Where Walmart Went Wrong

walmartlogoSince Walmart’s recent announcement that they were closing a bunch of stores, pundits have chimed in about what’s wrong. A recent article at Forbes.com entitled, “Walmart’s Outdated Management Style Is Failing Customers,” suggests there is something wrong with their ability to connect with the customer. I agree and that is not due to an outdated management style, but rather a failure to follow Sam’s vision and original management style.

I believe, based on a large amount of observational research, that Sam’s requirement that he and his senior management team spend time in stores kept them connected to customers and employees. It is my belief that this practice has faded over the time since Sam died to the point where it is almost non-existent.

The Forbes.com article ends with this line: “Apparently, the managerial revolution that has swept the American enterprise world missed Walmart.” Wrong and worse. It was alive and well and a tenant of Walmart until Sam passed. Now Walmart, like too many other companies, pays lip service to focus on the customer. As my late friend George Nelson used to say: “NATO: No Action Talk Only.”

The fix is easy to describe, but takes a strong re-commitment to make it happen. Sears in its heyday was customer focused. They lost that construct many years ago, and Walmart took their place as America’s Retailer. Now Walmart is forgetting. Who will step into the void? Amazon maybe?

Simple phrases like “employees are our most important asset” and “our focus is on the customer” are easy to say. Harder to deliver. Like with politicians, talk is cheap.

Perhaps another indicator of Walmart’s change can be seen on the vendor side as well. Walmart has always focused on making sure their vendors remove costs that don’t add value so Walmart can deliver the best value for their customers. They also were one of the only “big box” retailers who didn’t push for promotional money, distribution center funding, stocking charges, etc. They were straight up merchants. Not so anymore as they are starting to push for some of these fees (and similar) from their merchants.

Too bad, as they seem to be following in the footsteps of other formerly great retailers, which are now a shadow of their former selves.


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Oh How Things Have Changed

There was a time in the not too distant past when Fed Ex was the gold standard for delivery reliability and customer service. Those days are gone and, as most customers likely have experienced, they “aren’t what they used to be.” But then competing against USPS and UPS isn’t really that hard given their standards.

However, the Post Office still lives by “neither rain nor sleet nor dark of night.” Apparently Fed Ex does not. Today we asked Fed Ex to pick up a package from our office. They said they could not due to the area being closed off for the Super Bowl. Really, we were calling from our office to make the request. While we are about a mile from Levi Stadium, there is no road closure in effect and the USPS delivered just fine.

Fed Ex told us to bring it to them. Too bad, they were great once.


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How To Effectively Organize Your Research Activities

Most organizations collect information about their environment in a multitude of places, and usually they are not coordinated. Further, often these research efforts are incomplete. Yet it is obvious that without information about your business environment, you can make no rational development or resource allocation decisions. You are in effect, flying blind…which can only result in a crash. A comprehensive, organized, coordinated information collection (research) effort is thus the very foundation of an ongoing enterprise and of its value acceleration.

To make rational decisions about your business, you need detailed information about your own organization outside of your business unit and information about the external environment.

The internal information you need to collect centers around what other business units are developing, funding and selling. You also need to understand in detail exactly where (channels) and how (terms) they are selling both current products and “futures” (inducing their customer to invest in future directions.) Without this understanding you risk a) competing for sales with other business units in your own company, 2) missing out on complementary sales with other units, or c) losing sales because you could not coordinate with other units to offer a complete customer solution.

The external information you need centers around six areas: the market itself, competitors, solution alternatives, customers, channels and “general” or “other” factors.

Clearly you must understand your market in terms of its size, segmentations, segment characteristics and drivers, segment growth rates, barriers to entry, and so on. You must also obviously have a clear understanding of your competitors. Start with a clear-headed list of just who they are—you may learn that you have more than you think if you define them as firms that satisfy the real need that the customer is satisfying, rather than just firms that make similar products The you must have a detailed knowledge of their strengths and weaknesses along many dimensions: management, channels, financial, manufacturing, technology, human resources, geographic, just to name a few. The point is that you must know everything about them. You also need to identify new competitors on the horizon and have an equally detailed understanding of them. You keen to know how your competitors are viewed by your existing and desired customers from all the angles that are relevant to them. Gathering a complete understanding of your competitors is a big task.

Another area that requires detailed understanding is that of alternatives to your product in your customer’s mind. What other kind of product could they buy to satisfy the same need? Why don’t they now? What would drive them to? What are the factors affecting those drivers and how likely are they to materialize? And you have to do scenario planning for the possibility that they will in fact materialize.

A clear understanding of your customers should go without saying, but few firms truly understand them in-depth. For example, can you clearly define the attributes of your customers and those of your desired customers in an explicit way? What is driving their businesses, and how are those drivers changing? What is their cost to switch suppliers or to another alternate solution altogether? What are their buying patterns? What exactly is their buying process in terms of decision points, people involved, and value expected at various stages of it? (This is a big question, and its answer is the cornerstone of our sales methodology.) If your customer is an OEM, then you also have to understand these characteristics of their customers. too.

You must be able to define the characteristics of your channels explicitly. Channels are really special types of customers, and all the information you need about customers above, you need about your channels.

Finally, there are other influences on your business. Social, political, regulatory, international, economic influences, and so on. The extent that these and other factors play in your business varies by the business you are in, but there is no doubt that it is influenced significantly by at least several. Sea changes appear every so often in every business, and these must be analyzed and anticipated, too.

That’s quite a list of information that you must gather, organize, coordinate, analyze and disseminate appropriately. And we’ve listed only examples in each category above. Most companies have a market research function, and this function is a good place to start. See what you are doing there now, and expand it or re-configure is as necessary. But remember that this information comes from many places—not just the market research function. Everyone in the company who touches the outside world has something to contribute: marketing people, product managers, technical people, and so on, but most particularly your sales force. Your sales force—if they are good—will be a great source for more than just tactical information (competitors prices and tactics, for example.) Good sales people will have assimilated much of strategic value, too, in many cases.

What every company needs is someone in charge of gathering, organizing, coordination analyzing all of this information from all the places its generated in the firm. Our general term for this information is Environmental Influences (EI), and a thorough understanding of your EI is the beginning point for starting your company on its path to real value acceleration.


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A 67 cent Customer Service Fail

This is so silly it’s almost unbelievable. My wife bought an item from a vendor on amazon.com for $6.76. It was due to arrive on January 11. It didn’t. When I checked the tracking number from DHL (the vendor’s shipper of choice in this case) the DHL website said it was not a valid tracking number. (Rechecked just to make sure and went at the DHL site another way; same result.)

So I sent a message to the supplier asking what’s up. Shortly afterwards we got an automated response saying we would hear from them soon.

We heard back from them the next day telling us that the package had been misrouted and was being re-routed by the postal carrier and would arrive in 2-3 days. Fortunately, the item was not time critical, and they did respond fairly quickly. They also apologized for the mistake.

Then they wrecked the whole thing by telling us, “to make up for this delay, we have issued you a 10% refund on your order…”

Seriously, 68 cents? Yep, sure enough they have issued a credit for 67 cents to our account. Why? All they have done is show that nobody at the company actually cares or thinks. (And they didn’t even round-up to 68 cents either.)

We trust you put much more thought into your customer interactions than did this company.


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Are Your Customers Buying On Price?

“There is nothing in the world that some man cannot make a little worse and sell a little cheaper, and he who considers price only is that man’s lawful prey.”

I remember first seeing this quote by John Ruskin in a Baskin Robbins Ice Cream store when I was a kid. It stuck with me. I was reminded of this quote by several recent events.

Over the years as I have spoken to and worked with executives in many companies, one of the common questions I am asked is how not to compete on price. My answer forever has been that to not compete on price you have to understand what customers can buy from you they can’t get from anyone else, or at least don’t believe they can. This takes an effort to learn, but keeps you from needing to compete on price. And if your answer to the question is truly “nothing,” then the actual answer is the same as they can get from others but at a lower price. And if you can’t be profitable at that lower price, then either your company, or one or more competitors will cease to exist. Why would anyone want to pay more for the same thing?

All that being said, a common push back I hear from executives is that purchasing has all the power in companies and they only want to talk about price. Firstly, that is rarely true and if it is, in my experience those companies are in for trouble and you might want to serve their competitors instead. My best example of that is Ford vs General Motors. For many years it was common to be a supplier to only one of the so-called Big Three automakers as they wanted a supplier that could help them get an advantage. Thus, suppliers wanted to serve General Motors as they were the far larger company.

In the early 1990s General Motors appointed Jose Ignacio Lopez de Arriortua head of their procurement function. One of his first actions was to demand substantial (up to 25%) price reductions from GM’s suppliers. Many of the best ones moved to Ford. Over time, Ford surpassed GM as the premier auto supplier in the U.S.

Why do purchasing people focus so much on price? Simple: the management maxim which says “what gets measured, gets managed.” Too many purchasing people, still today, are measured on how much money they save the company year over year by price reductions. Nobody looks to see, at what cost.

Three recent examples come to the fore, one private sector and two public sector.

Chipotle suffered a 30% drop in sales during December of last year as a direct result of food contamination. That slide continues. They are closing all restaurants for several hours in early February to have an all hands meeting to discuss “food safety.” PR tactic I believe. It is fairly clear, in my opinion, that the root cause problem here was the food supplier. How much money did Chipotle actually save buying from the low bidder? Well none, or negative. How much of a bonus did the buyer get for his/her good work in finding the lower cost supplier and saving Chipotle so much money? (Unknown). And has anyone in procurement lost their job over this? (Again unknown).

However, it’s pretty clear that you will continue to get more of the behavior you reward. True with kids, dogs, and employees. How are you rewarding your purchasing people? How much power do they have in vendor selection?

My second example is Flint, MI. They have declared a state of emergency and the National Guard is helping pass out bottled water since their municipal water supply is contaminated with lead. How did that happen? Simple, two years ago the State changed water suppliers to save money. How much money have they actually saved? None or negative. Who’s been fired over this? Not sure anyone has. Who’s going to pay for this? The taxpayers of Flint for sure and probably of Michigan as well.

My final example is from here in Silicon Valley. They have been working since 2009 to upgrade the county hospital. The low bidder (though a firm with a good reputation) won the job for a bid of $290MM with a completion date of March 2013. To date the county has spent $347MM and the project is not finished. It looks like it will take another $100MM and a year to finish … hopefully.

An outside consulting firm (at additional cost) was brought in to review how this happened. Being politically astute (in my opinion) they did not fix the cost over-run on the contractor or the county directly. Their finding was that the county’s management of the project was flawed. (You think?)

Who’s getting fired over this? Nobody I suspect, and the taxpayers of Santa Clara County will be stuck with the bill.

How much is it costing your firm to reward purchasing for the wrong things? How are you dealing with customers who try to commoditize your products or services? What can customers buy from your company they can’t buy, or don’t believe they can buy from anybody else. The only way to stay out of the commodity trap is to have a useful answer to that question.


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How Much Is Marketing Really Worth To Your Company?

value1Well, there’s an often asked question. How do you answer it? We’ve seen and heard CMOs, VPs of Marketing, etc. scramble to create an answer to this question. Articles are written regularly on the importance of quantifying Marketing ROI and similar metrics. Since 2005, it’s been less “fun” to be a marketer because that’s about when all this accountability stuff started.

We have been kicking this idea around for a while. (Well since at least 2007 anyway.) And, of course, the first and most obvious question (at least to us) is what do you mean by Marketing? In too many companies what is really meant when the term “marketing” is used is the Marketing Communications/Branding/Social Media/Whatever functions that spend the most of the so-called “Marketing Budget.” Often time the question “what is all this doing for us?” is a proxy for the question “what is Marketing worth?”

While we accept that this budget and spend (though it should be an investment, but that’s another post) is potentially a large percentage of the total Marketing budget, it’s not where the leverage can be found. Apple spends a lot of money on the promotional side of their business, but as a percent of revenue, it’s trivial compared to others. Is that because their advertising/social media/whatever is so much better than everyone else? Not really, and certainly not anymore. Then what is it?

Simple, they get the true job of Marketing done right, so the backend (Marketing Communications) has less weight to carry. As we discuss in our book, Value Acceleration, Marketing’s responsibility is to “align the capabilities of your company with the desires of the marketplace.” So how much is doing that correctly worth to your company? We postulate the following answer:

Firms have a Market Value or Market Cap (MC). With publicly traded companies the Market Cap is easy to calculate since the stock price and number of shares outstanding is readily available. With privately held companies that are actively seeking investors (typically high tech companies, but not always) the Market Cap is simply the valuation at which they successfully raise money. With most privately held companies the Market Cap or Market Value is not readily known until it is time to sell the company. All that being said, the Market Value or Market Cap is composed of the current Net Asset Value (NAV) of the company and its potential future profits in net present terms, or the Present Value of Future Earnings (PVFE).

So MC=NAV+PVFE. If you accept that Marketing’s function is to “align the capabilities of your company with the desires of the marketplace,” then the PVFE is a direct result of doing that well. The costs associated with execution of that effort are ultimately subtracted from NAV. We then argue that the value of Marketing to your company is effectively the PVFE as defined by realizing that PVFE=MC-NAV.

You might argue that this is overly simple and ignores core capabilities a company may have developed over time in either R&D or Manufacturing for example. Fine, but if that R&D does not line up with the “future needs of the marketplace,” how valuable is it really? How is it being directed? On what basis are you making R&D investment decisions?

Or you might argue that your Manufacturing or Service delivery capability is world-class. Ok, that might be true. And again, how did you decide what aspects of Manufacturing or Service delivery at which to become great? How did you decide how to “align that capability with the desires of the market?”

One might suggest that we are describing strategy and its execution. Ok, but in strategy execution after you identify the goal, then the strategy must:

  1. Leverage what your company is great at
  2. Take advantage of what is going to happen outside your company that will help you (It might be argued that for some companies these external factors might over-ride anything else the company can do to help itself. The might be access to resources factors that favor the company, or access to exclusive markets, etc. We except these anomalies that prove the rule.)
  3. While mitigating your weaknesses and those external factors that work against you
  4. To create an approach that aligns with the desires of the marketplace.

As we note in our book, Marketing, as we define it, is the source of competitive advantage.

How’s your Marketing function stacking up? Is you company worth a lot more than its NAV? It’s unlikely you can make a huge impact on the perception of future earnings from promotional activities alone. As Yoga Berra once said, “If people don’t want to come out to the ballpark, nobody’s going to stop them.” What is your Marketing function doing to make sure “people want to come out to YOUR ballpark” today and tomorrow?

Mitch & Ralph

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The Ultimate Selling Machine

I am not really supposed to use that term anymore according to my friend Ted. He used it back in the 1980s based on feedback and the use of the term ultimate selling machine by the CEO of Singapore Airlines, to describe Ted’s approach.

Since then Ted has continued to refine his Matchmaker’s Triangle to help sales people get the results they need, want and demand. He is mostly (but not completely) retired and living down in Costa Rica. Aside from working with one or two clients, I coerced Ted into writing his ideas in a blog, he calls The Matchmaker’s Triangle (ok, I came up with the name for the blog based on his life’s work).

Anyway, if you visit the blog you will gain a lot of insight’s into Ted’s thinking and approach. He is not about training you. It’s about him telling you a lifetime of stories about how he went from a good for little (not nothing), trouble maker in Sioux Falls, SD to a successful career in sales followed by an even more successful career in helping others execute on their potential by changing their thinking.

This post in particular will give you good insights into Ted’s thinking and learning about sales.



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