Thursday, March 19, 2015

Strategic Planning Analogy #548: Strategy with Claws

I have two cats. One cat has none of its claws. The other cat has all of its claws. If you want to pick up and move the cat with no claws, it is relatively easy. You just pick her up.

If you want to pick up the cat with all of its claws, it is much more difficult. Immediately those claws come out and grab onto the spot where he is lying. This makes it almost impossible to pry him away from that surface. First you pry one paw away. Then, when you start on the second paw, the claws on the first paw reattach themselves. It becomes a major struggle.

Think of your product as being like those cats. The surface they are on is your customer. The one trying to take the cat away is your competition.

The easiest one of your products for your competitor to take away from your customer is the one with no claws. They can just pick up that product, toss it away, and substitute their own product.

However, for the product with claws, it is much more difficult for the competition to displace you. Those claws dig into the customer. They hold on tight. Normal competitive efforts are not enough to dislodge those claws. You get to keep that customer. So, the moral of the story is that we want to have products with claws.

Although cats are naturally born with claws, business offerings are not. You need to create strategies that put claws on your product. Unless you proactively design claws into your business model, you will be far more vulnerable to competitive attacks and far more likely to fail.

The principle here is that your product must not only satisfy your customer, but do so in a way that makes it hard for competition replace you.

Customer Satisfaction Not Enough
Customer satisfaction is a good thing, but usually not good enough to ensure customer retention. The competition also wants to satisfy your customer. In fact, your customers probably have many options, all of which are reasonably good at satisfying their needs. So, just satisfying your customer’s needs is not good enough to ensure that you will keep them as a customer. Others can do the same. All they may have to do is just trim their price a little and, like picking up a cat with no claws, toss you aside.

I suppose you could get into a price war to get the customer back, but that leads to an endless cycle which leaves nobody with any profits. Yes, the customer will be highly satisfied with the ridiculously low prices. But you will go bankrupt trying to serve them at that price. So satisfaction alone is not the answer.

Designing Claws
A better approach is to design claws into your product. Claws would be anything that makes it harder for the customer to switch to a competitor’s offering. An example of “No Claws” would be a relatively generic product indistinguishable from the competition (similar features, similar performance, similar delivery, etc.). These would be things where—if you took off the name—you wouldn’t be able to tell which brand it is. It’s hard to hold onto customers in that environment.

But here are some ideas which can even put claws into relatively generic offerings:

  1. Add Service: Products alone are more interchangeable than products plus service, because services can be more customized and personal. They can change a commodity into something special—unlike the competition. And if there is a service component, then there is often a people component. And it’s a lot easier to say good bye to a faceless product than to a service person who has become your friend. In an earlier blog, I talked about how even something like selling gravel can get claws if you add the right type of service.

  1. Add a Network Effect: It’s hard to switch away from businesses like Linkedin or Facebook, because you are not just leaving that business—you are leaving all the connections that business brings you. Someone else might have a superior customer interface or more features, but if they don’t have the connections to the network, then there is little reason to switch to them. It’s like a talent agent who has all the right connections within the entertainment industry. Why would you ever leave that to go with someone with fewer connections, even if they are a better negotiator or take a smaller fee? So work on the value of your connections. Make it so that when they leave you, they are also leaving a lot of others who are valuable to them.

  1. Strategic Pricing: Rather than getting into a self-defeating price war, use pricing to create claws at a higher margin. For example, volume discounts increase the downside of switching, because you lose the accumulated benefits of adding to your volume. It’s like the old punch card where if you buy 10, the 11th is free. You only get the big benefit if you stick around long enough to buy 10. By connecting increasing value to increasing volume, you add claws to your offering.

  1. Bundling: A similar strategy is bundling. Let’s say you sell photocopiers and you bundle the supplies into the sale of the equipment. By bundling, you can sell the photocopier very cheaply, because you know you will make it up on the rest of the bundle. And any competitor who wants to get you to switch on the supplies would have a hard time, because of a contractual bundling of supplies and equipment. You would almost have to get the company to switch equipment in order to get them to switch supplies, a tougher proposition. And if you can make your supplies non-standard, it is even harder to make a switch. Another benefit of bundling is that it is harder to make direct price comparisons on the individual parts, making it harder for someone to quote a lower price on any of the parts. The best situation is if you choose to bundle a mix of items where very few companies carry all the items in the bundle. That makes it harder for them to match your bundle, since they don’t control all the pieces.

  1. Integrated Systems: Henry Schein is a distributor of a wide variety of supplies to dentists. They also sell a propriety computer system for operating dentist offices. About 40% of dentists in the U.S. use this operating system to run their business. It’s hard to get these dentists to completely abandon Henry Schein, because then they would no longer be able to run their business. In a similar manner, some office supply companies and travel agencies integrate their computerized ordering system right into the customer’s operating system. That makes it really hard to get people to switch, because now you have to dismantle operating systems. Who wants to do that? (that’s a big claw)

  1. Deepen the Offering: It’s one thing to replace a vendor who does just one little thing for you. It’s another thing if that vendor is integral to your success because they do so much for your business. Consider Sysco, the foodservice supply company. They’ve deepened their offering to the point that they do almost everything except cook the food and wash the dishes. Besides food, Sysco offers things like: 
    1. Kitchen Supplies
    2. Dining Room Supplies
    3. Cleaning Supplies
    4. Business Management Tools
    5. Technology Solutions
    6. Dishes/Silverware/Glasses 
Switching away from that many things at once is extremely risky, so you are far more hesitant to change vendors.

  1. Auto Upgrading: One is most vulnerable to losing business when a customer finds themselves out-of-date with aging, inefficient equipment. A new vendor comes in with the latest shiny-new product with all the latest features and technologies and your customer’s jaw drops. They feel they’ve got to switch the get the latest wonder. You can stop this switching by having an automatic updating program. You automatically keep upgrading the customer to the latest thing. That way, they are never far enough behind that a competitor can lure them away by merely showing them a shiny new product.  
This is just a small sampling of ways to put claws in your offerings. Brainstorm on adding claws when dreaming up your strategy and business model. It will pay great dividends later.

Customer satisfaction strategies take you only so far in a world where all the competition are also trying to satisfy the customer. To keep your customers, you need to add claws to your offering—features that increase the downside risk for switching and/or increase the upside potential for staying. There are a wide variety ways to add claws to your strategy. Choose some.

Don’t automatically assume that claws will naturally occur for your product. If you want them, you have to design them into your business model from the start.

No comments:

Post a Comment