Tuesday, October 2, 2012

Strategic Planning Analogy #470: Present For Whom?

There’s a popular story out there which has been around for generations in one form or another.  It usually goes something like this:

A little boy wanted to get a special present for his father for Christmas.  In the boy’s mind, the most special type of present he could think of was a toy.  After all, that’s the type of special thing the boy liked.  So, he decided to get his father a toy for Christmas.

Then, on Christmas day, the father opens the gift and finds a ball in the box.  Excitedly, the young boy says, “Daddy, now we can play catch together.  Isn’t that great?”

The father smiles and says “Thank you,” knowing that what the little boy really gave him was not really a gift for the father, but a gift for the son—more time to play with his father.

The little boy had good intentions, but the gift he gave to his father was really a gift to himself.  He couldn’t help himself.  Little boys have difficulty seeing the world from any perspective but their own.  What looked like a great gift through his eyes wasn’t necessarily the most appropriate gift when seen through the eyes of the receiver of the gift.

As we get older, we are better at seeing the world from other people’s perspectives.  But even then, we don’t always get the picture right.

In the business world, we are always dealing with others, be they customers or suppliers or other business stakeholders.   To get what we need out of the relationship, we usually need to give them something of value in return. 

Often times, we can end up like that boy.  We have good intentions of offering something of value to the stakeholder, but we end up offering the wrong gift because our thinking is too clouded with our own perspective rather than the perspective of the receiver.

Our strategy is not necessarily the same as their strategy.  Therefore, gifts which seem valuable from the perspective of our strategy may not be very valuable to our stakeholders because it is not relevant to their strategy.  Therefore, if we want our strategy to succeed, we may also need to think of ways to also promote the strategies of our stakeholders—even if the action does not directly benefit us.  The reason is because if we help our stakeholders, they are more likely to respond in ways that will benefit our strategy.

So, in a sense, achieving the strategies of our stakeholders becomes a part of our overall strategy.  Otherwise, we end up offering our stakeholders gifts which are really for ourselves.  And the stakeholders probably don’t love us as much as that father loved his son, so they will be less forgiving if we make that mistake.

The principle here is that if we do not fully understand the strategic perspective of our stakeholders, we may make the wrong decisions about how to deal with those stakeholders.  And those mistakes can damage the ability for us to achieve our own strategy.  Therefore, we need to not only understand our own strategy, but that of our stakeholders.

That may sound like an obvious statement, but I have seen examples where companies still don’t fully grasp it in the way they act towards their stakeholders.  I will illustrate this with the hypothetical example of a manufacturer trying to get a retail partner to carry his product.

The Manufacturer’s Pitch
The manufacturer in this example knows that he needs a compelling reason for the retailer to carry his product.  That compelling reason is the “gift” he gives the customer in return for carrying the good, just like the gift in the story.

The manufacturer decides that his gift is twofold.  First, he has a very desirable product.  Consumers love it.  Second, he has a high selling product.  Consumers buy it. 

The manufacturer figures that any retailer would jump at the chance to carry a product that consumers love and that sells in high volume.  Therefore, he prepares his sales presentation around the ideas of high desire and high sales volume.

The Retailer’s Response
After hearing the sales presentation, the retailer rejects the product and says she will not carry it.  The manufacturer is shocked!  He thinks, “Why would a retailer be stupid enough to reject a desirable, high selling product.”  But then he hears the rationale.

The retailer rejects the product because:

1.  “Desirable” to a retailer is a relative term.  The retailer explains, “Just about everything I have in my store is desirable.  And since my store is already full with product, the only way I can accept your product is if I get rid of something I already sell.  You have not proven to me that this product is more desirable than any of the other desirable products I already sell.  What product should I get rid of to sell this one?  Are you willing to drop one of the products you already sell me and replace it with this one?  If not, then why should I believe that this product is so much better than the good stuff I already sell?”

2. “Sales” to a retailer is a net number.  The retailer explains, “Yes, you may be able to sell a lot of this product, but that doesn’t necessarily mean that I am better off if I carry it.  It looks to me as if nearly all of your sales come from people who are replacing this product for items which I already sell.  In other words, the sales I gain from selling your product are nearly equal to the sales I lose when customers switch from their old preferences to this one.  My total sales in the department remain the same.  And when you add in the costs I incur to add your product and get rid of theirs, not only do total sales not increase, but profits go down.”

3. “Sales” are not the full story.  The retailer explains, “The items people currently buy take up less shelf space and are easier for my labor to handle than your product.  If people shift to your product, then I have the same sales, but my labor costs go up and I have to eliminate even more product to fit yours on the shelf.  This makes me less profitable.”

4. And then there are the other retailers.  The retailer explains, “This is a product which requires extra service to sell.  I am not a high-service retailer.  Therefore, this product gives a competitive advantage to other retailers who provide more service.  Why should I promote a product that gives my competitors a selling advantage?  This will encourage people to switch from buying products which sell better in my store to buying products which sell better in their store.  Where does that scenario benefit me?”

The Manufacturer’s Revised Pitch
After hearing the response from the retailer, the manufacturer realized he was like the boy in the story.  He did not fully appreciate the nuances of the retailer’s strategy.  He had only thought about his own needs and thought that the retailer would be happy when only the manufacturer’s strategy had been met.  So he changed a few things and made a revised pitch to the retailer.

First, he revised the formulation of the refills to the product so that refills had to be purchased a little more often.  This change meant that consumers would have to buy more refills than before, creating much higher total sales than the retailer made from the products this item would replace in the store.

Second, he made a special version of the product which would be exclusive for this retailer.  This special version required less service to sell than the original version.  By having an exclusive version suited to the retailer’s selling style, she should be able to compete better against the retail competition.  This special version also took up less shelf space.

Third, the manufacturer was going to help pay the cost of the retailer to add this product and delete another. 

Fourth, he did some consumer research which showed how the desirability of this product compared with other products, and could demonstrate specifically what made sense to eliminate in order to carry this product.

Although none of these changes directly benefitted the original strategy of the manufacturer, they really helped the strategy of the retailer.  As a result, the retailer decided to carry the product and promote it heavily.  And then the strategy of the manufacturer benefitted. 

It’s great to have a strategy and to have everyone in the company understand it.  It’s even better if you also understand the strategies of your stakeholders.  Then you can modify your strategy so that your stakeholders’ strategies are best served by cooperating with your strategy.   

If you give someone a really great gift, they are more likely to reciprocate by giving you a great gift.  So next time you meet with a stakeholder, think of it as a gift exchange.  Try to give them the perfect gift (from their perspective).  In the end, you’ll usually get more back that way.

No comments:

Post a Comment