable events using unique venues attended by “A” list corporate prospects. But the client’s measures of success were increased sales and shorter sales cycle.
Note: This “want versus need” is an issue about
which we all need to be more diligent. I have seen and experienced situations
where the users or consumers of products or services and the providers were
quite a distance apart on this matter. I have found it tremendously enlightening
to get out from behind my desk and spend face-to-face time, one-on-one, with
users or consumers of products and services my organizations were providing getting
their feedback on how well we were providing value and meeting their needs. I
discovered significant issues and opportunities that never surfaced through
research studies or focus groups. Senior executives need to do more of this,
the perspective it provides is remarkable.
SOLUTION
We reinvented ourselves repositioning
our company or brand as being “partners” rather than merely “service providers”
and in so doing accomplished the following:
- Mitigated the threat posed by increased competition.
- Ensured that the clients’ objectives were clearly understood and always the pivotal influence on everything we did.
How we did it:
We reviewed the chain of
events that clients, in this case a software companies, go through to move a
product from a concept to a sale. We
identified what elements in that chain we were better suited to handle than the
client and redefined our value-add as being able to take these tasks from the
client allowing them to focus their resources on their core strengths.
This involved transitioning
from merely providing implementation services to working with the client to
develop their branding and marketing strategy and then taking ownership of the
client’s entire marketing program. A consulting division was added to our
company and tasked with working with the client’s leadership team, facilitating
branding and marketing strategy sessions, creating not only strategies but also
the associated tactics. From the client’s perspective, we became their
marketing department developing brand and marketing strategies as well as creating
the marketing assets.
This reinvention
successfully separated us from the competition in a number of ways:
- Our
company was repositioned as a leading provider of IT, more specifically,
software branding and marketing expertise. Software was the only market we
dealt in and, therefore, despite our small size, we had credibility that our competitors could
not duplicate… no one – at the time- was putting all their eggs in the IT
basket.
All new client relationships began with 1 or 2 day facilitation session held at the clients’ location with their senior executive team participating. During these sessions the client’s marketing and branding strategies would either be created, if none already existed, or reviewed and enhanced. The client’s willingness to accept our consulting involvement was predicated on their acceptance of the fact that because of our IT focus, which was further substantiated by our IT client base, we could bring a level of expertise and experience to these sessions that they could not get elsewhere. The irony was that we actually knew very little about computers or software. What we needed to know was easily acquired through the consulting and facilitation sessions with the client. However, we did understand marketing and branding which were the key values to be added.
Note: I find it interesting that so many organizations
continue to place significant importance on industry experience for recruiting
senior executives when industry knowledge is seldom, if ever, the issue or
challenge they face. In my experience, as the senior executive recruited to develop
and deliver growth strategies for companies operating in an array of
industries, understanding the industry and its products or services was seldom
my greatest challenge. As a matter of fact, often the greatest challenge I
faced when trying to get executives in underperforming organizations to take
risks and accept change was their inability to think out of the box and be less
inhibited by industry norms and accepted practices. This reminds me of
Einstein’s quote: “We cannot solve our problems
with the same thinking we used when we created them.”
- Essential to the success of this strategy was our requirement that we handle all elements of implementation, every nut and bolt. Our pitch to new clients was that the only way we could guarantee quality of deliverable was to be in total control of supplier sourcing and relationships, media buying, creative services, call-center operations, printing etc. If anything was taken out of our control, we could not ensure the quality or schedules. We strongly discouraged clients from wanting us to use their preferred suppliers. Surprisingly, with only one or two exceptions, all clients gave us total control over the implementation process.
- It separated us from the competition. We were in a league of our own. No one was in a position to replicate the turnkey operation we put in place.
- The consulting/facilitation service, which was profitable on its own, virtually guaranteed we would get to deliver the much more lucrative branding and marketing programs and created a significant barrier to entry for competitors.
- Consulting allowed us to bond with the client’s management team early in the chain-of- events leading up to the actual provision of their marketing services. By the time the client arrived at the stage (i.e. link in the chain) where they would normally make the service provider decision we had already secured our status as “partners” and had proven our “value-add” to their marketing and branding strategy. It was extremely difficult for competing service providers to get their foot in the door.
- In addition to the competitive benefits associated with the consulting services, taking ownership of a larger piece of the client’s marketing chain-of-events also created numerous barriers-to-entry. Competitors had very few client access points and when a competitor did identify a gap in the chain we could quickly close it.
- We avoided much of the anguish associated with the “race-to-the-bottom line” pricing competition that can occur when you are in a competitive market.
In should be noted that printing was a
significant ingredient of every contract. We printed very high end marketing
pieces. Some of which, capability brochures for example, could cost the client
$10 - $15 each. Clients spent hundreds of thousands of dollars annually on printing.
We relied on the services of only one printing supplier who handled all our
printing requirements.
I asked the clients: “Since printing
was such a major portion of the costs for their programs and knowing that we
only used one printer, why had they never asked us to show them competitive
printing bids?” Their response was that they rationalized the cost of doing
business with us against the totality of what we provided not the individual
parts. One client stated concisely what others had told me:
“I pay you
to take a large monkey off my back. Because of the scope of the services you
provide and the fact that you helped create the strategy that you are
delivering, I do not need to dedicate extensive internal resources to the
supervision of your contract. I can allocate a junior staff member to managing
our relationship with you and devote my more senior people to other tasks.”
Being able to project price versus service price greatly simplified managing our margins and provided flexibility in our pricing strategy.
Being able to project price versus service price greatly simplified managing our margins and provided flexibility in our pricing strategy.
- Regarding the client who wanted to drop us. With this new strategy, we were able to introduce innovations into their sales strategy which their sales force embraced and which resulted in reduced sales cycle times. The opportunity for these innovations would never have been identified much less introduced had we not been able to sit with the client and their marketing department as part of the team to review their strategy, identify issues, make recommendations and execute .
Richard Peters other case studies include:
Anatomy of a Turnaround
Ancillary Business Opportunities
CASE STUDY: OWNING THE CLIENT RELATIONSHIP
By: Richard Peters
Much of my business career has focused on getting under performing organizations
and their business units on a faster growth track. In these situations, an essential
piece of homework has been understanding the competitive playing field. Over
the years and based on exposure to a wide variety of industries, businesses and
products I have found there are few basic questions that when asked of a
management team can be very enlightening regarding the identification of competitive
issues, challenges and problems. Chief among these questions is “who owns the
client?”
This is not an uncommon question. We have all asked it in one form or another.
When I ask it, the discussion I am looking to stimulate centers around identifying
which supplier(s) the client values as a partner rather than a supplier. In
other words, from the client’s perspective, which competitor or competitors
position themselves as the client’s preferred call when they need something. The
company that owns this place with the client has a significant competitive advantage.
CASE STUDY – OWNING THE CLIENT
A few years ago, I was responsible for Trader Quebec which was a major
North American subsidiary of Trader Classified Media, a European based
multi-national media organization. Trader’s primary business was publishing classified
ads for used vehicles as well as boats, motorcycles etc. in a variety of print
and online media. Trader was the market leader in Canada with well over 150
magazines and dozens of websites. In Quebec alone, we produced over 50 titles
and operated 6 or 7 sites. As the market leader in Quebec, Trader enjoyed an
85% market share.
Competition in the classified advertising industry was intense. Trader
was competing against all major Canadian newspapers as well as dozens of
independent magazines, newspapers and websites. A key market for this business
was car dealers. In the case of dealerships, the selling process involved sales
reps from Trader and its competitors visiting car dealerships and with the assistance
of the dealership staff identifying vehicles to be advertised. The reps would
then photograph the target vehicles and get the relevant details on these
vehicles from the dealers. The photos and vehicle data would then be posted or
advertised using classified advertising websites, magazines and newspapers. Classified
advertising publications were published weekly and sold through thousands of
retail outlets (e.g. grocery stores, corner stores, car parts dealers etc.)
across Canada. In Quebec alone we distributed our publications through
approximately 3,000 locations.
Trader and its competitors followed the same model for gathering
classified ads from dealers. In any given week, some dealerships, especially those
located in or near major metropolitan centers could be visited by numerous sales
reps representing multiple media organizations. As long as a competitor could
convince a dealer that they had the ability to provide the dealers with access
to potential car buyers that the dealer would otherwise miss, the dealer was
willing to spend money with them. Despite Trader holding a significant market
share advantage (e.g. In Quebec we estimated that we had 85% of the used car
advertising market) competitors were successful in taking ad dollars from us.
Dealers could be required to commit quite a bit of time to managing visits
made by numerous sales reps weekly. While no individual competitor was a
significant threat to Trader in terms of sales volume or market share, the
extent of competitive activity caused problems and challenges in a number of other
ways:
- Dealers’ were showing signs of sales call fatigue.
- Pricing wars, that always develop when the competitive field becomes over populated with new players, were eroding margins.
Increasingly we saw our competitive advantage being threatened. In
addition to eroding margins, this competitive climate was also driving up our
cost of doing business. In proactive and reactive modes we were constantly required
to differentiate our offerings by introducing online and print product
innovations. Despite these challenges, an even greater concern was our
relationship with the dealers. Customer service was a pillar of our marketing
and brand strategies. Erosion of this pillar was being threatened by the
relationships being established by competitors.
The Trader organization decided to convene a North American Task Force
to investigate the situation and to make recommendations regarding what action
could be taken to mitigate the threats. I was asked to head the task force
which comprised representatives from Trader’s North American Head Office and
all seven of Trader’s North American regional operations.
After several months of study and research, the Task Force submitted the
following recommendation for Trader’s first North American wide online integrated
program comprising its 7 regions.
Recommendation:
Trader must put in place a barrier that would ideally eliminate and
definitely minimize the opportunity for competitors to develop and cultivate
client relationships. Accomplishing this would require Trader taking control of
client relationships.
Action Plans:
A. Trader needed to introduce a new service to Canadian dealers that would motivate the dealers to empower Trader to assume responsibility for their classified advertising programs. This plan comprised:
A. Trader needed to introduce a new service to Canadian dealers that would motivate the dealers to empower Trader to assume responsibility for their classified advertising programs. This plan comprised:
- Trader providing inventory management services to the dealers. Under this plan, Trader would maintain, for each dealer, the photos and records for their entire used vehicle inventory.
- Trader would become the dealers’ sole provider of photos and data to whomever the dealer authorized access. If a dealer wished to advertise any of their inventory using a competitors magazine, newspaper or website, Trader would be notified and would provide the photos and related data to the competitor.
Outcome:
The strategy was implemented and was successful. It weakened the competitors’
ability to secure and nurture client relationships and it strengthened Trader’s
ability. In its first year approximately 2,000 car dealers across Canada signed
up for the program. In Quebec alone, we signed almost 800 dealers in the first
6 months. The strategy’s success was also contingent on the cooperation of competitive
media organizations and while there was resistance, the dealers liked the
program and their pressure on the other media organizations to cooperate went a
long way to ensuring the strategy’s success.
Pre-existing Client
Relationship Environment
Trader Media
Competitor A
Competitor B Dealerships
Competitor C
Competitor D
New Client Relationship Environment
Competitor A
Competitor B
Trader Media Dealerships
Competitor C
Competitor D
Anatomy of a Turnaround
Ancillary Business Opportunities
Achieve and Maintain Competitive Advantage
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