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In my last article, I discussed ways that brick and mortar businesses can compete with hyper efficient online counterparts.  Today, we flip that thinking on its head and look at ways digital businesses can compete with brick and mortar.

Many online businesses don’t worry too much about brick and mortar competitors, but many of you should be worried. 

Why?  As an online provider of something that customers can obtain through other channels, you have some serious disadvantages.  Digital businesses have some outstanding advantages, as well, but ignoring the dynamics involved can lead to poor marketing strategy.

As digital businesses compete with brick and mortar, they must consider why customers decide to purchase through a particular channel.

First, what are the economics involved? Online businesses usually bypass middlemen, such as distributors and retailers.  The cost of analyzing data and targeting customers is also, obviously, going to be lower.  Many online businesses pay a great deal of attention to shipping cost.  The cost of shipping product to the customer, however, may be small compared to the cost of getting a product into brick and mortar retail.  Finally, since a digital business is fully engaged in the online world, they may benefit from economies of scale in advertising and shipping.

Traditionally, online businesses stack up these advantages in cost and use them to offer similar products at lower prices.  

This attracts commodity customers, who are motivated by price more than other factors like quality, service and convenience.  Specialty customers may be harder to woo, because they are willing to pay a premium for service and convenience.

As a result, commodity buyers typically are the first and most loyal customers for the typical online business. Comparatively, specialty customers may be more difficult to obtain.  Furthermore, there are some costs that commodity buyers may examine which will create a disadvantage for online sellers.

How an online seller thrives within this dynamic revolves around the three areas where online sales are at a disadvantage.  Brick and mortar companies tend to succeed with customers who respond to these.

1. Customer experience

As noted in my last article, some customers in some markets place a high value on the experience they have in purchasing offline.  This may involve a relationship with a knowledgeable salesperson or the physical experience of being in a pleasant store.  The digital idea of “customer experience” (often referred to as Cx) usually focuses on ease of use.  The visually pleasing (or displeasing) aspects of a web page can also be a factor.  While these are important, online businesses need to remember that the digital purchasing experience tends to have fewer dimensions than the offline experience.  These differences make the experience “flatter”.  It’s similar to the way a three dimensional object is flatter when you draw a two dimensional picture of it.

The flatness of the online experience is a critical competitive tool for brick and mortar businesses. 

Currently most people don’t have the ability to touch and smell anything about you in a strictly online experience.  The most expensive efforts in user experience in the digital world are about decreasing this flatness.  An online business can provide video and audio experiences that simulate the abilities of a product or service, for example.

For commodity customers, this investment is largely wasted.  Commodity customers pay inordinate attention to a single dimension of the purchase:  the price.  Online offerings serve this dimension better, since price is just a number.  The main advantage offline businesses may have in this area involves physical adjacency.  I can put an even cheaper alternative next to something in a store, for example, to gain the customer’s attention.  Well-designed online offerings can do this, as well, but you are limited by the physical real estate of the page.  Alternatively, offline businesses have a much larger visual canvas to paint on.

With specialty customers – those who primarily choose to purchase based on non-price attributes – flatness can be a real disadvantage.  If you are targeting these higher-end customers, you can improve by investing in both traditional Cx and adding dimensions to the presentation.  The examples I cited earlier, video and audio, are good ones.  They cost much more than simply putting a picture on a store listing on your site, but they fill in important gaps in the experience which specialty customers may find critical.

2. Timeliness

Time is a big issue for online businesses, whether it’s an advantage or a disadvantage.  The advantage – especially with digital product and service offerings – is that you can literally deliver a product or service almost instantly to the customer.  In addition, customers can save time in locating products or services compared to offline approaches.  Obviously, they don’t have to physically move around looking for the things they want.

Clearly, the biggest disadvantage online comes when the customer buys a physical product or service which must be delivered.  Yes, shipping can be arranged and onsite service can be offered.  The inevitable delays involved, however, may diminish value for customers who seek – and are offered – instant gratification.

Some players are using or experimenting with hybrid sales models.  In this case, the product or service is selected and purchased online but then picked up in person.  In some markets, this is actually a higher value option than either pure online or pure offline operation, but there are costs involved.

3. Ease of interaction

When customers have any desire to interact during or after a purchase, offline players gain a lot by enabling a direct, face to face interaction with an employee.  This is sometimes faster than the same interaction would be online, and it is usually easier for the customer, who is likely more comfortable talking than typing.  In-store salespeople in brick and mortar businesses can also direct customers more intuitively and engage in more dimensions of communication, like gestures and body language.

Another difference is returns. In an offline environment, the return can be made directly during a customer’s next visit to the store. In the online situation, customers must repackage the product, and then make a special trip to ship it.  Some people may avoid online stores because of the inconvenience of making the return.  Stores like Eddie Bauer, make online returns easier by accepting them at their brick and mortar stores at no charge.

The three areas above are exactly the places where offline competitors will be likely to take customers away from an online business.  If you don’t pay attention to these, you will lose some sales that you could get.  That’s not always a bad thing.  Your strategy should clearly identify where it’s OK to lose customers.  Many online businesses, however, lose out because they don’t even look at the easy, inexpensive ways to be more competitive. 

There are a few things a business should keep in mind when considering these factors.

1. Always reduce the time it takes to select, buy and receive what you sell.

I constantly advise offline companies of the importance of customer cost (the cost of the sale to the customer).  It’s not just about the money that changes hands.  Sometimes the time involved can be a major differentiator, and it usually is when looking at different channels of purchasing.  Remember, you may be fighting against offline competitors who are offering instant gratification.  Consequently, anything you can do to be faster is likely to reward your customers.

2. Focus on delivering the highest value available through your channel.

In online environments, this means selection, speed of purchase and (sometimes) price.  But don’t overlook that you can, for example, add instructional videos and online analysis tools to your site.  You can do this with an ease that is difficult for your brick and mortar competitors to match.

3. Remember that some customers may simply prefer the features of other channels.

There are some markets – and some customers – that will always want to do things the “old fashioned way”.  Some shoppers, for example, gain pleasure from walking through certain types of brick and mortar stores.  Strategically, it’s usually best to just let these customers go, rather than wasting time and money trying to attract them.

In my next article, I’m going to look closely at the idea of flatness and how it can affect customer behavior online and offline.

How do you deal with the digital divide?  Does it affect your strategy – and should it?

Are you struggling as an online competitor competing with brick and mortar businesses?  If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  We also have a great understanding of how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

Dana Baldwin is Senior Strategist with the Center for Simplified Strategic Planning, Inc.  He can be reached by email at baldwin@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

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Many believe that brick and mortar retail shops cannot compete with hyper efficient online retailing with rapid delivery.  Although efficient online competition does make it harder to be profitable, brick and mortar stores can compete successfully.

One reason this idea is untrue is the inherent assumption that all markets are commodity markets, rewarding only those with the lowest prices.  The second assumption is that customers don’t value non-price factors such as customer experience and convenience.

For some customers, these issues aren’t worth the significant cost advantage passed on to customers that online competition offers.  For other customers, these issues can be critical.  If you are losing business to online competition, you need to understand what’s going on in your customers’ minds.

First, what are the economics involved? 

Direct online retail sales eliminate the cost of middlemen, the costs of distribution and retail operations, which are significant.  Advertising may be more efficient, as well, since the link from online ads and paid placement is much clearer when the customer buys online.  The cost of shipping product to the customer may be small compared to delivery fees to  brick and mortar retail.  In addition, larger online sellers can see economies of scale in advertising, operations and shipping.

Cost advantages make beating online competition more difficult.

These advantages often translate into significantly lower prices for some products when purchased online. Commodity customers, naturally, are likely to be attracted to lower prices, even when the cost of shipping is considered.  Specialty customers may be attracted by lower prices, and the availability of a wide range of products online.

So, what does a brick and mortar operation do?  Brick and mortar companies tend to succeed with customers who respond to three areas where online sales are at a disadvantage in many markets.

1.  Customer experience is a great way to beat online competition.

The customer experience is a valued part of the purchase in some markets, for some customers.  Walking into a greenhouse in the Winter to buy plants can be a pleasant experience for customers in colder climates, for example.  Likewise, some book purchasers prefer the experience of browsing physical books at a bookstore when shopping.  Online retailers simply cannot offer a tangible physical experience of an offline visit, and offline sellers can retain many specialty customers by paying attention to this experience advantage.

Obviously, online users may experience technical difficulties online, but it would be a mistake to assume that these issues are likely to remain (especially in the long term).

2. Timeliness will help beat online competition.

Online purchases generally involve some delay in receiving product, even with the most efficient shipping options available.  Hybrid sales – where the purchase is made online and the product is picked up in person – are a little better. Picking out a product and purchasing it immediately, however, has the lowest delivery time in most cases.  The main exception is when a brick and mortar retail operation has significant delays, such as cashier lines. Hybrid operations reduce these delays.  The  time advantage is important in many consumer purchases, and should be emphasized as much as possible.  Likewise, if your operation introduces delays that customers might find frustrating, it’s worthwhile to reduce or eliminate those.

3. Ease of interaction

Recently, I went with a friend to purchase materials for a home improvement project.  Neither my friend nor I are experts in this area, and we weren’t certain which approach to the project would be best.  A short conversation with a knowledgeable store employee enabled us to explore and examine the alternative materials and their features.  An online interaction can feature interaction (using chat or voice interactions with the customer).  Very few, however, can give the experience of both back-and-forth conversation and access to physical product for illustration.  In many markets, brick and mortar operations can use this combination to create advantage over online competition.

The three areas above are critical for brick and mortar businesses to beat online competition.

Likewise, online businesses need to be aware of these factors because they may drain some customers away from online purchases. There are a few things a local business should keep in mind when considering these factors.

1. Never make a customer wait to give you money – or anything else, if you can help it.

While this adage is focused on time, it’s important to remember that customer cost (that is, the cost of the sale to the customer) is not just about the money that changes hands.  Sometimes the time involved can be a major differentiator, and it usually is when looking at different channels of purchasing.  Every second a customer waits in a brick and mortar store makes the convenient delivery of a product in one or two days seem more attractive.

2. Focus on delivering the highest value available through your channel

If you can shake the customer’s hand, look them in the eye, and have a valuable conversation, you can do things an online retailer cannot do.  Likewise, if you are selling online, anything that can approximate that experience can make your offering more valuable and competitive.  In addition, the purchasing environment should be managed to offer a benefit to the customer in simply being there – whether “there” is your store or your website.  For brick and mortar operations, pleasant sounds, nice aromas and interesting spaces are difficult for am online retailer to replicate.  Tangibility – the ability to physically touch, examine and interact with some products – may hold value for some customers as well.

4. Remember that some customers may simply prefer the features of your online competition.

An example of this is my daughter, who just loves books.  While she may be forced to go to an online marketplace for some obscure title that she has to have, she prefers the experience of going into a bookstore and physically touching the books.  Brick and mortar booksellers thrive on this kind of customer, because the trip to the store can be a recreational activity for them.  Online booksellers may covet this kind of customer, but it would be expensive and, in some cases, even impossible to woo them away from their preferred channel.  Strategically, it’s usually best to let these customers go, rather than wasting time and money trying to be more attractive to them.  That’s the best way to compete against an online retailer.  

5. Ease the way from your advantage to a purchase

Many younger women  go to brick and mortar stores to try on clothing and accessories such as scarves.  Then they go home and shop on line to see if they can get better prices. Apparently they don’t mind waiting for delivery. The one thing they haven’t thought of is that there will soon be nowhere to go to touch, feel and try on these items if they don’t support the local brick and mortar stores. How can the local stores compete with this approach?  The key is to make it so much easier to move from trying on the product to buying the product that the cost advantage of purchasing online seems less important.  Another tactic is to offer products that do not have an easily found equivalent online.

In  my next article, I’m going to flip the table and discuss how the online seller can attract and keep specialty customers. 

How do you deal with the digital divide?  Does it affect your strategy – and should it?

Are you struggling with online competition?  If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings.  We also have a great understanding of how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

Dana Baldwin is Senior Strategist with the Center for Simplified Strategic Planning, Inc.  He can be reached by email at baldwin@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

So many industries face upheaval because of new technology right now that it’s probably easier to list those that aren’t.  Technology is changing our worlds in many ways, but I’d like to examine one that affects everyone:  market access.  This is simply the ability for you to connect with customers, and vice versa.

Historically, industries have used various methods of reaching out to customers, from door-to-door sales to direct mail marketing.

Here are just a few.

• Door to door selling
• Brick and mortar shops
• Distribution to retail in brick and mortar shops
• Telephone sales
• Specialized industrial exhibitions
• Direct mail marketing
• Brokering

Digital marketing increased competitive pressure for many companies.

In the past 20 years, many of these approaches got easier because digital technology helped us do some of the work.  However, once that happened, many of us saw market access get harder.  There are several reasons for this.

1. Easier market access lowered barriers to entry for digital competition.

It no longer takes a fully staffed office to get into many businesses.  Similarly, if you are an overseas company, you can get into a new market with a single representative handling it.  Some markets have seen an explosion of mom and pop and single person operations.  This creates confusion for the customers, since it’s harder to pick from 100 options than from 4.  It also tends to commoditize the market, as low-overhead entries don’t have the expenses of larger, established players.

2. Easier market access allowed commodity players to gain even greater economies of scale.

Data is perhaps the greatest economy of scale you can have.  Having useful insights is naturally worth more as your sales increase.  Additionally, formerly expensive “big data” analysis becomes accessible at a smaller scale.  It is easily in the reach of a rapidly growing, low-overhead organization.  Commodity players are usually the largest companies in their markets. Therefore, they know more about all customers, and are seen more by customers.

3. Alternative market access, such as online stores, became competitive.

Not only do we see more businesses with fully functional retail operations and shopping carts, but companies like Amazon, EBay and Etsy offer streamlined entry for people to shift to online sales.  In some industries – especially traditional retail markets with lower turnover and foot traffic – the online store or a hybrid has nearly replaced the brick and mortar shop.

4. Alternative marketing, such as search engine optimization, search engine paid ads, banners and email marketing became profitable for digital competition.

Having learned about, and focused on, non-digital marketing was a profitable tool for many industries.  The advent of digital marketing made competitors better able to access markets cheaply, and better able to target individual customers’ preferences.

5. Data analysis allowed even more specific targeting of segments of the market.

By making the data acquisition and number-crunching that is the heart of good marketing more accessible, new approaches to data analysis combined with online retail allows businesses to have even greater focus on specific customer groups.  For example, cat fanciers have several online options now, even though a brick-and-mortar cat-only store would only make sense in the largest cities.

6. Data availability removed the asymmetry of information that made some approaches profitable.

In some industries, certain players made money because they were the only ones who knew who all the customers were.  Today, there are very few places where you can make money this way, as a quick internet search will turn up all kinds of information.  In addition, your customers may also be able to figure out who your suppliers or competitors are, which can cause another set of problems.

7. Quantification of some customer preferences (especially price) made relationships seem less valuable.

The poster child for this phenomenon is the travel industry.  While some people are truly frequent travelers, others may travel once a year or less.  Those who travel less frequently (a sizable chunk of the market) often care more about price than their relationship with a specific airline, hotel or restaurant.  A quick search on a travel website will give you the lowest prices available in many markets.  This behavior is certainly behind the rise of discount airlines (such as Southwest Airlines), and makes competition more difficult for traditional airlines.

In our next article on digital competition, we’ll examine the key factors you can use to handle these issues – if you are a traditional company.

If you’re already fully digital, we’ll examine the places where you might see competitive pressure from traditional players.

Are you struggling with the changes in market access?  If you’re like most people, you’d benefit from having an experienced professional lead you through the strategic planning process, so you can focus on the content of your strategies.  If you’d like to explore how you could do this, please contact me at rbradford@cssp.com. Center for Simplified Strategic Planning professionals have successfully conducted thousands of strategic planning meetings, and have a great understanding of how to best use your planning time.  Consider holding a one-day workshop on Simplified Strategic Planning in the next few months to improve your results.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

Dana Baldwin is Senior Strategist with the Center for Simplified Strategic Planning, Inc.  He can be reached by email at baldwin@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

Human beings, it turns out, are both good and bad at anticipating the future.

We can accurately predict things that flummoxed people 100 years ago – like where a hurricane will make landfall, or the likelihood of a volcanic eruption.  We also can foresee the implications of some of our most pressing strategic decisions. However – and this is a big however – we often have difficulty acting on that knowledge.

We may anticipate the future, but often fail to act on that knowledge.

A good analogy to this occurred to me as I sat down to dinner at a restaurant recently.  As I surveyed the menu, my mouth watered at the descriptions of the dishes on the menu.  Steaks!  Fish!  So many things I like to eat, and even some that are healthy for me to eat.  Could I have ordered a salad, and felt truly virtuous?  Absolutely.  Did I?  No, I ordered a steak and fries.  I could have ordered more healthy vegetables or at least just roasted potatoes, but I did not.  I know, objectively, that having French fries is likely to be bad for my health.  I know that I may regret the cumulative effect of ordering fries instead of mashed potatoes, sometime in the future.  But what I felt, when I ordered them, was that I would enjoy them very much in the very, very near future.

Do we do this in business?  Certainly, we do.

First of all, we spend a little less on a computer or a service we purchase, knowing we may regret taking the cheap option later.  Secondly, we cut prices, anticipating greater sales, without realizing how much lower margins will be.  Third, we do things that make our current profits higher by damaging profitability in the longer term.

It turns out, this is partly the way we are wired.

Humans spent tens of thousands of years living in the wild before civilization made us safer and more comfortable.  An early human on the African savanna had to worry about getting enough to eat and about not becoming something for a lion to eat.  These primary survival issues rewarded people with quick reflexes who could act in the moment.  Strategic thinking about a lion that is about to eat you is not likely to help.

Today, however, we live in a world that is less urgent.

Sure, things seem to be moving faster all the time, because of technology – but very few people are eaten by lions these days. Because we are safer, and live longer, strategic thinking has become more important.  Our bodies and our brains, however, are stuck in the ice age.  We see “lions” in every competitive threat.  We worry about “starvation” when our sales tick downward for a month.  Never mind the fact that these threats aren’t nearly so life-threatening.  We still respond to them as if they were.  The physiological responses we have to imagined stress are every bit as real as if the threats were real.

In our businesses, there is a temptation to respond like an ice age cave man when we anticipate the future.

Kill the mammoth or you will starve, avoid danger or the lion will eat you.  And yet, objective analysis of most of these situations often tells us that no, we should be hunting smaller game.  And no, there are no lions in our offices.

One of the interesting things psychological research tells us is that we usually have a distorted view of how bad – or good – certain outcomes will be.

We are more scared than we should be of the scary things.  We are more eager than we should be for the easy prey.  Interestingly, there are many slightly scary things that we find completely unconcerning.  This is why people eat French fries and smoke cigarettes.  It’s not because we don’t know they are bad for us – it’s just that the badness seems so distant and unlikely.  So, we let ourselves be anxious about things that aren’t that bad and, strangely, don’t worry enough about little things that very well may kill us.

In your strategic planning, anticipate the future, but remember that there are no lions.

Certainly, there are threats, and some are scary.  Anticipation is a powerful antidote to many threats, though, and we can strategically take steps to mitigate the harm they may cause.  Equally important, we need to remember that it may be easy to see the big opportunities – but that means our competitors do, too.  We may dine better on a hundred rabbits than we would fighting a rival for half a mammoth.  Always, the question in strategic thinking should be “why do we think this way?”  and “is there any advantage to thinking differently”?

If you’d like to learn more about strategic thinking and more specifically the importance of anticipation, Simplified Strategic Planning is a great place to start.  For great ideas on how to improve the quality of your planning, contact me at rbradford@cssp.com.  Consider holding a one-day workshop on Simplified Strategic Planning.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

Dana Baldwin is Senior Strategist with the Center for Simplified Strategic Planning, Inc.  He can be reached by email at baldwin@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

 

There are almost as many definitions of customer loyalty as there are companies which try to build and sustain the concept. Some of the components are common, however. Let’s take a look at some of them.

The first component is dependability.

What do many companies mean when they strive to be recognized as dependable? In essence, it means simply that customers may rely on your word. If you say you are going to do something, you may be depended upon to actually do it.

Reliability is the second component.

Very similar to dependability, but the difference, while small, can be important. When you indicate you will do something, not only do you do it, but your customer can rely on the result. If you say you will deliver your product or service at a certain time, your customers will rely on that. The quality of performance will be as promised, and the costs will be as expected in your proposal or offering.

Third, quality and consistency are components of customer loyalty.

The quality of your performance must be as represented in your communication to the customer. Obviously, you shouldn’t promise one thing and deliver something different. Beyond that, you should deliver the same level of quality and service every time. Being a consistent supplier of a known level of quality and performance is a key to having good customer service. McDonalds delivers a known level of quality in its food and beverage services. The quality is good, tastes are consistent, and everyone knows exactly what they are getting. While it doesn’t compare in taste with high-end restaurants, people go there because they get what they expect.  Every time, McDonalds meets their customers’ expectations with expected consistency and at a price they’re willing to pay.

Finally, attitude is also a component.

The attitude that your people have towards your customers can make a significant difference in your customers’ perceptions   A pleasant greeting can go a long way towards influencing how your customers perceive your company. Someone who is grouchy can change a customer’s perception in an instant. Be sure that your employees treat customers with courtesy and respect.

While this is not an extensive exposition on customer loyalty, it does capture some of the essence of good service.

These characteristics encompass some of the key concepts which go into building customer loyalty. Be sure your performance is consistently dependable and reliable.  Additionally, you should include these key concepts in your internal training and education of your staff to build and reinforce them. You might also include them in your strategic plan as a part of personnel development and training.

I’d love to hear any stories of things that have led you to great success.  And – of course – if you’d like assistance developing these skills, please reach out to me for workshops, coaching and consulting assistance.  If you’d like to learn more about creating customer loyalty, Simplified Strategic Planning is a great place to start.  For great ideas on how to improve the quality of your planning, contact me at baldwin@cssp.com.  Be sure to take advantage of the Early Bird discount below.

Dana Baldwin is Senior Strategist with the Center for Simplified Strategic Planning, Inc.  He can be reached by email at baldwin@cssp.com.

An assumption I sometimes encounter is that strategic planning only yields predictable, middle of the road actions for a company.  Nothing could be farther from the truth.  Strategic planning sets an appropriate course for your business that maximizes growth-ability, profit-ability and survive-ability.  Sometimes that course stays in familiar territory, and sometimes the course can go far from where you started.

Why do we assume strategic planning tends to yield staid, tried-and-true solutions?

One reason is the emphasis most good planning approaches place on focus.  Focus keeps our attention on markets, products and services that we can address profitably – a good thing.  Unfortunately, focus can be taken too far.  When it is, it may prevent us from considering innovative strategies that fit our strategic competencies.  When examining focus, it pays to consider how much room for growth you have within the area of focus.  Furthermore, consider whether any true innovation is available to you in that space.

Another reason we assume strategy yields boring results is the sometimes “normative approach” many take to strategy.

If you only pursue strategies where there is great consensus in your team, you may find yourself limited to exactly what you are doing right now.  A strategic planning process that simply “rubber stamps” a continuation of the status quo isn’t really strategic planning.  It’s closer to operations planning.  To fight this, pay particular attention to innovative strategies that seem to inflame people’s passions, both for and against.  In addition, always give voice to the contrarians in your group – they may hold the key to an exciting future.

Finally, many people assume strategic planning doesn’t stimulate “out of the box” thinking.  This is because there is a strong tendency to stay focused within the box.  Too much focus on what your competitors are doing can do this.  Relying on outsiders from within your industry for strategic insight also keeps the focus within the box.  Always try to look beyond your industry for solutions, when you can.

Is there anything else we can do to assure our strategic planning gives us creative ideas and innovative strategies for your company?

There are plenty of other options, but the most important one is a clear-headed look at your company’s strategic competency.  Competency-based strategy can take your company to exciting new areas of innovative strategy while assuring you maintain valuable know-how that gives you a real competitive advantage in the marketplace.

If you’d like to think about a competency-based strategic plan that will deliver exciting innovative strategies while maintaining practical focus on implementation, contact us.  I’ll be happy to help you steer your company in the right direction.  As always, we’d love to hear of anything that has worked well – or not – for you.  For great ideas on how to improve the quality of your planning, contact me at rbradford@cssp.com.  Consider holding a one-day workshop of Simplified Strategic Planning.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

Dana Baldwin is Senior Strategist with the Center for Simplified Strategic Planning, Inc.  He can be reached by email at baldwin@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

How do food companies position themselves for growth as demographic growth slows?

Tyson Foods, for example, faced this dilemma.  Clearly, consumer preferences changed with a desire for prepared foods. Ultimately, Tyson knew that consumers were turning away from their traditional meat products and moving towards ready-to-eat foods.  They realized they had the basic ingredients, but could they turn those raw ingredients into a successful packaged foods item?

Tyson enters the packaged food category to accommodate this market trend

Although Tyson dominated the meat processing industry, it had difficulty gaining a significant toehold in the packaged good market.  Simply having the raw materials was not enough.  Therefore, they needed consumer market analysis along with new product development expertise.  After unsuccessfully trying to leverage in-house resources, they decided to acquire the talent and products with good market position to help them succeed in this space.  One of the acquisitions, Hillshire Brands brought the names Jimmy Dean, Aidells and Ball Park.  More importantly, the acquisition brought people with the “know-how”.  As a result, they acquired executives who understood consumer branding, consumer trends and new product development.  In addition to buying market position, the “know-how” of the talent acquired enabled Tyson to maintain and grow its position in this new category.

Lessons learned

Most importantly, analyzing external market trends helps you understand how to position your company for future success.  Consequently, these market trends may indicate that historically successful business as usual will not optimize your future results.  In conclusion, here are some of the important steps that Tyson took:

• Understanding market trends.
• Assessing how to position your company to be successful, given these market trends.
• Assuring that you have the skills necessary to be successful
  • If these skills are not available in-house, then you must acquire or strategically hire people to achieve your goals.

If you have questions on how your company can position itself for future success please call me: 910-763-5194 or email: harrison@thestratplan.com.  Furthermore, if you’d like to try a proven process, consider holding a one-day workshop on Simplified Strategic Planning.

To learn how else you could lose your way in the marketplace, click here.

Denise Harrison is a senior consultant for the Center for Simplified Strategic Planning, Inc.  She can be reached at harrison@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

 

GE Learns Its Lesson the Hard Way

Jack Welch transformed GE’s portfolio of businesses by concentrating on businesses that were number one or two in their markets. Businesses that were positioned to get to number one or two also qualified.  He did this because statistics show that those with significant market share are usually more profitable.  But is this always the case? This strategy does not work when you buy market share to get there.  If you lower your price to gain share, you may find yourself with a dominant market share and no profits.

For years GE used market share to decide to invest or divest.

In addition, it exited businesses that may have a good market position, but the business was no longer attractive.  For instance, when its plastics business no longer had a competitive advantage, GE sold the business to SABIC, ideally using the proceeds to invest in business segments that had not been pushed into the commodity space.

More recently, what happened to GE’s core Power Business Segment?

When business conditions declined (people moved away from fossil fuel), the power sector took on contracts with low margins.  Apparently, the leaders of the power sector chased market share without regard to the profitability of the business.  Now the power sector has a significant backlog of low or no margin contracts that will need to work their way through the system over the next couple of years.  The new CEO, Larry Culp has changed salesperson incentives to reward on margins rather than sales.

What Can We Learn about gaining market share?

While high market share typically indicates good profitability, it is important to understand the pitfalls and exceptions to this general rule.  As you develop plans to gain market share, be sure you look at the implications of your strategy on your profitability.

If you have questions about strategy development, please contact Denise at: harrison@thestratplan.com or call her at 910-763-5194.  Furthermore, if you’d like to try a proven process, consider holding a one-day workshop on Simplified Strategic Planning.

To learn more about Market Segmentation, click here.

Denise Harrison is a senior consultant for the Center for Simplified Strategic Planning, Inc.  She can be reached at harrison@cssp.com.

© Copyright 2019 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission

 

 

We all know that successful differentiation is the key to higher profits.  Unless you offer something that a competitor doesn’t offer, you will almost always get sucked into a game of “who can charge the lowest price”.  Unfortunately a lot of competitors know this, and are trying to differentiate in exactly the same way you are.  The predictable result is that you will all spend a lot of time, money and effort – and end up in the same place.  Your competitors are also spending on having better delivery, higher quality and better technology.  What can you do?

The simplest – and often most successful – approach is to look at the system in which your business operates, and work around it.

For example, if you are competing for retail space as a toy manufacturer, consider working around the entire paradigm by selling directly to consumers.  Alternatively, set up your own retail operations.  I’ve seen companies succeed at this by creating franchise retailing or direct marketing operations. In some markets  it can be incredibly lucrative. A good example is Lego. They sell through toy stores and other channels, and have their own stores in key markets.

Changing the game by offering something that seems impossible in the current system may allow you to offer irresistible advantages.

Ride-share services like Lyft, Grab and Uber did this by creating the ability to give rides as a gig rather than a job.  The advantages are huge for drivers, and the convenience offered to the riders is hard to ignore.

So, working around the system can be super profitable for you.  How do you start down that path?  Here are a few starting questions:

How do we – and our competitors – reach customers today?

How you reach customers, and get them to decide to buy from you, is one of the key places where almost every commercial system can and will constantly change because of technology.  If you are meeting customers face to face, via advertising or through your distribution channel, there are countless ways your business model could change to create a new system.

What indirect competition seems stronger because of changes in our market?

Indirect competition is often a clue about what customers really want.  The retail payment processor Square, for example, faced indirect and then direct competition from Paypal.  Paypal built its success on accepting online payments but then moved into low-volume credit card payment processing for retail.  One of Square’s responses was to create Cash, an app that bears some similarity to Paypal.  Cash, however is designed specifically to make cashless offline transactions quick and convenient.  By designing a system that was similar, but designed to be faster, Cash has made strong inroads in that space.  Cash has strengthened the Square retail presence, as well.

In the top 5 customer preferences in our market, are there any that cannot be improved within the current system?

Sometimes the existing system ends up being as optimized as it can be for key elements.  For example, in the toy market mentioned above, Toys R Us was dominant and larger than any of their competitors.  Toys R Us tuned their distribution network for efficiency and low cost.  Their market, however, is characterized by seasonality and fickle consumer preferences.  Walmart, tuned their distribution similarly.  This was great for cost-conscious toy shoppers, but awful for the specialty customers in that market.  The specialty customers angled towards boutique mom and pop retailers in search of higher quality toys that didn’t turn over well enough to survive in the cost-conscious mass retail markets.  We all know what happened next – the toy retail giant lost much of its volume and efficiency to Amazon and other online retailers.  Amazon uses an entirely different system to offer both large selections and low prices.  This is not the last market to fundamentally change in this way, even though you would not have guessed it would happen ten years ago.

What does our value stream and distribution network look like?

The value stream – the connected chain of businesses that create and deliver goods and services to end users – is a cornucopia of disruption possibilities.  Some companies, like carpet sales and carpet installers, are traditionally separate in the USA because of legal and insurance issues.  In many cases, though, we have to ask why this separation exists.  Is there a better system for getting the end product or the end result for the final customer?  If distributors only add value because of asymmetry of information, for example, technology offers us many ways we can bypass that asymmetry, and recapture that value for ourselves and our customers.  If you are a distributor – you must pay attention to the value that you add, for it is literally your lifeblood.

Ask some of these questions about your own business and your own industry – the answers will surely stimulate some good strategic thinking.  If you’d like our expert help in asking – and answering – these questions, contact me at rbradford@cssp.com.   Consider holding a one-day workshop on Simplified Strategic Planning.

To learn about Profitable Differentiation Value, click here.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

M. Dana Baldwin is Senior Strategist with Center for Simplified Strategic Planning, Inc. He can be reached by email at: baldwin@cssp.com

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Every so often, we encounter markets that are going through competitor consolidation.  Usually, this happens when someone convinces investors that the profitability of several players will be higher if they were one.  This approach usually leads to mixed results for the investors. The argument for consolidation usually hinges on the idea that higher market share is correlated with higher profitability.  Companies who aren’t in the larger group can feel quite threatened.

How can you defend your market position from competitor consolidation that looks like it will dominate your industry?  Here are a few general pointers that may help you think through the issues.

1. Competitors Consolidating rarely considers specialty and commodity behaviors

Simplified Strategic Planning teaches that targeting specific customer behaviors around price and uniqueness produces considerable profitability. The realities of competitors consolidating in any market often lead to a hodge-podge of companies that have no clear strategic focus. Furthermore, they have little or no consideration of specialty customers (who are willing to pay high prices for perceived value). Similarly, they have  little or no consideration of commodity customers (who prioritize low price over added value).  The combined company will have no clear strategy built around these powerful concepts.  It will almost always be vulnerable in the sub-markets characterized by specialty behaviors.

2. Most competitor consolidation is a nightmare of tangled strategies

Beyond the mixing of specialty and commodity strategies, the challenge of competitor consolidation is mixing widely different cultures and strategies into one business that is more profitable.  For example, if a company that relies on heavy R&D spending is combined with a company that favors building the distribution network, the internal conflicts can ruin any advantage gained.

3. Market power is one key to competitor consolidation profitability

To gain higher profitability from a competitor consolidation, you must use one of the advantages larger players have in a market.  One of those is market power – the enhanced ability to define market practices, pricing and other factors.  Sometimes, however, that market power fails to produce better profits.  This happens when management fails to exploit the advantage.  Often it occurs because market power is only real if it reduces choices for customers.  If customers have alternatives that fit their needs and preferences better, it can be very expensive to remove those from the table.

4. Purchasing power is another key to competitor consolidation profitability

The flip side of market power is purchasing power.  This is a very real factor in some industries, but in others, it’s largely ephemeral.  For example, I’ve worked in some niche industries where the price of steel has a big impact on profitability.  In such industries, you might assume that combined purchasing power can improve your profitability – but you’d be wrong.  The problem was almost always that the combined purchases of the entire market are inconsequential to the steel suppliers.  When the demands of a powerful, consolidated competitor are significant, it’s important to have a plan for maintaining competitive advantage.

5. The competitor consolidation strategy rarely preserves strong brand identities

Brand identity is one of the most valuable strategic tools any company has.  When companies with wildly different identities merge, the resulting confusion creates an opportunity for the smaller players outside the consolidation.  A strategy of matching that new weakness of brand confusion with a strength of clear identity has paid off.  It’s usually a fairly easy way to exploit the weakness of consolidated companies.

How have you met the challenges of competing in a consolidating industry?  Do you have fears that this may happen to you in the near future?  We are always excited to discuss the opportunities to build strong strategic position for your company in times of such market upheaval.  Contact me at rbradford@cssp.com to find out some tools that can help you come out on top.  Consider holding a one-day workshop on Simplified Strategic Planning.

For more on Strategic Competition, click here.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

M. Dana Baldwin is Senior Strategist with Center for Simplified Strategic Planning, Inc. He can be reached by email at: baldwin@cssp.com

 

 

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Disruptive innovation is not just something that is happening in many industries.

It is both a threat to companies that fail to adapt and an opportunity for companies that drive the disruption.  One of the most common issues in strategic planning is a failure to embrace disruptive innovation as an opportunity.  This failure inevitably will put your company in the position of being threatened by disruption, which is far more dangerous.

As an established supplier of some product or service, it’s much easier to see disruptive innovation as a threat.

Disruption is both more difficult and riskier than staying the course.  In terms of strategic planning, there can be a significant cost to changing strategy.  Also, what got you here is likely a very consistent and focused strategy.

In strategic planning work, I have found three questions we can ask that will highlight the disruptive innovation choices available.  When doing strategic planning, asking these questions, and formulating strategies, is likely to put you far ahead of any competitors.

The first question is “What are we afraid of?”.

The biggest obstacle to becoming disruptive is the natural human instinct to avoid threats and seek a safe space.  Unfortunately, there is no safe space in business.  We work hard to create the illusion of safety.  But the existence of disruptive innovation in many industries highlights the fact that anyone can be threatened.

By figuring out what we are afraid of, we can assess the effect that fear is having on our strategic thinking.  Also, we can assess the economic advantages some disruptive innovation threats may be bringing into our market space.  This both poises us for more courageous strategic thinking and suggests possible avenues for our own strategy.  Ask this question before you brainstorm and assess probabilities on page 4.4 of the Simplified Strategic Planning Manual (Perceived Opportunities).

The second question is “What are our customers excited about?”.

Disruption is most likely in situations where the market is excited about new developments that fundamentally improve the customer’s situation.  There would be no iPod if customers had not been excited about smaller devices that can hold lots of music.  There would be no Uber or Grab Lyft? if people weren’t excited about the increase convenience and efficiency of a crowd-sourced transport network.  Disruption inevitably follows customer excitement – and history shows that attempts to resist such disruption are expensive and inevitably futile.

The third question to ask is “What will fundamentally change what is possible with our product or service?”.

This question can unearth new opportunities for disruptive innovation that may not yet be visible.  Wireless digital cash transactions are a good example.  While they are increasing in popularity in the USA, the Chinese markets are far ahead in application of this technology.  In China, you can use services like WePay and AliPay (the most popular Chinese counterparts to Venmo and Cash) to pay for almost anything.  Flea market vendors, street performers and fast food restaurants accept these digital payments. One source estimates digital payments in the US currently are in the billions, and in China in the trillions.

In other words, how we spend money has changed in China, and that makes some new approaches to business possible.

Of course, if you are in banking or financial services, this would be a central strategic issue.  But what about airlines, retail shops and home services?  Can we create opportunities from the ability to do smaller transactions in a way that is both cheaper and more convenient?  In many industries, the answer is yes, and that change will enable new business models that don’t exist today.  Perhaps your industry is one of them!

How are you handling disruptive innovation in your strategic planning?  Do you see it as a threat or an opportunity?  Let us know – and ask us any questions you may have about how to handle it.  Consider holding a one-day workshop on Simplified Strategic Planning.

Read about How To Be The Threat, click here.

Robert Bradford is President & CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.

M. Dana Baldwin is Senior Strategist with Center for Simplified Strategic Planning, Inc. He can be reached by email at: baldwin@cssp.com

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