Value Acceleration

When do you cross the line?

Posted by: Mitch/Ralph on: November 24, 2009

I have noticed a disturbing trend lately. A while back we published an article on value pricing, which questioned why value priced came to mean low-priced. Something is currently going on with some of the big box retailers that may backfire on them.

The big boxes all focus on driving costs down so they can keep prices low. Wal*Mart claims “Always the low price.” Nothing wrong with removing costs that don’t add value so the customer gets all they value they are paying for. However, in talking with several vendors to the big boxes recently there appears to be a trend to driving the price down, even if it means removing all or most of the expected value.

Clearly there are price points for everything. That is not what I am talking about. I am hearing that some of the big boxes are looking to hit a price point regardless of whether the product provides any real value at that price. The buyers for these retailers seem to be fixated on price points, not value at a price point. That is a trend that will not end well.

Mitch

What got you here, won’t get you there

Posted by: Mitch/Ralph on: November 18, 2009

In the October 25 issue of Business Week there was an interesting article about Dells’ Do Over. The focus of the article was on “How Michael Dell is trying to change almost everything about the company he founded.” Why? Because their business model will not get them where they seem to want to go.

A while back we wrote an article about business models, “Is Your Business Model Right for Tomorrow’s Market,” which you might find interesting. It’s free, and in context of what is going on at Dell, I suspect you will gain valuable insight.

Mitch

Walking the talk

Posted by: Mitch/Ralph on: November 17, 2009

Occasionally, Ralph or I go off on something on this blog that is not really marketing, sales, innovation or process related. Today is one of those days.

I was playing golf at Lincoln Park in San Francisco yesterday and I was struck by the hypocrisy of this city run golf course. (Excellent location, nice challenging short course that everyone wishes was kept in better playing condition, but that’s not the issue.) San Francisco prides itself on shouting about environmental issues and conserving resources. That being said, this course still uses gas-powered golf carts instead of electric carts. Why?

You might suggest that with the budget issues San Francisco is facing, now is not the time to replace golf carts. Probably so, but then they could have done so at any time over the last several years, if it was important to them. I suspect, as with many people, they think others should spend their money in certain ways, but they do not walk their own talk.

Mitch

The easy path to brand destruction

Posted by: Mitch/Ralph on: November 12, 2009

A great brand is a terrible thing to waste … or destroy. It can take decades to build a brand and months to kill it. The Holiday Inn was once a great brand. It was ruined because it became inconsistent. You had no idea what kind of hotel you might end up in when you selected a Holiday Inn.

McDonald’s went through a similar bout of inconsistency from which they appear to be recovering. In Ray Kroc’s day you could count on a McDonald’s to be a McDonald’s. That consistency began to slip away after his death and became very noticable in the 1990s. However, they do appear to have re-focused.

This brings me to today’s rant about the DoubleTree Hotel chain, which is part of the Hilton Family. I am writing this post from the DoubleTree in Farmer’s Branch Texas. This is not the first DoubleTree I have stayed at that can make you wish you could upgrade to a Motel 6. I’m not real picky about my hotels, but I do expect certain things from a business class hotel. A work desk (got one of those). Power outlets at the work desk. Well, not so much since the lamp and coffee maker are plugged into the only two there are. Not a big TV watcher, but I do like a modern selection of TV channels so I am not stuck only with left biased media (need some right bias as well to balance things out). Gonna get a big dose of one-sided bias for the next two days and will wonder what else is going on in the world when I get out of here.

And then there was the shower. I’ve not had a hot and cold shower like that in many a year. Random water temperature is great fun … just not what  I had in mind this morning. I was thinking about how long it had been since I had this much fun in a hotel room and I realized that the last time this happened it was at another DoubleTree. Is a pattern emerging? Could be, but I don’t plan to find out as I am taking DoubleTree off my acceptable hotel list.

BTW, one reason for this rant is that Hilton only gave me 500 characters to explain my issue to them. I told them to visit the blog since 500 characters wasn’t anywhere near enough. I’ll let you know if I hear from them. Remember, if you make it hard for your customers to complain to you, they will just complain about you.

Mitch

Two is enough

Posted by: Mitch/Ralph on: November 11, 2009

circuitcitylogoAs I tell readers in my book,  It’s Not Rocket Science: Using Marketing to Build A Sustainable Business, the world doesn’t really need more than two suppliers of anything. Circuit City learned that lesson the hard way when they collapsed in January of 2009. Best Buy and Wal-Mart appeared to be sufficient. However, there is often room for a smart new player who understands we don’t need the same thing again.

hhgregglogoEnter Hhgregg. Readers in the MidWest of the U.S. will recognize the name. The rest of our U.S. readers may soon learn about this electronics retailer. Founded in 1955, Hhgregg is taking the opportunity to expand in this down market and, in many cases, right into the closed Circuit City locations. Given that the electronics retail landscape is littered with failed companies from Circuit City, to Crazy Eddie to Good Guys, why do the folks at Hhgregg think they can succeed?

fryslogoDifferentiation, of course. It was hard to tell the difference between Circuit City and Best Buy at the end. Stores like Fry’s are clearly different from Best Buy and its stores thrive. What is Hhgregg’s focus? Hhgregg provides 280 hours of training to their sales people and pays them on commission. They are expected to KNOW about the products they sell and to take an approach to helping the customer buy what’s right for them, not to push products onto the customer.

bestbuylogoWith highly trained sales people, they can sell more of the higher priced products because they can explain the difference to the customer. They tend to focus on the higher end products. They have smaller stores and are more focused. Not quite as focused as the old Magnolia (now part of Best Buy’s in-store high-end boutique), but still more focused with much less space for DVDs and CDs.

Will they succeed? I don’t know. However, they have been around for over 50 years and seem to be pretty smart folks that are not trying to be a “me too.” That we like.

Mitch

You can still learn a lot from customers

Posted by: Mitch/Ralph on: November 10, 2009

dpsglogoDr. Pepper Snapple Group was freed from the confines of Cadbury last year and has been making up for lost time. In reading about them, there are lots of things to be impressed by and cheer about. They are focused on getting R&D close to the customer. Now there’s a novel concept. With an R&D budget 20x smaller than Pepsi’s they have to get it right more often. Being close to the customer usually helps.

MottsI was especially impressed with an idea they came up with to get kids to drink more juice. They found that parents were watering down Mott’s Apple Juice to cut back on calories. So they reduced the sugar by 40% and kept all the nutrition. Big win for everyone.

drpepperI have been a fan of Dr. Pepper for a long time and discuss one of their critical mistakes in my book, It’s Not Rocket Science: Using Marketing to Build A Sustainable Business. I love they are back in the thick of it. And, when it comes to advertising they seem to be getting some good advice. Their ad agency chief was quoted as saying, “Coke and Pepsi, all they have to do is remind you why you like the brand. Dr. Pepper has to tell you why you should drink this more.”

Mitch

If you make it fun … they will come

Posted by: Mitch/Ralph on: November 6, 2009

Theme restaurants, shoppertainment and other marketing ideas have been around for a while and some deployments have done well consistently. Others, sometimes not. The question is … if you make it fun will they come? We intuitively have thought so. Now, perhaps we have some proof.

With funding from Volkswagen, TheFunTheory.com has been “testing” some novel ideas about making things people normally won’t do fun to see you can modify their behavior. Things like taking the stairs instead of the escalator, recycling plastic bottles, and throwing trash in a bin rather than on the ground.

To see how it can be done check out these three short videos.

Mitch

Peter Drucker Remembered

Posted by: Mitch/Ralph on: November 3, 2009

A recent issue of the Harvard Business Review had a special section titled “What Would Peter Drucker Think?” focused on the current financial issues.  It was refreshing to see Drucker so fondly remembered in the HBR, where he had published many articles.  Drucker died several years ago, but he was THE management guru to generations of managers.  In recent years it has become a bit trendy to dismiss him as old hat and now irrelevant.  That’s ridiculous.  It’s like saying that Frank Sinatra is an outdated and irrelevant singer.

Drucker invented the field of management, and many of his insights are now part and parcel of what we take for granted in management—that’s hardly irrelevant.  Also, he was one of the few people who could consistently be 20 years ahead of their time and still be lionized during the present.  He was unique and will be missed.  We could do a whole lot worse today than to look back on his wisdom.

Ralph

Different Oceans Can Co-Exist

Posted by: Mitch/Ralph on: November 2, 2009

The September issue of the Harvard Business Review has feature article titled “How Strategy Shapes Structure.”  We’ll reprint its opening paragraphs here, with the issue we have with it in bold:

When executives develop corporate strategy, they nearly always begin by analyzing the industry or environmental conditions in which they operate. They then assess the strengths and weaknesses of the players they are up against. With these industry and competitive analyses in mind, they set out to carve a distinctive strategic position where they can outperform their rivals by building a competitive advantage. To obtain such advantage, a company generally chooses either to differentiate itself from the competition for a premium price or to pursue low costs. The organization aligns its value chain accordingly, creating manufacturing, marketing, and human resource strategies in the process. On the basis of these strategies, financial targets and budget allocations are set.

The underlying logic here is that a company’s strategic options are bounded by the environment. In other words, structure shapes strategy. This “structuralist” approach, which has its roots in the structure-conduct-performance paradigm of industrial organization economics1, has dominated the practice of strategy for the past 30 years. According to it, a firm’s performance depends on its conduct, which in turn depends on basic structural factors such as number of suppliers and buyers and barriers to entry. It is a deterministic worldview in which causality flows from external conditions down to corporate decisions that seek to exploit those conditions.

Even a cursory study of business history, however, reveals plenty of cases in which firms’ strategies shaped industry structure, from Ford’s Model T to Nintendo’s Wii. For the past 15 years, we have been developing a theory of strategy, known as blue ocean strategy, that reflects the fact that a company’s performance is not necessarily determined by an industry’s competitive environment. The blue ocean strategy framework can help companies systematically reconstruct their industries and reverse the structure-strategy sequence in their favor.

The article goes on from there to talk about how “traditional” strategies—those that come from competitive analysis—are different from disruptive strategies, and how different kinds of organizations are required to execute each.

We disagree with much of this line of argument for the following reasons:

  •  Even in a traditional, non-disruptive prone industry, there are many strategies other than low-cost or product differentiation that are available.  Channel strategies, for example, come immediately to mind.
  • The notion that disruptive, or “restructuralist”, strategies can’t come from traditional environmental analyses is wrong.  Both of us come from the high-tech industry where competitive/environmental analysis always included the disruptive threats on the horizon, and the firms in our industry were always re-making themselves to take advantage of them.  Indeed we explicitly include disruptive factors in our model of product/market strategy, the Customer Manufacturing System.  Disruptive factors don’t come out of the blue – they appear over a period of time and can be seen and acted upon.   
  • A structuralist approach to mature business lines can co-exist with a restructuralist approach to new opportunities in the same firm.  If an industry is always changing — frequently subject to what Christiansen calls the innovators dilemma—this kind of co-existence is a necessity, and is quite possible.  For example, a firm that managed the transition from mainframes to mini-computers to microprocessor-based computers is IBM.  An example of a firm that didn’t manage the transition is the old Digital Equipment: they failed to make the transition to micro-processor based computing.

Bottom line: we feel that the distinction between these kinds of strategies is valid, but the implication that a single organization can’t integrate both into its ongoing business model if flawed.

Ralph

What should your pricing strategy be in this market?

Posted by: Mitch/Ralph on: October 30, 2009

I was reading the business section of the San Jose Mercury today and found two side by side (well they were in a column so technically one was above the other) articles that struck me.

ProcterGamble_logoThe first was titled “Price cuts, new products boost P&G.” The article noted that P&G “sees budget conscious consumers … responding to price cuts and new products to give them more for their money.” P&G reported better than expected 1Q results. They cut prices by about 10% across the board and saw sales fall about 6% thus suggesting an increase in unit sales. Profit was off 1%, but that was better than expected. Their CEO’s stated goal was to win back market share and the increase in unit sales may suggest that is happening.

Colgate-Palmolive_logoThe second article was focused on a P&G competitor, Colgate-Palmolive. The title of the article: “Price increases lift Colgate in Q3.” The article started out noting that “…higher prices have continued to stick helping …[the] company post an 18% higher 3Q profit.” (To be clear the two companies are on different fiscal years but the time period of interest is the same.)

While Colgate may not be able to raise prices further, which company do you think is doing better?

Mitch