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.

 

The obsessive core

Every great brand has an obsessive core. The person who camps out for hours before the next iPhone is released. The Harley Davidson fanatic who sports the logo tattoo and is dressed head to toe in Harley gear. The frequent shopper who willingly pays full price and is an incredible source of great word of mouth. The raving fan. You get the picture.

The great thing about most obsessive core customers is that they are highly profitable and help acquire new customers at a low-cost. If you lack such a passionate group, chances are you are making average products for average people. Good luck with that.

Yet brands blessed with an obsessive core–or even a bit less enthusiastic but significant group of “heavy-users”–are often led astray.

Many luxury brands–including my former employer Neiman Marcus–tilted too heavily towards their obsessive core shopper and neglected other important, profitable customer segments. When the recession hit, the day of reckoning was harsh indeed.

Most high-flying e-commerce companies gain their initial traction with an obsessive core. By focusing on an underserved niche that loves to shop online, these brands can often quickly and cost effectively acquire thousands of profitable customers. Alas, as we’re starting to see with many companies that have attracted millions in venture capital funding, growing profitably beyond that initial core is not so easy.

Unfortunately, the factors that create the obsessive core, the raving fan, the incredibly passionate brand advocate, often cannot be scaled.

Unfortunately, in our quest to exploit the seductive virtues of the obsessive core, we can lose sight of the big picture.

The key, I think, is to not let ourselves become obsessed with this group, but to place them in the appropriate context.

 

Attraction, not promotion

If you are familiar with 12-step recovery programs you know that most employ the Eleventh Tradition of Alcoholics Anonymous, which goes as follows: “Our public relations policy is based on attraction rather than promotion.”

The obvious reason for this practice is that 12 Step programs have the anonymity of their attendees at their core. Moreover, AA–and its many spin-off programs–reject self-seeking as a personal value. But it goes deeper.

Most people do not wish to sold to or want to heed the clarion call of “pick me, pick me.” If I have to hit you over the head again and again with my message, perhaps you are not open to hearing it. Or maybe what I’m selling isn’t for you. Constantly reducing your price or pitching me all sorts of deals may be an intelligent way to clear a market, but all too often it’s a sign of your desperation.

12 Step programs are among the first viral programs to scale. They gained momentum through word of mouth and blossomed into powerful tribes as more and more struggling addicts came to be attracted to and embraced the lifestyle of successful recovery. No TV. No radio. No sexy print campaigns. No 3 suits for the price of 1. When it works it’s largely because those seeking relief come to want what others in the program have.

In the business world, it’s easy to see some parallels. Successful brands like Nordstrom and Neiman Marcus run very few promotional events, have little “on sale” most days of the year and have very low advertising to sales ratios. Customers are attracted to the brands because of the differentiated customer experience, well curated merchandise and many, many stories of highly satisfied customers. Net Promoter Scores are high.

Contrast this with Sears and JC Penney who inundate us with an onslaught of commercials, a mountain of circulars and endless promotions and discounts. How many of their shoppers go because it is truly their favorite place to shop? How many rave about their experience to their friends? Unsurprisingly, marketing costs are high and margins are low.

Migrating to a strategy rooted firmly in attraction vs. promotion does not suit every brand, nor is it an easy, risk-free journey. Yet, I have to wonder how many brands even take the time to examine these fundamentally different approaches? How many are intentional about their choices to go down one path vs. the other? How many want to win by authentically working to persuade their best prospects to say “I’ll have what she’s having” rather than keep beating the dead horse of relentless sales promotion.

Maybe you can win on price. Maybe you can out shout the other guy. Maybe, just maybe, if you can coerce just a few more customers to give you a try you can make your sales plan.

Maybe.

 

 

 

 

All in

There is no shortage of business bestsellers, insightful white-papers and Harvard Business Review articles regaling us with multi-point programs to drive successful growth strategies. Consultants abound–including this guy–pushing clever frameworks to guide your brand to the corporate promised land.

Best demonstrated practices. Core capabilities. Disruptive innovation. Business process re-engineering. We’ve heard it all.

Yet despite an abundance of knowing, there is a paucity of doing. The same companies with the same access to the same information–employing high quality, well-intentioned  executives–get widely (and sometimes wildly) different results.

Having spent more than a decade working in omni-channel retail driving customer-centric growth initiatives, I’m often asked which company is the leader in this space. I usually say Nordstrom.

I led strategy and multi-channel marketing at Neiman Marcus during the time Nordstrom began investing in customer-centricity and cross-channel integration. So I can spout chapter and verse about the differences between our approaches and all the opportunities we missed. But with Neiman’s announcement this week of their new customer-centric organization (better late than never!) there are a few key things to point out:

  • Neiman’s has a lot of catching up to do
  • We knew the same things Nordstrom knew when they aggressively committed to their strategy nearly a decade ago
  • Nordstrom acted, we (mostly) watched.

We can quibble about some of the facts and the differences in our relative situations, but when it comes down to why they are the leader and Neiman’s–and plenty of others–are playing catching up, it comes down to this:

  • Nordstrom had a CEO who fundamentally believed in the vision and who committed to going beyond short-term pressures and strict ROI calculations
  • They went all in.

In a world that moves faster and faster all the time, organizations are really left with two core strategic options: Wait and see or go all in. Most choose the former and end up going out of business or stuck in the muddling middle.

Going all in doesn’t mean investing with reckless abandon or rolling the dice. Most all in companies do plenty of testing and learning. But testing with a view toward scaling up or moving on is a sign of commitment and strength not uncertainty and weakness.

Going all in must start at the top, with an executive who is wired to say yes. An all in strategy is fraught with risk. Mistakes will be made. You need a boss who has your back.

Going all in necessarily requires a supportive culture, but without complete organizational commitment it’s not nearly enough.

Going all in doesn’t pre-suppose a journey without bumps in the road. All in companies know how to fail better.

Culture eats strategy for breakfast?

Commitment eats strategy for lunch, dinner and a late night snack.

 

Dead brand walking

The business graveyard is filled with brands that have gone from the lofty heights of recognition, stature and profitability to flagging relevance and, ultimately, complete extinction. For every long-standing, legacy brand that continues to thrive (think Kraft or Coca-Cola) there is a former high flier that is now gone (think Borders or Oldsmobile).

Sometimes companies are hit by a largely unexpected exogenous force that sends them reeling. More often than not, the company’s ultimate demise surprises no one.

For some of us–investors or potential employees, for example–the key is to separate out the walking dead from the exciting turnaround story or the metaphorical Phoenix.

For business leaders, the obvious implication is to become aware of the early warning signs of decreasing brand relevance, accept the need to change and take the requisite actions. The obvious question, of course, is why are there so very many strategy meltdowns?

In my experience, brands go from healthy to critical in one or more of three ways.

First, you can’t fix a problem you aren’t aware you have. Many dead or dying brands lacked a fundamental level of customer insight. So not only did they not appreciate their vulnerability early enough, they didn’t focus on the important things quickly enough.

Second, just because you know something, doesn’t mean you accept it as the new reality. When I was a senior executive at Sears–the poster child for dead brands walking–we had tons of evidence that clearly showed our weakening relevance and declining profitability in our core home improvement and appliance businesses. Did those that could have changed Sears’ destiny truly accept that without aggressively attacking these issues it would eventually be game over? Sadly, then, as it is now, the answer is “no.”

More recently, when I ran strategy and multi-channel marketing at Neiman Marcus, we had plenty of customer research and analytics that our strategy of narrowing our assortments and pushing prices ever higher was losing us valuable customers to Nordstrom (among others). Did we accept that it constrained our growth and made us increasingly vulnerable in an economic downturn? Fortunately the harsh lesson of the recent recession–and a new CEO–”forced” Neiman’s to address these problems before they became crippling.

Lastly, even with keen awareness and complete acceptance of new realities, we regularly fail to take the (often radical) action needed. This is mostly about fear. Fear of being wrong. Fear of looking stupid. Fear of getting fired. Fear of risking one’s legacy or resume value.

In fact, history teaches us that it’s far more common to see executives holding on to a mediocre status quo rather than risk competing with one’s self or making a big bet on that new technology or innovative business model that is ultimately used against them by an upstart competitor.

Frankly, if your inability or unwillingness to act on saving your brand is rooted in fear, don’t hire McKinsey or Bain (or me for that matter) to help you with your strategy. My advice would be to get yourself a new management team and/or go see a therapist. It’s far cheaper and more likely to work. And do this before your Board figures it out.

Dead brands almost never die by accident. They die by leaders failing to see the signs of terminal illness while there’s still time to save them. And they die by management teams’ inability or unwillingness to take the necessary and decisive action before it’s too late.

Hopefully dead brands walking can be a lesson to us all.

 

 

Neiman Marcus & Target: A glorious failure

“Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.”

-  Samuel Beckett

If you pay attention to this sort of thing, you know that several months back Neiman Marcus and Target made a big splash when they announced a partnership to jointly market a limited collection of fashion items for the holidays. This announcement was followed by a lot of PR hoopla and a high-profile television and social media advertising campaign.

And guess what? It was a bust.

The product offering failed to generate the sales frenzy that past designer collaborations from Tar-zhay have, and the merchandise has been marked down 50 – 70%. The media are now out with their post-mortem bashings, many taking the “I knew it was a bad idea all along” route.

Having previously led strategy and corporate marketing at Neiman Marcus for several years, I’ve gotten plenty of questions about my take on the strategy and its execution (NOTE: full disclosure, I remain a Neiman’s investor). Frankly, I think much of the criticism misses the mark entirely.

Clearly, a lot of the execution was messed up. Prices were generally too high, designer brands were extended too broadly and some of the product was just plain goofy: a $50 Rag & Bone boys’ sweater? That was never a good idea.

Big picture, however, the concept was fundamentally good for both Target and Neiman’s. Target is well-known for enhancing its fashion cred with such partnerships; so for them, this was a no-brainer. If they made any money on it, all the better. But the real value is in brand enhancement.

For Neiman Marcus, the strategic value may be less obvious but, in essence, their foray into “mass-tige” is no different from Karl Lagerfeld or Jimmy Choo doing their special offerings at H&M. The goal is to generate buzz and expose their brands to a demographic that they need to cultivate for the long-term. Forging a longer-term and/or more broad partnership would be dumb. But experiments, such as what was tried here, can be shrewd moves indeed.

Which brings me to my last point. What gratifies me the most is that Neiman’s actually tried something bold and, arguably, counter-intuitive. Neiman Marcus’ last CEO–and my former boss–Burt Tansky was a brilliant merchant and remains a luxury and fashion industry icon–and rightly so. But he was hardly a risk-taker and fundamentally not wired to say ‘yes’ to strategic innovation. Kudos to Karen Katz and her team for being willing to push the envelope.

It’s so very easy to label something a failure after the fact and to castigate management for its ineptitude. The far easier path for leaders of course is to never try. You rarely get criticized for the things you didn’t do.

It’s a terrible strategy to eliminate the possibility of failure. Great companies and great leaders are not characterized by an absence of failure.

Without trying, there is no growth. Without failure, there is no learning. The key is to fail better.

So was the Neiman Marcus and Target partnership a failure? In the immediate-term, definitely. But the overall grade from where I sit is “Incomplete.”

If the lesson Neiman Marcus takes away from this project–and it is a project, not a strategy–is to pull back on innovation, to stop experimenting, than it will be a huge waste of time and resources. If it strengthens their resolve, if they apply their learning to improve the process of innovation, than it will be the most glorious of failures.