Tuesday, January 3, 2012

Strategic Planning Analogy #430: For the Birds

For Christmas this year, my wife got another bird feeder for our backyard. The old bird feeder was vertical in design. It brought finches and woodpeckers to the backyard. The new bird feeder is horizontal in design. It is bringing cardinals and blue jays to the backyard.

Now that we have both in the backyard, we are getting both types of birds to visit us. That makes for a pretty view from our window overlooking the backyard.

That is, until our cat goes into the backyard and sits next to the bird feeders. Then the birds go away.

We can think of those bird feeders as being like go-to-market business models. And we can think about the birds as being like customers. The interesting point is that different birds desire different types of bird feeders. Similarly, different customer segments are lured by different business models.

Finches and woodpeckers only eat from the vertical feeder. Cardinals and blue jays only eat from the horizontal feeder. If you don’t have the right kind of feeder, that type of bird won’t show up. In the same way, if you don’t have the right kind of business model, a particular customer segment won’t show up.

And if I tried to appeal to all birds with a single bird feeder, tilted at a 45 degree angle (the average of vertical and horizontal), I would most likely end up with no birds at all. In the same way, an “average” business model which tries to appeal to everyone will most likely fail, because consumers will “flock” to your competitors who do a better job of customizing to individual segments.

The principle here has to do with context. In particular, we are talking about the context of customers. It is impossible to know what the right business model to offer is unless you also know what the customer context is.

For example, if I live in an area without any horizontal feeding birds, my strategy will fail if I build a horizontal bird feeder. And if my goal is to reach finches, I’d better build a vertical feeder. In the same way, my strategic decisions about business models cannot be made in isolation. I must simultaneously consider customer issues during business model formulation. Otherwise, I will build a model inappropriate for the customer environment.

Learning #1: Don’t let Technology Be the Driver
With modern technology, we can do just about anything. But just because we can create just about anything does not mean we should. Not everything has a natural consumer draw. If your motivation is merely technology-driven, you will most likely fail.

Consider Sony. They were driven to exploit technology to develop robotic dogs and robotic servants for the home. These projects were costly failures, because they did not serve a specific segment better than the alternatives. Real pets provide greater satisfaction and can cost less.

Years ago, I was working with companies who were trying to create a “digital kitchen,” an attempt to bring the latest computer technology to kitchens. These companies came up with all sorts of inventions, from a refrigerator with a computer in the door to a kitchen-only computer (with a dishwasher safe keyboard!). All these products failed, because they were focused on doing something cool with technology rather than meeting real consumer needs.

Compare this to Dyson. They were driven by a consumer desire—to have a vacuum that does not lose suction. As it turns out, they used a lot of sophisticated technology to solve that problem. But the technology was secondary. The main goal was the consumer context—providing a higher suction cleaning machine, something consumers really wanted.

Apple makes cool technology, but that is not what makes Apple successful. Apple’s success is from customer context—building devices and systems which intuitively work with the customer in an easy manner. Without that intuitive ease of use, Apple would not have had such success.

Technology may allow me do build an exotic bird feeder, but if the birds don’t want it, it is a waste of time. Similarly, exotic products not anchored in providing a clear consumer advantage will fail. Are your R&D efforts focused on exploring the limits of technology or in solving real consumer issues?

Learning #2: Niches are Niches
The bird feeder story shows the value of targeting niches. For example, if I target only birds who want a vertical feeder, I can build the ideal vertical feeder and attract a lot of this niche segment.

The risk is that once you have the success with that niche, there will be a temptation to grow beyond that niche. The thinking usually goes something like this: “If we just add a couple of features to this product, we can broaden its appeal.” Therefore, additional features are added.

Subtly over time, these added features start compromising the superiority of the original product with the original niche. Either they add costs for features unnecessary to the original niche (causing the product to become too expensive for the original benefit), or the new features actually hurt the functioning for the original niche purpose. It’s as if that vertical feeder over time becomes a worthless 45 degree feeder.

This is the dilemma for the Honda Civic. Originally, the Civic was designed for a particular niche—people who wanted a cheap, simple, but reliable car. It was a great success with that niche. Then Honda tried to broaden its appeal by gradually making the Civic larger and offering more features.

Over the years, these changes meant that the Civic was no longer the best choice for those looking for a cheap, simple, but reliable car. There were better options from cars that kept to the original principles. At the same time, the larger, more feature filled Civic was not as good as other large, feature-rich cars. The Civic became the equivalent of the 45 degree bird feeder. And now the Civic is not as successful as before. By losing the context of the original niche, it made something not particularly suited for any niche.

If you want to broaden your appeal, do like my wife did in the backyard—put out two different bird feeders, one vertical, one horizontal. This is the idea of having a portfolio of niches. This is the Proctor and Gamble approach. They do not try to win everyone over with only one type of laundry detergent. They have a portfolio of cleaning products, each specifically designed to optimize a particular niche. All the birds flock to P&G because they have a specific lure for each niche.

Learning #3. Even the Masses are a Niche
Yes, many companies succeed by appealing to a “mass” audience, like Wal-Mart. But even the so-called mass market is not for everyone. Even the most popular bird feeder is not liked by all birds.

In many ways, the mass acts like a large niche. For example, Wal-Mart, for all its size, rarely gets more than a 35% share of any category it carries. There are still lots of people who refuse to shop a Wal-Mart and try to keep them from building a store in their neighborhood.

So just because you have a large, “mass” share, it does not give you the right to try to appeal to everyone. Whenever Wal-Mart has tried to go beyond its base to add higher-priced, more fashionable apparel, it has failed. This went beyond the scope of the “mass” space given to Wal-Mart. It was too much of a niche addition which was out of context inside a Wal-Mart store.

Similarly, when Wal-Mart added groceries to its general merchandise to broaden its appeal, the added size of the store turned off some of the original core. Hard discount dollar stores like Dollar General have been gaining market share from Wal-Mart because they are not burdened by the big size of a supercenter. These dollar stores can provide a level of convenience no longer available from Wal-Mart. Wal-Mart lost that feature in the attempt to broaden the mass.

So there are even limits in the mass realm.

When designing a go-to-market strategy, one needs to simultaneously consider how it impacts one’s consumer base. For example, a strategy driven by cool technology does not always translate into consumer acceptance. Technology needs to be subservient to the desires of a particular segment if it is to be accepted. In addition, once a niche is appealed to, be cautious about trying to expand the niche. By trying to appeal to new people, you may alienate some of your core. It is usually better to build a portfolio of highly targeted niche brands than to try to appeal to them all with a single offering.

There is a difference between trying to increase market share and trying to increase market satisfaction. If your attempt to increase share decreases satisfaction with the core, you may end up with neither.

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