Oh, they’re not a competitor

Shortly after I became the head of strategy and multi-channel marketing at The Neiman Marcus Group I was asked to lead a strategic planning session for our senior executives. One of the exercises I suggested was a deep dive on our opportunities and vulnerabilities against each of our key competitors. As I reviewed my overall plan one of the top leaders responded, “I like the overall approach, but you need to take Nordstrom off your list. They’re not a competitor.”

Having come to Neiman’s after 12 years at Sears–which I affectionately call my journey from the outhouse to the penthouse–I will admit that my experience in the nuances of the luxury industry was pretty lacking at that point. I certainly understood that a substantial percentage of our customers were fabulously wealthy and preferred brands that you simply could not get at Nordstrom. But I had already learned that many of our shoppers were much less affluent and that we sold quite a few brands that overlapped. Nevertheless, being the new guy–and not especially confident in my hypotheses–I acquiesced. We didn’t talk about Nordstrom.

About a year later my team initiated an in-depth analysis of customer spending and activity trends. Ultimately what we found was pretty disturbing. While our very top spending group was growing in sales and margin rate, customers that represented about 2/3 of our sales had weakening stats.

As it turned out, virtually all our sales growth during the preceding 5 years was driven by raising our average unit prices and the growth of our e-commerce business. After much hemming and hawing about the value (and cost) of doing consumer research, we finally got approval to do a series of studies to understand the underlying drivers of these outcomes. We learned a lot, most of which Neiman’s failed to act upon until the financial crisis hit. But the overwhelming conclusion was that when we lost customers (or a portion of a customer’s spending) the majority of that leakage was to Nordstrom.

Oops.

The point of this story is not to point out the limitations of the Neiman’s culture at that time, nor the power of my intuition. The fact is you don’t have to do much digging to find similar examples of mis-reading the consumer and failing to respond adequately playing out, over and over again, in any and all parts of industry.

Sometimes competition is rather direct even when there is a major value proposition innovation. Flash-sale sites clearly competed for a certain segment of the fashion business. Digital books and music obviously challenged the underlying business models of Borders and Blockbuster.

Sometimes competition might be less direct and its game-changing impact may be harder to glean at first. I’m not sure what the brand management teams at Folger’s and Maxwell House were thinking during the initial growth of Starbucks, but it’s now clear that there was a dramatic consumer preference shift that those brands failed to address–and a huge value creation opportunity that they didn’t participate in.

Even harder to see is when consumers have a more macro-substitution effect. For example, with some consumer segments, we’ve seen a broad and long-term trend to greater interest in personal experiences. This shift has, in many cases, supplanted spending on certain physical goods.

As in most elements of good strategy development the keys are pretty simple:

  • Clearly articulate a data-supported and trackable customer segmentation scheme
  • Stay current on the wants, needs and long-term value of each of those segments
  • Monitor direct competitors and emerging competitors for EACH segment
  • Model impact scenarios for nascent opportunities and threats
  • Develop potential responses and testing plans under each of those scenarios
  • When the time is right test those responses
  • Assume the time is right much earlier than seems comfortable
  • Be prepared to compete with yourself.

And one more thing. If someone tells you “Oh, they’re not a competitor” you might not want to take their word on it.

In God we trust, all others must bring data.

 

Where were you when the middle collapsed?

In case you haven’t noticed, most markets aren’t growing much–if they are growing at all. In many cases your top-line only expands through stealing market share.

In case you haven’t noticed, it’s getting harder to garner even a modicum of attention. In a world where the amount of noise grows louder by the day and the consumer is deluged with information–and often overwhelmed by choice–if you haven’t amplified something remarkable you’re probably on a fast trip to the brand graveyard.

In case you haven’t noticed, average doesn’t work anymore. Good enough just isn’t.

More and more, success is found at either end of a continuum. At one end of the spectrum, you can go big, winning on scale, assortment, price, convenience and efficiency. At the other end, you can get small, intensely focusing on a comparatively narrow group of consumers and delivering a set of powerfully relevant and highly valued benefits.

More and more, a fundamental choice is emerging. Hazy value propositions, sort of good prices and one-size fits all strategies are losing steam. Trying to carve out a sustainable strategy somewhere along the continuum is becoming untenable. You need to pick a lane, to push toward one of the edges.

Eventually you’re going to get asked: where were you when the middle collapsed?

bridges_down_01

Out of an abundance of caution

With recent health scares and a surge in terrorism threats, we’ve heard many public servants justify their actions as being “out of an abundance of caution.” Of course what they really mean is “there’s virtually no chance anything bad is going to happen, but we’d all freak out a bit less if I do this. And, by the way, if anything remotely related to what we’re afraid of occurs, I’ve covered my butt.”

For many organizations outside of the government sector, making decisions “out of an abundance of caution” might as well be in their mission statement.

It’s out of an abundance of caution that we keep repeating old strategies and tactics hoping for different outcomes.

It’s out of an abundance of caution that we keep measuring and rewarding people the same way we have for years despite seismic industry shifts.

It’s out of an abundance of caution that we don’t budget for innovation.

It’s out of an abundance of caution that we keep hiring and promoting folks who look and think just the way we do.

It’s out of an abundance of caution that we’re afraid to experiment.

When government officials exercise overkill on precautionary measures at least they are trying to prevent large number of people from getting killed or injured.

When leaders in businesses or NGO’s do it, they may think they are being prudent. Yet in fact it’s an abundance of caution that is precisely the reason their organization is becoming more risky every day.

 

 

Wall Street’s simple, surefire–and mostly wrong–strategy to fix retail

Show me a struggling retailer and I’ll tell you what many Wall Street analysts will say is that company’s quickest path to new-found prosperity. Close stores. Or better yet, close a whole bunch of stores.

This was supremely evident with the frenzy that erupted on Twitter prior to JC Penney’s Analyst Day last week. Here’s a paraphrased exchange I had with one “famous”–mostly for posting photos of crappy Sears stores–Wall St. type.  Note: this is highly edited and paraphrased for brevity (and perhaps levity).

HIM: Penney’s is about to announce a bunch of store closings.

ME: I doubt it.

HIM: But they must close stores, lots and lots of stores!

ME: No they don’t. (I proceed to tell him why).

HIM: You don’t understand. They must close stores, lots and lots of stores! They need to have the same number of stores as Macy’s!

ME: That’s dumb.

HIM: You’re dumb.

The Analyst Day presentation concludes. Penney’s announces no store closings.

ME: I don’t want to say ‘I told you so’ but…

HIM: Hey, want to see my photos of really crappy Sears stores?

Now don’t get me wrong. Overall, the retail industry is over-stored. And the growth of e-commerce is causing a fundamental re-think of the number of stores a retailer requires, the size (and configuration) of these stores and how these stores need to operate. A contraction and re-working of gross retail space is inevitable.

But the knee-jerk reaction in favor of wholesale store closings is focused on the wrong problem. Struggling chains like Radio Shack and Sears aren’t in dire trouble because they have too much retail space. They are struggling because their overall value proposition isn’t working. If Radio Shack and Sears had a business model that was fundamentally sound, their needed store count overtime wouldn’t necessarily be dramatically different from what they have today. Show me a nationally branded, omni-channel retailer that is closing a lot of stores and I’ll show you one that is likely on the way to extinction.

What many on Wall Street often don’t get is that the cost of real estate for many of these established retailers is really quite low, making it easy for even chronically low productivity stores to be cash positive. And while Wall Street likes to cite the growth in e-commerce as the reason why store counts need to shrink dramatically, the reality is that for any decently integrated retailer, stores help drive the online business–and vice versa. Total customer and cross-channel economics need to be taken into account when doing a store closing analysis. When you do this analysis, along with the cash flow calculations, it turns out that closing a lot of store often makes things worse.

As for JC Penney, they are certainly far from out of the woods. They have a ton of work to do to refine and execute a merchandising and customer experience strategy that can regain share in an intensely competitive sector of the market. They are rightly focused on honing a new brand positioning and strengthening their omni-channel capabilities. My educated guess–having done this sort of analysis for other department store retailers–is that with conservative sales growth assumptions, only around 5% of Penney’s stores would be sensible candidates for near-term closure. Penney’s management is likely watching this list closely as they see how new strategies take root and they better understand the omni-channel effect.

For me, if Penney’s were to announce a large number of stores closings in the next year–say 75 or more–it wouldn’t be evidence that they are smart managers, it would be a sign that their overall strategy isn’t working.

 

 

Two kinds of big truck people

It’s hard to believe but I’ve lived in Dallas for ten years now. There are a lot of people driving big trucks around Big D.

I’ve noticed that some of these folks are keenly aware of how their choice in transportation affects other people. They don’t park in spaces that are clearly marked for “compact cars.” They take care to pull all the way into the spot so that their extra long cab isn’t sticking out into the lane or road. They’re also mindful that when they pull into a parking space to not park too close to the cars on either side.

Then there’s the other type.

Hmmm. Maybe it’s not really about the truck?

 

But first you have to believe

I’m all for market studies. And consumer research. And fact-based analysis. I’ve rarely met a 2 x 2 matrix I didn’t like.

I’m all for laying out reasonable hypotheses and putting together a sound testing plan. If I’m honest, I’m pretty solidly in the  “in God we trust, all others must bring data” camp.

But for me there’s no getting around this pesky little slice of reality. More times than not, the truly innovative, the remarkable, the profoundly game-changing, emerges not from an abundance of analysis and left-brain thinking, but from an intuitive commitment to a bold new idea.

More than a decade ago the folks at Nordstrom didn’t have an iron-clad, ROI supported business case when they made the big leap into investing behind channel integration. They believed that putting the customer at the center of what you do is ultimately going to work out.

Steve Jobs eschewed logic and conventional wisdom to pursue Apple’s strategy of “insanely great” products. He believed that leading with design and focusing on ease of use creates breakthrough innovation and customer utility.

Just about every successful entrepreneur adopts a strong and abiding belief in her product or service in the face of facts and history that suggest that, at best, they are wasting their time and money and, at worst, they are simply nuts.

On the other side–with clients and in organizations where I’ve been a leader–a lack of belief that getting closer to the customer is generally a good idea or that it’s okay to fail has resulted in an unwillingness to invest in innovation. Any meaningful action was predicated on a tight business case and, when that was lacking, it was easier to do nothing than to take a chance. All these brands are now struggling to catch up.

Obviously commitment to a belief is not, in and of itself, sufficient. Execution always matters. And there are certainly plenty of strongly held beliefs that are wildly misguided or morally reprehensible.

Yet, when I embrace the notion that just about every great idea starts with a belief not a compelling set of facts–or that often some people see things way before my logical brain can-the field of possibilities expands.

And I believe that sounds like a pretty good thing.

 

 

No customer wants to be average

It’s only when our experience is terrible that we’d settle for average treatment. But what customer truly wants to be average?

average person

Most of the time, we hope brands know us, show us they know us and show us they value us.

And to do that, companies need to break out of a one-size-fits-all paradigm.

It’s not easy. Which is why so many stores are still filled with average products for average people and our mailboxes–virtual and otherwise–are chock-a-bloc with largely irrelevant pitches and promotions.

It also feels safe, even though it’s anything but. Relying on newspaper circulars and big TV ad campaigns and “Super Saturdays” and the same promotional calendar we ran last year, may bathe us in the warm water of familiarity, but more and more mass marketing strategies are delivering less and less.

Getting closer to the customer–making the choice to treat different customers differently–needs to be more than a slogan. It means busting the silos that get in the way of a unified and seamless experience. It means investing in deeper customer insight and the tools and techniques to deliver progressively more personalized interactions. It means embracing a test and learn mentality.

Mostly, it means radical acceptance of the reality that, for most brands, the only way to grow faster than average is to eschew the average.