Sunday, October 28, 2007

Beauty Pageant

You’d think that if a contest is referred to as a “Beauty Pageant,” that beauty would be the most important factor. However, from where I sit, that doesn’t seem to be the case.

When I look at the finalists for a beauty pageant, what I first notice is that all of the women are beautiful. Not only that, but they seem to be beautiful in a similar way. They all have about the same height, weight and the same body shape. They all have great poise and they all flash a beautiful smile. There isn’t an ugly one in the bunch.

If beauty were all that mattered, they’d all be winners. However, eventually a single winner is chosen. Since they are all nearly equally beautiful, beauty alone cannot be what determines the final winner. Something else must be involved.

Is it who can best maintain the image of the pageant and best represent herself while reigning as the winner? If so, then perhaps choice has to do with background checks to see if this is the type of person who might embarrass the pageant with her behavior (or the behavior of a boyfriend). Maybe it has to do with how many (and which) languages the woman can speak and how eloquently she can speak. Perhaps thought is given to how well the candidate can hold up under all of the busy travel schedule.

Maybe it has to do with geography. If last year’s winner came from a certain geographic area, perhaps balance is needed by picking someone from a different geography this year. Or maybe areas with a larger population are weighted higher in the rankings, because they would have more local support.

Maybe it has to do with some intangible way in which she can schmooze with the judges. Some personalities just “click” better than others.

I don’t know the answer. Nobody has ever asked me to judge a beauty pageant. And I doubt they ever will.

The problem with beauty pageants is that everyone is similarly beautiful. As a result, the idea of beauty tends not to differentiate well between the candidates. Therefore, something else must act as the tie-breaker.

In a similar fashion, most business sectors are full of companies who similarly perform well in that sector. Over time, all of the poor performers are weeded out. Every business that is left tends to be similarly good at providing the basic business functions in that sector. Therefore, something else must act as the tie-breaker when choosing which business one will patronize.

Hence, the irony. Beauty pageants are not determined by beauty because all the candidates possess beauty. Similarly, business patronage is not determined by how well the business functions at the basic business service, because they all do that well.

The principle here is that choice tends to be made at the periphery rather than at the center. The choice of which beauty pageant contestant wins is not at the center, which is beauty. Instead, the choice is made based on peripheral features, like personality, internal pageant politics, geography and so on.

The same process occurs in business. Choice is not made on the core competency at the center of what industry the business is in. It cannot be, because at the center they all pass the test. The differentiation upon which choice is ultimately made must be on the periphery.

For example, I have spent most of my life in the retail industry. At the center, in the core of the retail industry is the idea of merchandising. This is the act of procuring the right product from a vendor and then offering it for sale in a reasonable way at a reasonable price. Since the function of merchandising is so critical to the essence of retailing, one would think that merchandising would be the key driver in store choice.

However, when you talk to customers, they will give you all kinds of reasons why they pick a store, and merchandising is often not a part of their answer. Instead, customers refer to items on the periphery. For example, many talk about locational convenience (they shop the store that is the closest and easiest to get to). Others choose a store because of its image (they want to be associated with a store whose good image will enhance their own image).

Does this mean that merchandising is unimportant for a retailer? Of course not. Selling undesirable merchandise poorly will kill a retailer. However, in today’s world of retailing, pretty much every retailer does merchandising pretty well. You find similar quality products sold at similar prices in similar ways.

Take, for example, office supply superstores. If you blindfolded a person and put them inside one of these stores, when they took off the blindfold it would be difficult for them to know whether they were in a Staples, Office Max or Office Depot. They all have about the same stuff sold in the same way. Merchandising does not do much to differentiate.

Customers expect all stores to be good merchants, so they look elsewhere to find a reason to choose one store over another. Just as beauty no longer differentiates at the beauty pageant, merchandising doesn’t differentiate much in retailing. Therefore, one must go to the periphery to create a favorable point of differentiation.

As a result, good strategy needs to keep two things in mind:

#1: Don’t Fall Out of Consumer Expectations for the Core
Although the core business may not create the reason why people choose your firm, it could be the reason why they reject your firm if you do it poorly. Ugly women don’t even get a chance to compete into the beauty pageant. Similarly, businesses that fail at the core do not get a chance to really compete in the marketplace.

There is a minimum level of performance needed at the core. It is the minimum tablestakes needed just to play. You have to meet this minimum level at the core. It is a necessary first step, but it is not enough. You must look beyond the core.

#2: Provide a Favorable Point of Differentiation on the Periphery
In addition, one needs to add a reason on the periphery which would cause people to prefer your firm over the competition. In the case of retailing, that could be something like added convenience, better service, more exciting promotions, a better image, and so on.

You need to stand for something positive at a place where you can win. Since it is difficult to stand out at the core, choose something on the periphery.

To win in business, one needs to convince the consumer that you are the superior choice. Since most of the competition is equally good at the core attribute of the industry, it is hard to develop superiority there. Even if you could get a little edge at the core, it would temporary, because the others would quickly neutralize it. As a result, one must look to the periphery to find that sustainable point of superiority.

I’ve seen retailers get into trouble and start losing their customer base. In some cases, I have seen the executives of these companies react by going after the merchants. The rationale is that merchandising is at the core of the business, so if the business is going bad, there must be something wrong at the core. In reality, the problem often was that the company had never developed any type of superiority on the periphery. Merchandising can only take a retailer so far. Beyond a certain point, spending more time focusing on the merchandising would not help these businesses as much as finding that point of superiority. This same principle applies in all businesses.

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