Strategic Planning Analogy #522: Timeless Timepieces

THE STORY
I used to work with a retailer who sold low-end watches. Suddenly the sales of these watches plummeted. Was it because someone had suddenly become better at selling low-end watches than this retailer? No.

What had happened was that one of the primary customers of this retailer was early adopters of cell phones. They were using their cell phones to tell time, so they stopped wearing watches…which meant they stopped buying watches.

This retailer wasn’t the only one seeing portions of the watch market vaporize due to people using their phones to tell time. Look at watch ads today. Watches are no longer sold as functional timepieces. They are either sold as a piece of jewelry or as an heirloom to be passed on to future generations.

Think about it…timepieces being sold as the epitome of timelessness. It can’t get much more bizarre than that.

THE ANALOGY
Watches were originally designed as a portable way to tell time. They were the superior solution to solving that problem. But then along came the cell phone. For a large sector of the population, the cell phone became a superior solution to the problem of portable time-telling.

When watches became an inferior solution to the problem, the demand for them dropped. It wasn’t that the phones became less effective at what they did. They were as good as before. It’s that a totally new solution appeared that was superior. Suddenly, a watch’s biggest threat came from phones.

This problem does not just impact watches. All businesses succeed by providing a superior solution to a problem. As a result, businesses tend to work diligently on perfecting their solution. They want to keep getting better, faster, cheaper with their solution offering.

But then…BAM! Something from out of the blue blows your solution out of the water. It no longer matters how good of a watch you make. The best, most accurate watch suddenly became an inferior portable timepiece to the phone. Making a better, faster, cheaper phone won’t get them back. The rules have changed.

This can happen to any business. A solution from an entirely different industry can make your industry irrelevant. The best, fastest, cheapest obsolete item is still obsolete.

Watch out for the unrelated industry (like phones) which can make your entire strategy (like watches) suddenly obsolete.

THE PRINCIPLE

The principle here is that while problems can be eternal, particular solutions to these problems can have a short time span of viability. This poses a risk to any business with a product mindset. While your product may be a great solution today to a given problem, that does not ensure that it will be the best solution tomorrow—no matter how well you execute on delivering that product.

Examples:

1. Laser Surgery has made eyeglasses an inferior solution to vision correction.
2. Digital communication of news has made paper-based communication of news (newspapers and magazines) an inferior option.
3. Every few months, somebody comes up with a new solution for losing weight. The solutions come from a wide variety of industries, from new food solutions to new exercise solutions to new surgical procedures to hypnosis to pills to whatever. Each solution’s time of relevance is so short that we call them “fads.”

Now you may be saying that this risk does not affect your business, because you are not product focused. You are “solution-focused.” You are always working to be a better solution for your customers.

Well, that may be true. But how broadly do you approach that solution? Do you only look for solution improvements within your industry? Are you only looking for better portable time solutions within the watch industry or are you considering solutions from different industries like phones?

Consider the situation facing GM which we talked about in an earlier blog. Teens and young adults used to look to cars as the superior solution to their desire for freedom. Suddenly, the youth of today fulfill their desire for freedom via their cell phone. Cars are no longer something to lust after to satisfy this freedom urge for this demographic. To many of them, cars are just a means of transportation. And given that the young adults of today often prefer to live in city centers, cars aren’t even seen as a particularly good solution to them for that solution. Mass transit, taxis and new car-sharing options like Zipcar appear cheaper and more convenient in an urban environment.

As a result, car ownership (and driver’s license ownership) is down in this demographic.

So GM is not just competing against other cars. On one front, it is competing against anything else that can do a better job of satisfying the urge to be free. On another front, they are competing against an urban lifestyle (where cars can be seen as a burden). And they are competing against new options to transportation ownership made possible through cell phones (like Zipcar). And they are competing against trends which reduce the need for transportation in the first place (working at home, shopping on-line, visiting via Skype, etc.).

Will traditional car ownership eventually fall victim to some form of the same fate as watches? I would certainly have some concern if I was in that industry.

Even teen/young adult clothing sales are down, due in part to a shift of spending from clothing to gadgets (like iphones and ipads). It used to be that clothing for teens was a superior solution for trying to be “cool” with their peers. Now, spending that money on gadgets creates a superior coolnesss. So gadgets get the money that used to go towards clothing.

So what does this imply for strategists?

1) Look Broadly for Solutions

First of all, if you want to own a solution over time, you’d better be prepared to look way outside your conventional industry, because the next leap in superiority may come from somewhere totally different.

Think about Bausch & Lomb. They used to be in the lens business because that was the superior way to improve eyesight. But they could see that non-lens solutions could do a better job at some eyesight solutions, so they diversified into areas far afield from lenses, like laser surgery and eye vitamins.

Proctor & Gamble used to look to chemistry for their cleaning solutions. Then they thought more broadly and looked to physics for cleaning solutions. The result is a number of new cleaning innovations like the Mr. Clean Magic Eraser.

How far afield from your core are you looking to find superior solutions to your core? Do you only read publications in your own industry and only go to trade shows in your own industry? You won’t find it there until it is too late.

2) Be Prepared to Redefine Solutions

Sometimes, if your product is no longer the best solution for a problem, you can reposition the product to be the right solution for a different problem. As mentioned above, watches are repositioning themselves as jewelry and heirloom solutions rather than timepiece solutions.

In the 1800s, circuses were the superior way for small communities to learn about the latest and newest things. When that no longer worked, they repositioned themselves to be a great solution for nostalgia. I talked about that here.

When Hamburger Helper was introduced, it was a superior solution for dinner convenience because it could be made much faster than a conventional dinner at that time. Later, when other alternatives (microwave, take-out, etc.) could provide dinners more conveniently (faster & with less effort), Hamburger Helper was no longer the winner on convenience. General Mills has tried to come up with other solutions for Hamburger Helper such as:

1. The convenience meal your kids will actually eat; or
2. The convenience meal you can feel better about serving because you actually took part in preparing it with your own fresh beef.

I’m not sure any of these tactics are working, but at least they are trying. You may need to do the same in order to stay relevant.

SUMMARY

Problems may be eternal, but the best way to solve the problem changes over time. Often the superior replacement solves the problem in an entirely new way from an entirely different industry with entirely different skills, technologies and business models. It is not an incrementally better status quo, but rather something which makes anything remotely similar to the status quo obsolete. The long term solution is to either: a) Keep an eye outside the industry to discover solutions which can keep you from becoming obsolete; or b) Find a way to redefine your product so that it can be the superior solution to something else (where it can still be relevant).

FINAL THOUGHTS
The best timepiece on the wrist” is not a solution. It is a description. The solution is at a higher level—portable time-telling. If you don’t define the problem at the higher level, you will miss some of the creative ways to solve the problem.

Strategic Planning Analogy #364: Product-Focus vs. Solution-Focus

THE STORY
Beginning in the mid 1980s, Kodak and Fujifilm became embroiled in a fierce and bitter battle for global leadership in photographic film. Year after year after year, the companies focused on each other while trying to gain a competitive edge. Tons of money were poured into research to continually make their respective photographic film better and better. For awhile Fuji would have the technological lead. Then Kodak’s advances would retake the technological lead. Then it would go back to Fuji, and so on.

Since neither could get a sustainable edge on quality, they also focused on manufacturing costs and pricing. Again, the goal was to try to get a pricing edge on the other firm. However, pricing was kept so competitive, that there wasn’t much of a sustainable advantage here, either.

Fuji was able to make inroads through innovation by being the first to widely distribute the disposable camera. Of course, Kodak eventually retaliated…and they had a few innovations of their own as well.

This battle continued for decades.

After all of this focus and effort on getting an edge in photographic film, where is Kodak’s photographic business today? Well, by the late 2000s, demand for photographic film had dropped so low that Kodak only did one manufacturing run of its famous Kodachrome film per year—just a mile long sheet that would be cut into a mere 20,000 rolls. By 2009, there was only company left in the world developing Kodachrome film—Dwayne’s Photo—and they were only processing a few hundred rolls a day.

On June 22, 2009, Kodak announced that it would no longer make the Kodachrome film. The film business today is virtually non-existent. Over the last few years, Kodak’s share price has tumbled. $100 worth of Kodak shares in December 2004 was worth only $14.47 by December 2009. And Kodak hasn’t made a profit in quite awhile.

Of course, the irony is that while Kodak was busy internally focusing on beating Fuji in film, outsiders took leadership and ownership of the digital imaging business. And, by comparison, those folks are doing quite fine financially.

THE ANALOGY
In the past, we’ve talked about many things that are like strategic planning. Today, we are talking about something many think is like strategic planning, but really is not.

Strategic planning is about improving a company’s long-term prospects. This is not the same as improving a company’s products. Kodak spent decades focusing on improving its photographic film business. It continually worked on improving the film quality and value. Unfortunately, by focusing on the product, Kodak nearly destroyed the company. The long-term prospects for Kodak do not look very solid anymore.

The sad news is that there are lots of companies out there like Kodak. They mistakenly confuse product planning with corporate planning. They mistakenly assume that if they keep making the product better, the company will automatically be better.

Products, however, have lifecycles…they arrive, grow, mature, decline and then disappear (like photographic film). Over time, lifecycles have been getting ever shorter. If you only focus on the product, your company will die when your products die. And that could be rather soon.

To create an enduring, long-term prosperity for your company, you have to think beyond the current portfolio and focus on how to extend life beyond the current cash sources. Otherwise, the cash will dry up and you will have nothing in the pipeline to replace it.

THE PRINCIPLE
The principle here is that solutions make a better anchor for strategy than products. Why? Solutions are eternal…products are fleeting. I’d rather bet on eternal solutions than fleeting products.

For example, think about losing weight. This is an eternal problem. There will always be a strong demand for solutions to this problem. But the products people have introduced to solve this problem come and go rather quickly. Individual weight loss fads are fleeting—here today and gone tomorrow.

I remember when low carb products were dominant weight loss fad. I lot of companies created long term strategies around a focus on low carb products. One firm was developing a strategy to build a chain of low-carb only supermarkets.

Of course, the low carb fad went away…and a lot of those firms who had a product-based focus on low carb went away as well. They would have been better off positioning themselves to be a weight loss solution leader, who can shift products while staying true to the solution.

This is what Kodak missed. It focused on the product (film) rather than the solution (visual memories). Consumers don’t want products—they want solutions. If someone comes up with a superior solution, the consumers will abandon the old product and flock to the new one.

Digital imaging is a superior solution over film for visual memories. Therefore consumers abandoned the film and went digital. It really didn’t matter how much better Kodak made the film. The best film was still an inferior solution for visual memories.

I was excited this past week when I saw an example of a company that “gets it” and did not follow the path of Kodak. The company was Northrop Grumman Corp. Northrop Grumman had to make a choice—would they anchor their strategy to products or solutions. They chose solutions.

The solution they chose was to help governments win wars. This is an eternal problem. However, the way wars are won varies over time. Back in the 20th century, wars were won by efficiently moving troops across land and sea. Having a strong Navy would be a crucial part of a war solution.

The wars of the future, however, will be different. Rather than being fought on the ground, they will often be fought on the internet. Instead of moving troops, one uses unmanned drones. Instead of a confrontation between troops, you have terrorists using letter bombs and individual attacks on civilians. Winning the war on data will be more important than winning the war of real estate.

As a result, Northrop Grumman is willing to abandon products which no longer provide the best military solution and shift its portfolio to superior solutions to military problems. According to a recent article in the Wall Street Journal, Northrop Grumman is seriously considering abandoning the shipbuilding business, even though they are one of the largest military shipbuilders in the world. And in their aircraft division, they are shifting the emphasis to unmanned vehicles.

For the future, the big thrust for Northrop Grumman is into the high tech tools designed to win in a digital era: robotic systems, information technology and high-end surveillance equipment. This is where superior solutions to the eternal problem will be found.

Northrop Grumman could have continued its focus on building better warships. It would take advantage of the company’s strengths. And navy ships are still being requested by governments. Isn’t that what strategy is all about? Not when your strengths are focused on perfecting on obsolete solution. That would be like Kodak continuing to squeeze the last sales out of film when digital imaging is known to be the superior solution of the future.

Big navy warships will eventually be as desirable as photographic film. Better to get out when you can still find a buyer for the division than wait until the bitter end, like Kodak, and end up with nothing.

Therefore, it is better to build a strategy around superior solutions and design a plan to become the winner with that superior solution—even if it doesn’t play to your current product strengths. You should even do this if it means hastening the demise of your current product. After all, if you don’t move to the superior solution, someone else will, so your old product will become obsolete either way.

SUMMARY
Focusing on building the best product is worthless if your product is an inferior solution for your potential customers. Given product lifecycles, all products will eventually become obsolete. If you want your company to outlast the lifecycle of your product, focus on superior solutions, rather than superior products.

FINAL THOUGHTS
Kodak saw their enemy as Fuji, a company focused on the same product. In the end, the companies which took away all of Kodak’s business weren’t even in the film business—firms like Sony, HP and Flikr. Often times, the superior solution comes from somewhere far afield—totally unlike your product. Therefore, since replacement solutions often come from outside the industry, keep your strategic eyes looking beyond your industry.

Strategic Planning Analogy #340: The Box vs. The Contents

THE STORY
A short time ago, I bought a fancy new water dish for our cats. It came with an electric pump. The pump pushed the water up over the outside of an inverted bowl. The cats were then supposed to lick the water as it ran down the bowl.

The manufacturer claimed that cats would love this fancy device. After all, cats are supposed to prefer gurgling running water over still water. In addition, this fancy device increased the levels of oxygen in the water, which is supposed to make it tastier.

I assembled the fancy water dispenser and waited for the cats to show their loving approval by instantly licking the water off the inverted bowl. Instead, I found one of the cats crawling into the box the product came in and playing with the cardboard flaps on the top of the box.

Apparently, the box was more interesting to the cat than its contents.

THE ANALOGY
This experience with my cats should be familiar to anyone who has given gifts to small children. Quite often, they find the gift box to have greater play value than the toy that came in the box.

I have seen many parents get upset when the expensive toy is tossed aside as preference is given to the cheap box. But I say so what if the box is getting more attention than the contents. The child is happy and having fun. Isn’t that they whole point of giving in the first place?

Many business people also find themselves like those gift givers. They struggle mightily to create a superior product that their customers are supposed to love and then are disappointed when the product is ignored because the consumers are more interested in something deemed by the manufacturers as “superficial.”

“What’s the matter with these stupid customers?” they may ask. “Don’t they realize that my product is superior? Why are they distracted by these superficial things?”

My response? If something other than the actual product is what is making the customer happy, then perhaps you should be paying attention to more than just the product. Consider the entire package when developing your strategy. The whole idea is to make the customer happy, and if happiness comes from something other than the product itself, then that’s okay…just figure out a way to win on these non-product attributes.

THE PRINCIPLE
The principle here has to do with recognizing the difference between a focus on the product and a focus on the customer experience. A focus on the product tends to be internally oriented—a focus on what I do to make the product superior. A focus on customer experience is externally oriented—a focus on how the customer interacts with the product. If you focus on the customer experience, you may find that the customer is not looking for ultimate product superiority. What they want is a better total experience, and that can only be improved by looking attributes external to the product.

Bleach
For example, consider bleach. The purpose of bleach is to cleanse and disinfect. Therefore, one might think that to make customers happy, one should focus on making superior bleach—one that is the absolute best at cleaning and disinfecting.

The problem is this…it is difficult to make any one formulation of bleach meaningfully superior at cleaning and disinfecting. They all perform pretty much the same.

So what did Clorox do? They focused on the packaging. They created a unique spout on the top of their bleach bottle which reduced splashing. This made it easier to pour the bleach and less likely that any of the bleach would accidentally spill onto the person doing the pouring. Like in the story, they focused on the box (the bottle) rather than the contents (the bleach).

From a consumer experience perspective, this was a huge benefit. If bleach accidentally spills on a user, it can ruin the clothes they are wearing. By reducing the risk of ruining clothes being worn, Clorox made a superior user experience. Even though Clorox did nothing to improve the performance of the product (the bleach), they made the customer happier. And isn’t that the point?

Beer
I was working on a project one time to try to do some business in Mexico. During my conversations with one of the Mexicans, he made the following comment. “I don’t understand you Americans. Here in Mexico, we consider Corona to be one of the lowest quality, poorest tasting beers available. Yet, Corona is the beer you Americans decided to import, and you treat it like it is a premiere, high quality product. And by the way, everyone knows that the US has higher quality water than Mexico. So why are you importing beer, which is mostly water, from a place known for having inferior water?”

The problem with my Mexican friend’s logic was that he was product focused. He assumed that superior sales should go to superior products. He saw Corona as an inferior beer product. First, it came from a nation with inferior water and second, among other beers using that same water, it was considered by locals to have an inferior taste.

Here in the US, however, the major concern was not the quality of the liquid in the beer bottle, but the experience the customer had when holding that Corona bottle. Shortly after the conversation with my Mexican friend, I was on a camping trip in the US. On the campsite next to mine, a group of status-conscious Yuppies set up for the night. It’s hard to say they were “camping” because they brought all the creature comforts of their city life with them, including large propane street lights.

They decided they were going to have a party all night (which made it hard for my family to be camping next door). Everything about their party broadcast to the world their attachment to anything regarding status consciousness, including the way they dressed, the way they talked and the way they acted. And, as part of this status conscious behavior, they only beer they had was Corona.

To these Yuppie “campers,” it was almost irrelevant how the Corona tasted. It was just one more prop to enhance they experience of status-conscious lifestyle (and a darn good prop at that). Crown Imports, the firm that imports Corona to the US, apparently understood the importance of the packaging over the contents. They spent their time positioning Corona as the perfect beer for the status-conscious beer drinker. At the time they introduced the US to the beer, it was uniquely positioned as the beer where you put a lime wedge in the mouth of the bottle (how’s that for unique status packaging?).

There are lots of ways to improve the consumer experience that have nothing to do with the quality of the product itself. You can make the product easier to use through packaging (like Clorox). You can package the product inside better customer service (see this blog on gravel). You can connect the use of the product to charitable or social causes (see this blog on Toms shoes). You can improve convenience through the choice of delivery schedules or distribution channels. You can imbue the product with a status appearance (like Corona). You can take the same contents and customize them through packaging for different end users (consider Tide to Go stick versus Swash Get it Out stick).

You can position the product to be more fun to use (like McDonald’s Happy Meal packaging around a regular hamburger). Having watched how some kids “consume” a Happy Meal, this is a true case where the contents (the food) are often thrown away and the packaging (box and toy) is what is really enjoyed. This is very much like the story of my cat and the box.

So What have we Learned?

1) Don’t Just Focus on the Product
I’ve seen many business people get overly focused on the product and ignore almost everything else. The strategic emphasis is only on those internal product issues—improving production, improving quality. This is the “est” strategy. If I can only make my product the big-est, fast-est, cheap-est, strong-est, or some other “est,” then I am all set.

Unfortunately, the winner is often someone whose product is merely “good enough” but is packaged in a superior way.

I’m not saying to ignore the product. Product functionality must surpass certain minimum thresholds. But obsessing on complete product superiority to the exclusion of all the other factors important to the consumer is a mistake.

If you must focus only on the product, then define the product broadly, to include the packaging, the positioning, the image, the service behind the product, and so on. This is where key strategic choices can really make or break your business.

2) Focus on the Customer
Products must be seen within a context. That context is the way in which the customer will interact with that product. Improving that experience is more important than just improving the product. The goal of customers is not to make your production manager happy. It is to make themselves happy. And that happiness comes from having happy experiences. The more you can package your contents to accommodate and reinforce happy experiences, the better off you are—even if the actual functionality of the contents in that package are merely “good enough.”

If you want to focus on functionality, look at the functionality of the customer rather than the product. Are the customers functioning at a higher level of satisfaction (which could be rational or emotional)? If not, what can I modify in the entire package to improve their functionality?

SUMMARY
Winning strategies look beyond merely seeking superiority in product function. They look at the entire package surrounding the product to ensure that the company is superior at creating consumer experiences with the product. These superior solutions may have little to do with the actual contents of your product and more to do with how it is packaged.

FINAL THOUGHTS
Don’t be upset if your customers act like my cat and ignore the product in favor of its box, so long as they are satisfied. And maybe you should spend more time on making your “box” more enjoyable.

Strategic Planning Analogy #265: Two Stores, Two Stories

THE STORY
Ritz Camera, the largest specialty camera and imaging retail chain in the US, filed for bankruptcy in February 2009. Now, it has recently said that if it does not find a buyer soon for the chain, it will liquidate its assets in an open auction.

At the beginning of 2009, Ritz Camera had more than 800 stores in operation. It is now less than half that size.

By contrast, Best Buy is doing rather well. Its balance sheet is very healthy and it is gaining market share. Although the recession has had its impact on Best Buy, the company will survive and looks poised to thrive for quite awhile.

Why such different fates for these chains? A friend of mine used to work in the photography specialty retail business many years ago. He said that when taking good photos was very difficult, many flocked to photography as a “hobby.” These photo hobbyists carried around bags of gear to make better photos—lots of lenses, filters, light meters and shades. They would have a darkroom in their basement with lots of chemicals and enlargers, so that they could develop their own film and photos and crop them to be “just right.”

All of this took skill, knowledge, dedication and lots of practice—as well as lots of money. It was not for the average “amateur.” These hobbyists could take great pride in their unique skills and abilities. Others marveled in jealousy at the “magic” of their great photographs.

Then something happened. Technology got sophisticated enough that cameras could take pretty good pictures all on their own—just point and shoot. Now everyone could take pretty good pictures without any advanced training, skills or lots of gear. Being a photo hobbyist no longer carried the same cache. It wasn’t all that special anymore once the average Joe could do just about as well.

As a result, those who looked to their hobby as their point of pride and status saw that being a photo hobbyist no longer satisfied that ego stroking. Therefore, many quit photography and found new hobbies in areas which still held status, like electronics or computers.

Now, with the digital revolution, everyone has access to cheap and easy tools to take, edit, modify and photoshop their pictures into great works of art—and place them on the internet for all to see. And you don’t even need a camera. I was recently at the zoo—a place full of young families. I looked around me and noticed that I was the only one with a camera. Everyone else around me was taking photos with their cell phone.

It is getting harder to even think of photography as a hobby. It’s just something people do, like breathing. And nobody thinks of breathing as a hobby. Without a large hobby segment, there is no reason to for a large photo hobby specialty store like Ritz. Hence the problems at Ritz: it’s camera focus fell out of touch with where pictures evolved.

By contrast, Best buy has frequently changed its product focus. I remember back in the 1980s, when their big emphasis was on microwave ovens. It was the cool new technology, and people flocked to Best Buy because they held seminars and cooking classes on how to use this cool new gizmo. Soon thereafter microwave ovens became mature and were treated like a toaster that you replace at Walmart when they break.

Of course, by then Best Buy had moved on to the next cool new gizmo—VCRs. Then when that started to get mature, they went on to follow with computers, then DVDs, then Digital TV and now Mobile Devices. The idea was to abandon categories before they matured and replace them with the next new thing. That way Best Buy was always hot and always successful.

THE ANALOGY
As a business, companies have two strategic choices. They can either define themselves primarily by specializing in the type of products they sell (like Ritz Camera) or they can define themselves primarily by the specializing in the place in the product lifecycle where they want to be.

This is a critical strategic decision which can dramatically impact how your company evolves. How you answer this question can even be one of the major reasons why you succeed (like Best Buy) or fail (like Ritz Camera).

THE PRINCIPLE
The principle here is that the decision to focus on product versus lifestage is critical. It needs to be a conscious choice, because it will drive so many of your other strategic decisions. If done well, there are opportunities to succeed with either approach. But to do so takes hard work, tough choices and significant strategic modifications. You have to be fully committed to one side or the other. A half-hearted middle approach will tend to fail.

Let’s look at either option in detail to illustrate the particular types of risks and tough choices which apply to either decision.

Focus On Product
The biggest problem on a product focus is that products evolve and go through a lifecycle. At first, they are the cool new thing, desired by leading edge hobbyists who desire the status of taking the time to become an expert when others aren’t. Second, the experts help the rest of us “get it” so that the product achieves mass demand. It is the hot thing everyone wants. Then, it becomes just another thing that everyone already has. Your sales shift from first-timers to replacement purchases and the priority shifts from expertise/service to low price. Finally, your product becomes a lowly commodity at best, and an obsolete has-been at worst, which is replaced by the next new cool thing.

Therefore, if you focus on the product, then your greatest strategic challenge is to align your business with the changing demands from managing to the life cycle. For example, if the basic product you sell doesn’t change, then you have to change, to have the most appropriate business model for the particular period in the lifecycle where that product lies. At the beginning, you need to be creative, inventive and cool, and you have fat profit margins to pull it off. At the end, you have to think like a commodities manufacturer, with razor-thin margins and a merciless emphasis on cost reduction. That’s a big cultural change. Distribution channels can change over time, too, from dealing with boutiques to dealing with Walmart.

The second strategic challenge is to slow-down the natural progress of the life cycle, to keep it as alive and cool as possible for as long as possible. Rapid obsolescence via frequent product upgrades can help to keep it cool longer. Strong image advertising can help keep some status with the product longer. Look at the mature automobile industry. Cars can last a decade, but clever strategies like leasing and restyling induce people to want to change cars every 3 to 4 years. Relentless beer image advertising has helped beer brands keep at least some preference and status rub-off in that mature business.

The third strategic challenge is to try to outlast all the competition, so that in the end-game you have a near monopoly. That is what Budweiser has done in the US beer market. Everything has pretty much consolidated into their lap, so that they still have enough volume and clout to make a killing.

The biggest risk is that your company dies when the product eventually dies. If you’re in the newspaper business and nobody wants newspapers, you’re in big trouble.

I think the problem at Ritz Camera was:

1) They picked the wrong product (cameras instead of photos)
2) They did not try aggressively enough to own all the new places where photo status was going (scrapbooking, on-line editing software, You-Tube, etc.)
3) They did not try to develop and get an exclusive on the ultimate cool photo-phone.
4) They did not change their business model enough to win when things get commoditized and margins go away (i.e., their stores could not beat Walmart when the product matured).

In other words, they did not manage the lifecycle well because they did not realize how much of a priority that was, so they lost.

Focus On Lifestage
The other option is to be more like Best Buy and focus on staying in a particular lifestage. For example, if you focus on the early stage, when products lose their cool, you switch to the next cool thing. This is also pretty much how GE has worked over the years. As industries they were in starting to get mature, they would sell off the division and add a new division still in the early cool stage. That way, the portfolio stayed hot (and profitable). The benefits here are that a) you can focus on perfecting a management style for that life stage; and b) your lifespan is not tied to the lifespan of a particular product.

With this strategy, the biggest issues are timing and transitioning. By timing, I mean knowing when to let go of old products and when to dive into new products. If you sell off too quickly, you may walk away from a lot of profit. If you stay too long, you may not find a profitable way to exit the business.

If you enter a new business too early, it may take too long to get a return (and you are more likely to guess wrong on whether it will get hot). If you enter too late, you may have to pay too much to enter and be too far behind in the race for leadership.

By transitioning, the problem is getting people to accept that your brand has a right to be in that new space. If you are too far afield, then the customers will not give you credit in that new space. Also the farther away the transition is from your core, the less likely you will have the proper skills needed to win. For example, if Best had gotten into high end designer handbags when they were hot, it would have failed because it does not line up well with the brand customer or the brand image, and they know nothing about designer fashion. That transition would not have worked.

Best Buy has succeeded because their timing was great and they always transitioned into products that were consistent with the brand and its core customer’s desires. They were also willing to be very aggressive in the transition—killing off old categories entirely and going full-out to win in the new category. This is not a game for the half-hearted.

SUMMARY
Great strategies tend to be explicit on whether the company is going to focus on a type of product or a particular lifecycle stage. Then one needs to aggressively adapt the company over time to stay true to the chosen path. Half-hearted efforts on either path can lead to failure.

FINAL THOUGHTS
You don’t have to only focus on the early stage of the life-cycle. Pinnacle Foods has done well by purchasing the cast-off mature food brands from the food companies trying to get out of mature businesses. They own brands like Duncan Hines, Hungry Man, Aunt Jemima and Swanson. Because they are experts in running brands in their late maturity, they can make them successful when their former parents found them to be a drag on profits.