Tuesday, November 24, 2009

Strategic Planning Analogy #294: Picking Pockets

Back in 1972, Bill Barnes was at a convenience store in Grand Rapids Michigan, scratching a lottery ticket, when he felt a hand in his pocket. At the time, Bill had about $300 in cash in that pocket.

Not wanting to lose the money to the pickpocket, Bill started punching the pickpocket with his fist, over and over again. The pickpocket, 27 year old Jessie Rae, was really getting beat up. There was blood everywhere. Afraid for the pickpocket’s life, the store owner tried to protect Jessie from further harm until the police could arrive.

Jessie thought he had picked the perfect victim to pickpocket—a 72 year old man. Little did he know that this 72 year old Mr. Barnes was a former marine and gold gloves boxer.

In the world of pickpockets, the pickpocketer only wins if his victim loses. It’s a constant sum game. The more you lose, the more he gains.

This is often true in the business world. There may be only a certain amount of demand for a product or service. The more the competition takes, the less business available for you, and vice versa.

It’s like living in a world where everyone is a pickpocket. Competitors want to win by picking sales out of your pocket. Similarly, for you to win, you need to pick their pocket.

When on vacation, people are often warned of pickpockets, and so they are especially careful. They put their money and valuables into money belts, which are harder to steal. They keep their eyes open, and their handbags shut.

Since businesses operate in a similar pickpocket world, our strategies should include ways to protect our valuables as well.

The principle here is that we need strategies that help us optimize in a world where we are both a pickpocket and a potential pickpocket victim.

A. Acting Like a Pickpocket
I once worked with a company with multiple divisions. Each division was required to supply me with a copy of their long range plan. As part of the packet I gave them to help them develop their planning was the following set of instructions:

1) Assume that the overall market is only expected to grow by 1% per year.

2) If you want to grow at more than 1% per year, then you will need to take share from someone else. [In the jargon of this blog, that means that if we want to grow by more than 1%, we need to pick someone’s pockets.]

3) Therefore, if you are going to be taking share from someone else, tell me how much you are planning to take from each competitor. Then, you need to be able to convince me why your strategy is so compelling that you can successfully take that share (e.g., pick that pocket).

The point of this particular part of the planning process was to get these divisions to think like a pickpocket. In particular, a pickpocket needs to be good at two things:

1) Choosing a Target.
Pickpockets do not randomly try to go after anybody and everybody. Instead, they scan the marketplace to find the most vulnerable target. They look for people who are easy to approach, easy to distract, and easy to steal from. The pickpocketing does not start until after the scan is complete and the vulnerable one chosen.

Your strategy should be the same. If you need to steal market share, first take the time to target specific competitors (and perhaps specific customers of those competitors). Find out which ones are easiest to approach, distract and steal from.

Don’t just assume that new customers will magically show up. First, figure out specifically who you want to go after and then go after them where they are today (in the other guy’s pocket).

2) Running the Plan/Scam
Most pickpockets have an elaborate scam, or plan, to get your belongings. Often, it involves multiple people with different roles. One is the distracter, another is the pickpocket, and the third carries the goods away from the scene.

If you want to pick your competitor’s pockets, you need to design an intricate and coordinated plan as well. The money isn’t going to automatically jump from their pocket to yours. Your plan needs a compelling reason for customers to willingly switch to you. Usually there are switching costs to the consumer, so you have to provide such a compelling offer that the benefits overcome the switching costs. Just offering the same proposition as the competition is not enough. Usually it requires not only being superior, but being different in your approach to the competitor’s customers.

In addition, it helps if that plan is subtle enough that the competitor is unaware his pocket is being picked. If the competitor is fully aware of what you are up to, the competitor will make it more difficult for you to pick their pocket. Therefore, choose a path that is more indirect and harder to detect until after the pocket is picked.

B. Keeping Your Pocket From Being Picked
While you are picking the pocket of your competitor, keep in mind that simultaneously the competitor is also trying to pick your pocket. Therefore, your strategy needs to put into place barriers to protect the business you already have. In particular, there are two actions to keep in mind.

1. Keep From Being in Vulnerable Locations
Pickpockets tend to avoid people who are all alone or in protected locations. They prefer to go after people who appear a bit lost within a crowded, public location. Therefore, if you want to prevent getting your pocket picked, don’t put yourself in vulnerable positions.

This gets to the subject of your strategic positioning. A vulnerable strategic position tends to be a bit unfocused (“look lost”) and is in the middle of a crowded location where nobody solidly owns the space (a “public location”). By contrast, a protected position is a solid ownership of a particular space where you tend to be relatively uncontested (“alone” and “protected”).

Winners tend to stay out of the crowded “muddled middle” and stake out a strong ownership position at the edges. For example, you can win with a strong position in low price or a strong position in high quality. However, it is difficult to win if everything you offer is “average” (average prices and average quality, etc.). Being fuzzy and average makes you the most vulnerable to getting your pocket picked.

For example, in retailing, Wal-Mart has a solid ownership of low price and is doing well. Nordstrom has a solid ownership of high service and traditionally does well. Relatively unfocused stores in the middle, like Sears, are getting their pockets picked and are doing poorly.

2. Guard Your Belongings
To keep your belongings from being picked, you need to protect them. Put a barrier around them, so that it is harder for the pickpocket to access them.

In business strategy, there are many ways to create barriers that make it more difficult for customers to leave you. They tend to fall into one of three categories:

a. Exclusivity – If you are the only one that offers a particular product/service, then it is more difficult for a customer who wants that exclusive item to leave you. For example, in the US, if you want an iPhone, you have to get it serviced by AT&T, because they have the exclusive carrier rights to the phone. This keeps people from leaving AT&T.

b. Bribes – If you offer the best deals or the best gimmicks/perks, then people will be reluctant to leave. In essence, you have bought off the customer with a “bribe.”

c. Handcuffs – Handcuffs are tactics that make it more beneficial for customers to stay where they are than to switch. These could be things like membership fees (I’ve already paid, so I may as well stay, rather than switch and pay a second membership fee), Volume-based reward programs (the more I stay and buy, the bigger the savings), and Knowledge Benefits (this company knows me and takes care of me, while a new company does not know me and my particular needs/desires).

If you want to grow at a faster rate than the market, you will need to steal market share from someone else, like a pickpocket. The pickpocket’s strategy is to first select a vulnerable target and then run the elaborate scam on them. To protect your own pockets from being picked, find a solid position to own and then put barriers around your customers.

If a company gets too busy focusing on new initiatives, it can start ignoring the core, making the core business more vulnerable to pickpockets. Remember, thieves are everywhere, all the time.

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