Thursday, May 3, 2007

Drop Anchor

Growing up in the city, I really did not have much opportunity to spend time around lakes that you could swim in. In fact, as a child, I could not swim. It wasn’t until I became a teen that I was able to move from being a non-swimmer to being a bad swimmer.

Not long thereafter, I had the opportunity to swim in a large lake. I wasn’t paying a lot of attention to where I was in the lake, until I suddenly noticed that I was nowhere near the shore and that the water was getting quite deep. I had no idea how I got out that far from shore, because I thought I was staying still in the same place near shore. I swam as hard as I could to get closer to shore. When I stopped, I realized that I was in the same place I was when I started that effort.

I could feel myself being pushed out further away from shore. My feet could no longer touch the bottom. If I didn’t do something soon, I figured I was a goner. So I tried again to swim with all of my might towards shore. I kept it up until I was completely exhausted and could do no more. Luckily, it got me just enough further in that my feet could touch bottom and I could walk the rest of the way to shore.

When I got to shore, I just collapsed out of complete exhaustion. I had no energy left. It was at that point when someone explained to me the concept of the undertow. Apparently, large bodies of water have undercurrents, called an undertow, which pull you out into the deep water. They are not so strong that you notice the push, but their steady pressure is enough to slowly push you out to sea. If you are not paying attention, they can cause you to drift far away from shore before you know it. Now they tell me. I wish someone had warned me of that before I had gone in the water.

If companies are not careful in observing what is going on around them, they can find themselves drifting into dangerous waters, just like what happened to me at that lake. The drift can be very subtle, and not immediately noticeable, because the force pulling the company is not strong enough to catch one’s attention. Had it been noticeable, the company could have reacted to it. By not seeing the immediate effect, over time the undertows of business can pull a company off course, and before you know it, your company is nowhere near its strategic intent.

As a result, companies need to firmly anchor themselves at the point where their strategic position is optimally located. In addition, they must constantly monitor their position, to make sure that the undertow is not pulling them off course. Otherwise, the company will exhaust its resources just trying to gain back its position, rather than use those resources to enjoy the fruits of being in the right place the whole time.

When it comes to finding a strategic position for your company, there are typically two types of choices. Either you can anchor yourself around a particular group of consumers or anchor yourself around a particular type of solution.

When you anchor yourself around a particular group of consumers, what you are doing is trying to build a strong bond between your brand and a distinctive group of people. As the needs and desires of this group evolve and change, the company evolves and changes in order to continue to meet their needs. For example, many companies have anchored themselves to the baby boomer generation. As that generation got older and its needs changed, these companies adapted in order to continue to serve the boomers. Companies that are strong into CRM (Customer Relationship Management) or Lifetime Value of Customer equations tend to be anchored around particular consumers.

The other alternative is to anchor yourself around a solution. The idea is to position yourself as the superior way to solve a particular problem. When people do not have that particular problem, you really don’t care about them. But on those occasions when the problem arises, you want them to choose you. An example would be a home improvement store like Home Depot. They are anchored on a particular solution—helping you complete a home project better than anyone else. If you are currently not doing any home improvement project, they really aren’t interested in you. If you are starting a project, then they are very interested in you, no matter what type of customer you are.

People drift in and out of various types of needs. Let’s look at grocery shopping. At the beginning of the month, just after being paid, one perhaps has the need of stocking up the house with basic groceries. Therefore, you look for the ideal stock-up store, one with a wide selection and low prices. Later on, when you need to replace the perishables, like milk and bread, you have a different need, requiring a different solution centered around convenience and freshness. If you are planning on having a fancy party at your house, you have yet another need, requiring a different solution which may have more to do with food quality and service. If, at the end of the month you start running out of money before you run out of meals to prepare, you might look for a store like Aldi, which may not have the greatest selection or quality, but will fill your tummy for least money.

The point is that a single individual can be many different types of customers, with distinctively different needs at different times—even for the same product, such as groceries. It would be extremely difficult for one store format to ideally meet all of these different problems for the same individual. If a grocery store tried to meet all of those needs, it would probably never be the best solution for any of those problems, and it would never be the ideal choice. So instead of targeting the entire individual, the store formats pick a solution. When the customer is in need of that solution, the format is the ideal best choice and will be chosen. When the customer is not in need of that solution, they will reject the format. But that’s okay, because it gets chosen enough for the set of problems it is solving.

The problem occurs when one does not anchor the firm either on a particular solution or a particular customer. The undertows of life will cause to drift into no-man’s-land so you to not stand for either, and you will fail.

Sometimes the choice of where to set your anchor can be difficult. Take MTV, for example. For many years, they have focused on a solution—being the best entertainment option for teens. MTV would build strong loyalties to groups of teens who loved the brand. As the teens got older, MTV could be tempted to stick with these now twenty-somethings with whom they have built strong loyalties. However, MTV has stuck to their anchored solution and said good buy to these customers to go after the next batch of teens. This has worked well for MTV until very recently.

The newest batch of teens have decided that many of the web 2.0 companies such as My Space or You Tube are a superior entertainment option for teens over MTV. So when MTV abandoned its latest group of twenty-somethings, the next batch of teens did not line up at MTV to take their place. MTV failed to see that the undertow was pulling them away from where the current teen entertainment solutions were. Now MTV is in some difficulty.

Because of these kinds of risks, some companies are afraid to put their anchor down solidly in one location. There is the temptation to hedge one’s bets by trying to attract multiple consumer groups and or solutions. As risky as putting down an anchor in one place is, it is far more risky to drift around trying to be too many things to too many people.

Two struggling retailers help to point this out—the Gap and the Limited. When the baby boomers were young adults, they patronized these stores often and made both brands very successful. However, as the boomers got older, these retailers were faced with the MTV dilemma: do you stick with the boomers and follow them as their clothing tastes change or do you try to be the best solution for a youthful customer?

For the Gap and the Limited, it appears that they did not firmly plant an anchor in either location, but instead tried to drift between the two. They wanted to keep the older boomers yet still be relevant to younger generations. By not choosing a single location in which to anchor, both firms drifted out to sea, much as I did in that lake. Before they knew it, they had lost their footing with either camp and were swimming as hard as they could just to keep from losing even more ground. They have exhausted all of their efforts without getting much of any benefit.

Now the Gap is trying to find new management to get them back on course and there are rumors that Limited Brands is trying to sell the Limited stores division. Choosing where to anchor can be difficult. It is not easy turning your back on those who are not interested in where you plant your anchor. Yet, if you try to get too greedy and go after too much, you can end up with much less.

Strategy is about making choices about what you will stand for. This is not always an easy task, because when you choose to stand for one thing, it means you no longer stand for something else. Choosing where to anchor your position is very important, because it helps you to make the proper decisions about which trade-offs to make in order to be superior at something. An unanchored company tries to do too much and does not make enough trade-offs. As a result it drifts away from any type of successful position.

Sometimes the drifting is slow enough that you do not notice it at first. By the time you notice it, you could find yourself so far away from where you thought you were, that you might not have enough energy or resources left to reclaim your position. Therefore, one needs to constantly monitor where you stand with your customers so that you continue to be relevant.

In many ways, a strategist is like a lifeguard. Lifeguards scan the environment to see if swimmers are drifting into dangerous waters and then quickly try to bring them back to safety. Strategists, scan the environment to make sure companies do not drift dangerously away from their desired location and then try to quickly bring the drifting companies back into a safe position.

1 comment:

  1. Excellent analogy...please do not stop your excellent articles. I don't always respond, but I always read them....