Strategic Planning Analogy #273: The Back of the Coin

THE STORY
If you take a coin and hold it close to your eye at a perpendicular angle, it no longer looks like a coin. All you see is the edge, and the edge looks like a straight line. It is only when you change the angle in which you look at it that you can see it is a circle.

I’ve used this concept to help explain some of my political observations. In the political world, people like to describe things on a one-dimensional line. At the left end of the line is liberalism. On the right end is conservatism. People are judged politically by where they are on that line—left, right or center. The thinking is that the further you are to one of the extremes on this line, the further your political thinking is from those folks on the far other end of the line.

However, in my observations and discussions with the really radical extreme conservatives and liberals, I see something different. The really radical extremes on both ends start looking more similar to each other.

- Both tend to highly question the abilities of the general public to be able to comprehend the “truth.” They do not trust them to make good choices.
- Both tend to have little faith in current political system to solve problems and are willing to take drastic steps to bring down the status quo.
- Both seem more inclined towards the idea of benevolent dictatorship (although they may define benevolence a little differently).
- Both tend to use populist rhetoric.

This is where the concept of the coin comes in. As you move further to the extreme on the political line, what you are really doing is moving along the edge of a coin. As you get more extreme, you start moving around the edge of what you see to the back of the coin. As a result, the radical, extreme elements of both conservatism and liberalism are so extreme that they are both moving to the back edge of the coin, and moving in a direction where they are now getting closer to each other.

In other words, politics is not on a line, but on a circle. We just can’t see it because we are looking at the coin from the wrong angle.

THE ANALOGY
In the business world, we also like to position ourselves as being on a one-dimensional line. However, instead of using the terms Liberal vs. Conservative, the extremes on our line could be:

Low Price Vs. High Service

Mass Vs. Niche

Multi-Purpose Vs. Specialized

Fashionable Vs. Pedestrian

High Quality Vs. Low Price

Efficient Vs. Customized

With this mind-set, we position one extreme against the other. The idea is that if you become more of one end of the continuum, you are by necessity less of the other. In other words, the more mass you are, the less niche you can be; or the lower your prices, the worse your service or quality needs to be. It becomes an either/or proposition.

This mindset is like looking at the edge of the coin. All you see are linear opposites.

But what if we change our perspective and look at the entire shape of the coin? We may find that if we throw away conventional thinking and get very radical, there may be a way to get to the back of the coin, where both extremes can co-exist. The “either/or” becomes a “both/and.”

Maybe there is a way to be both mass AND niche, or to provide high service AND low prices. All we need to do is find a path to the back of the coin.

We, as strategists, need to sometimes look at things from different angles, so that we can see possibilities that appear impossible from the original point of view. We need to change from thinking lines to perhaps thinking circles.

THE PRINCIPLE
The principle here is that so-called opposites can possibly co-exist successfully if we take a more radical approach to how we look at things. We will illustrate this by looking at a handful of U.S. retail companies.

1) Home Depot
The thinking in the hardware/home improvement industry used to be that one could either be high service or low price. You could not be both. This was the conventional linear thinking.

In the late 1970s Bernie Marcus and Arthur Blank started looking at things differently. They could see a circle, where low price and high service could co-exist. To do so, they had to get radical and rewrite the business model for the industry. Rather than small departments in a low price discount store or small, high service hardware stores, Marcus and Blank built huge stores that encompassed every imaginable home improvement need.

The large stores created enough demand and efficiency that they could offer unheard of low prices and still have money left over for high service. The early stores were staffed with former hardware store owners and part-timers who still worked in the skilled trades of plumbing, painting and the like. They even held seminars to teach the skills to the customers.

Bernie and Arthur had found the path to the back of the coin, where low prices and high service could co-exist. They called it Home Depot. It was very successful.

Unfortunately, when Robert Nardelli took over as CEO of Home Depot, he returned to linear thinking. He wanted to lower prices, so he cut back on service, thinking that to get one (low price), you had to cut back on the other (high service). This point of view severely damaged the prospects of Home Depot during the past decade. It wasn’t until Nardelli was replaced by insider Frank Blake (who understood the back of the circle) that things started to turn around. Service returned, and so did market share.

2) Amazon
Jeff Bezos used the internet to rethink a lot of the old linear ideas in retailing. Through the creation of Amazon, he was able to develop a mass retail site that had every imaginable customization tool, so it could also cater to every conceivable niche. Both mass and niche feel comfortable using Amazon.

Because of the efficiencies of internet technology, Bezos made Amazon both a slick, efficient low cost operator as well as a high service operator, providing recommendations, reviews, wish lists, easy ordering, and so on.

All of these services and customizations came with the convenience of shopping at home 24 hours a day. Yet, at the same time, Amazon was able to provide very low prices. Never before had so many linear “opposites” successfully coexisted in a single retail brand.

Jeff Bezos used the internet as a tool to radically redefine what one can do in retail. He saw the circle and got to the back of the coin, where all these so-called opposites come together. To Jeff, the internet was not just another place to do conventional retailing. It was a tool to redefine retailing.

3) Target
Target is known for its “Cheap Chic” image. Before Target, no retailer would have considered the combination of cheap and chic. These were supposed to be linear opposites. However, Target was originally owned by a sophisticated department store company which understood fashion well. This background gave them a different perspective as to what was possible.

By taking some of the tools from department stores and some of the tools of discount stores, they were able to fashion a new type of store which could provide both chic and cheap. They got to the back of the coin.

Once Target showed that you could have both, another wave occurred. By using the radical supply chain innovation of “fast fashion” (small batches of Apparel knockoffs made quickly—while the fashion is still hot—and sold quickly—without markdowns), chains such as H&M, Zara and Forever 21 are also finding a way to combine cheap and chic.

SUMMARY
Sometimes the way we look at a problem limits our ability to find the solution. If we see attributes as linear opposites, it is hard to picture them as successfully co-existing. However, if we are willing to change the angle we use to look at problems (and are willing to consider radical departures in our business model from the status quo), we can find ways to combine these so-called opposites into a hugely successful strategy.

FINAL THOUGHTS
Almost everything about the way we live and think today was at one time considered a very radical departure from the status quo. Therefore, don’t be afraid of thinking radically. All you may be doing is just redefining the future status quo.

Strategic Planning Analogy #267: It Must Be Better

THE STORY
Many years ago, there was a comedian who specialized in doing impersonations. Now, it used to be that a lot of comedians did impersonations. This comedian, however, put a unique spin on the genre. He specialized in doing impersonations of people who died long before the invention of recorded sound.

For example, he would do impersonations of people like Abraham Lincoln or Aristotle. It was interesting to watch, but was it accurate? I have no idea what Aristotle sounded like or what his mannerisms were. For all I know, this comedian could have it all wrong and not even be close.

But in the end, I guess it doesn’t matter. Since nobody else knows what Aristotle sounded like or acted like, nobody could challenge the accuracy of the impersonations. As long as the comedian was funny, the audience would accept his impersonations. It was those other comedians, who did impressions of people we knew, who were more sharply critiqued (“Hey that’s not what John Wayne sounds like”).

THE ANALOGY
When nobody knows what truth is (and nobody is able to discern the truth), then nobody can effectively challenge your position. This was the situation the comedian was in. Nobody knew what those ancient people sounded like or acted like, so the audience could not challenge the comedian’s impression of these old people. They just sat back and enjoyed the show.

However, if someone is doing an impression or imitation of something you are very familiar with, then the criticisms come flying. You know what “truth” is because you have experienced the real thing. Any variation from the real thing will be noticed as a flaw or defect. Rather than just sitting back to enjoy the show, you compare the imitation/impression to the reality (as you remember it) and get upset if the imitation does not live up to your expectations of what truth is. You’ll shout something like, “I know what John Wayne sounds like and acts like, and that was not it!”

This situation is similar to what happens in business. In product development, you have one of two strategic choices: either create something totally new, unlike anything else in the market OR create a “me, too” product that is a variation of something which already exists.

The first choice would be like our comedian, who did impressions that were totally new to you (you had never heard the voice of these people before—you have no reference point). Similarly, totally new products have no reference point—what you invent defines the category. It is accepted as authentic and people enjoy it for what it is.

The second choice (offering a “me too” product) is like comedians who do impressions of people we are very familiar with (you have a reference point). You are more critical, because you have a benchmark to compare it to. Any variance from the original reference point makes your product less “authentic.”

THE PRINCIPLE
The principle here is that the less the familiarity, the greater the acceptance. Therefore, if you blaze new trails in product development towards areas unfamiliar to your customers, your development efforts have greater potential for acceptance.

We could see this principle at work in the comedian story. We are more forgiving of the comedian going where we’d never been than ones covering familiar impressions with a slight imperfection. I also experienced this principle recently in a restaurant. This was no ordinary restaurant. It was an exotic restaurant specializing in exotic foods which I had never eaten before. Heck, I couldn’t even pronounce the words on the menu, let alone understand it.

When the food came out, I had no preconceived notion as to how it was supposed to taste. I had never eaten anything like this before. Some of it tasted fine. Some of it tasted very odd to me. But since this was a nice restaurant with a good image, I assumed they were all supposed to taste like that. It never occurred to me that the dishes might be prepared wrong. They supposedly had excellent chefs, so I just took it for granted that these concoctions were supposed to taste that way—even if I didn’t like it.

But what if I was wrong and the food really was prepared poorly? What if this really was bad tasting food? I wouldn’t know. So I was satisfied, whether it was right or wrong, because I didn’t have a pre-conceived notion of what “good” would taste like. I just sat back and enjoyed the dinner.

Now if this fancy restaurant had served me a hamburger, I would have had a reference point. I could have complained if their gourmet burger drifted too far away from my concept of what a hamburger is supposed to look like and taste like. But they did not offer a “me too” burger. They offered me a taste of the unknown. A taste of the unknown is always yummier than an off-beat version of the familiar.

You can also do this at the low end of the restaurant spectrum. Quiznos has had great success with their $4 Torpedo. The beauty of the Torpedo is that it is so unlike anything else out there that there is no reference point to tell if it is a good torpedo or a bad one—so you accept that it is a good one, and worth the $4.

Quiznos knew that having a $4 item on their menu would be a key to success in this recession. They could have lowered the price of their familiar regular sub sandwich to $4, but that would have caused problems. First, once you lower the sub to $4, there is an expectation that $4 is now the right price for that sub. It would be difficult to raise the price back up later without ruining the new perceived value. Second, the regular sub is not designed to work in the business model at $4. Either you have to cheapen the sub (which would be noticed, since people were familiar with it) or you have to lose money on the deal.

By contrast, the Torpedo was designed to work in the business model at $4. It wasn’t a “cheapened” anything, since it was brand new. Sure, it had less meat than a regular sub, but the Torpedo never was a regular sub and was not expected to be one. It was a Torpedo, and this is how Torpedos are supposed to be. They had never been anything else. A strategic piece of genius!

So what does this mean for your strategy?

1. It is almost always better to create something brand new, where you can define the parameters of success, than to copy someone else, who has already defined success (as being them). When you control how a product is defined, then you can define the perfect product as the one you are offering. Apple has been very good at this.

When Toyota invented the Prius, they made a brand new car which defined what a hybrid is supposed to be. After that, anyone else who tried to make a hybrid brand had to be compared to the definition of the perfect hybrid—the Prius. And of course the Prius is the superior Prius, so it wins. Worse yet were automakers who tried to make a hybrid version of a non-hybrid car people were already familiar with. That didn’t work, because their familiarity with the gas hog version biased them against the hybrid version (familiarity made them more critical).

2. When positioning your product, don’t spend too much time comparing it to the status quo product. If you make too big a deal out of the status quo, you are acknowledging its leadership, which makes you an also-ran. People will say, “If you are so good, then why does the status quo have higher sales?” Instead, position yourself as an entirely new way to solve an old problem. There’s just something about saying that “my revolutionary new way is better” which sounds more believable than saying “I’m making basically the same thing as what is already out there and successful, but I’m better.”

3. Sometimes you can get around cost pressures by replacing the familiar with a cheaper unknown which is positioned as a wholly new product. Cheese was getting very expensive, which is a problem for companies like Taco Bell, who use a lot of cheese and want to keep their prices low. But Taco Bell has never been afraid of inventing new menu items nobody has ever heard of. So the new items substituted cheaper cheese sauce for cheese. However, since these were brand new items that never had real cheese in them, it didn’t look like a cheap substitution. It was just how the new item was supposed to be. This is far more successful than if they had taken familiar items and did the substitution. Then, Taco Bell took this cheap sauce and put hot spices in it and invented “Hot Lava Sauce.” So now the cheaper substitute was a unique, premium item in brand new menu items.

SUMMARY
Winning strategies tend to blaze new trails rather than rework the familiar. The revolutionaries get to define the category in their favor and tend to receive less criticism. Because they define the category, they must be right.

FINAL THOUGHTS
Even if your product is not all that revolutionary, that doesn’t mean that you cannot package it in a revolutionary manner. Chrysler was making fairly ordinary trucks, but they were packaged as revolutionary because they had the magic Hemi engine.