Strategic Planning Analogy #519: A Whole Foods Bag at Aldi

THE STORY
Last week, I was shopping at an Aldi supermarket. While there, I saw a shopper in the Aldi store using a reusable shopping bag from Whole Foods.

In case you are not aware, Aldi is a low end, no frills cheap store selling a limited assortment of private label products. By contrast, Whole Foods is a huge, high end store full of high quality organic and Vegan products. Whole Foods is such an expensive place to shop that it is often referred to by customers as “Whole Paycheck.” You could not find two grocery chains at more opposite ends of the spectrum.

But there it was before my eyes—a customer in Aldi who also apparently also shops at Whole Foods. She was well dressed and looked rather sophisticated—a cut above the appearance of many in the store. And she was purchasing low-end private label goods at Aldi using a Whole Foods bag.

I was thinking how strange that was until I realized that I was also shopping at Aldi. Maybe it isn’t so odd after all.

THE ANALOGY
A big part of strategy can be segmentation. Questions debated include “who should be my segment” and “how to appeal to that people segment.”

The problem is the “who.” Did that woman I saw at Aldi belong in the Aldi segment or the Whole Foods segment? It’s obvious that Aldi and Whole Foods are targeting two totally different segments of the grocery business. Yet this woman appeared to fit into both segments. Where should we put her? Which marketing message should she receive?

This is not just a problem for supermarkets. Problems like this crop up all the time in business, where individual consumers do not neatly fit into a single segment. In fact, large portions of the population usually defy simple classification into a single segment. They appear to exhibit seemingly inconsistent behavior, doing different things at different times in different ways. They seem so illogical—defying the logic of my segmentation scheme.

As we shall soon see, the problem is that we often focus on the “who” of segmentation when instead we should focus on the “when” of segmentation. Making this change will vastly improve the segmentation portion of strategy. The illogical will become logical again.

THE PRINCIPLE
The principle here is that superior segmentation is typically occasion-based, rather than individual-based. People react differently based on the situation or occasion. For example, the same individual may:

1. Buy one brand of beer when trying to impress others and a different brand when drinking alone.
2. Go to one kind of restaurant when eating with his/her kids and a different restaurant when eating with their boss.
3. Wear one type of clothing when going to work and another type when exercising at the gym.
4. Shop at a big stock-up grocery store at the beginning of the month just after getting paid, shop at a convenience store to pick up milk when running out in the middle of the week, and shop a cheap store at the end of the month when money is tight. 

Does this inconsistency in behavior mean that these individuals are illogical? Not at all. Every behavior is logical within the context of the particular occasion/situation.

1. When impressing others with beer, price is less important and image more important. Therefore, it is logical to buy a different beer than when drinking alone (when price is more important and image less).
2. A restaurant suitable and desired by children (kid-friendly food and environment) is not one suitable for business lunches with the boss (quiet and sophisticated), so one naturally chooses differently depending on who one is eating with.
3. A business suit makes no sense at the gym and gym clothes make no sense in the office.
4. The amount of money in one’s pocket, the size of the shopping list, and how much of a hurry one is in determines where one go for groceries. As these variables change, so changes the shopping destination.

Therefore, it is the wrong question to ask as to which segment I am in:

1. The image beer or cheap beer segment.
2. The child-friendly or boss-friendly restaurant segment.
3. The suit or sweats clothing segment.
4. The stock-up, convenience, or low price grocery segment.

I’m in all of these segments. It’s like the lady who is both in the high-end organic grocery segment (Whole Foods) and the cheap private label grocery segment (Aldi).

So does that mean that segmentation is worthless? Not at all. It just means we have to move from designing segments around “who” to segments around “when.”

If you look at the “when” of segmentation, then you are looking to own a situation or an occasion. You try to become the ideal solution for anyone whenever they find themselves in that chosen situation or occasion. At that point, that person becomes a part of your segment. And when that person moves on to a different situation, they fall out of your segment. You target the moment, not the person. When the moment is appropriate for your brand, you make your move.

Grocery Example

For example, I did not see that woman at Aldi purchasing any meat or fresh produce at Aldi. When she runs out of those products, that occasion probably prompts a trip to Whole Foods, because she values their extra quality, variety and emphasis on organic. And these attributes are important to her on fresh food.

But I suspect that in order to afford those expensive items at Whole Foods, she needed to save money on items where freshness, quality, variety and organic are less important. Thus, when the occasion comes up to buy basic staples, like rice or pasta or paper plates, she went to the store focused on low price—Aldi. This explains why I saw her in the pasta section at Aldi.

So the occasion/situation dictated which attributes were most important. Then the store which owned the attributes associated with that situation got the business—Whole Foods when the occasion required quality, variety and organic and Aldi when the occasion required saving money. As long as Whole Foods and Aldi continue to excel at their differentiated solution sets, they will win when a person’s occasion causes them to desire that particular solution set.

Steps to When-Based Segmentation

To succeed at when-based segmentation, you need to do the following:

1. Choose a situation or occasion where you can win (your position).
2. Build a business model that makes your brand the ideal solution for the problems most relevant to that occasion.
3. Let people know which occasion-based solution you are relevant for and why you are best qualified to solve the problems relevant to that occasion.
4. Do a good job of getting your brand inserted into the moments when the occasion is relevant.

For example, let’s say that you own a restaurant. The first step is to find an occasion to position yourself around. Let’s assume you choose to own the occasion of business lunches.

The second step is to build a business model that will give you superiority as a place for business lunches. So you start by doing research to learn what is most important when choosing a place for a business lunch. Perhaps the research says that the following qualities are most important: quiet area where you can hold conversations confidentially, close proximity to the office, ability to cater meals, food that has a sophisticated adult taste isn’t messy. Then you build your business to win on these attributes in terms of location, offerings, and skill sets.

Third, you make sure people are aware that you are “the best place for a business lunch.”

Fourth, you try to make sure you are inserted in the moments when that occasion comes up. For example, you may buy ads on search engines for terms like “business lunch.” After all, when people are looking up the term, they are probably entering that occasion. Perhaps you get in good with all the top administrative assistants in the offices nearby. After all, they may be the ones called upon to find their boss a place for a business lunch. If the admins control the choice, then you want to control them when the occasion rises.  

Finally, don’t get upset when all those business people drive home to their families in the suburbs and are not coming to you for dinner. Their situation has changed and they are no longer trying to solve the “lunch with boss” problem. They are no longer in your segment. Their meal needs have changed. And if you try to change your business model to meet these new situation needs, you can ruin your ability to win at the business lunch occasion.

Be patient. They will come back to work tomorrow. And many will need to solve the “lunch with boss” problem tomorrow. Just be ready when they drift back into your situation-based position.

SUMMARY
Segmentation is a key element of strategic planning. Usually, the best segments are those that are defined around situations rather than around individuals. The problem with individual-oriented segments is that individuals act differently based on the situation. Therefore, it is virtually impossible to create a solution that is best for all the situations a particular individual experiences. The better alternative is to choose a position revolving around a particular situation. If you own the best solution for that situation, then you will get the business whenever someone drifts into that situation. And don’t be upset when the customer drifts into a different solution and chooses someone else. Just be ready when they drift back into the situation where you can win.

FINAL THOUGHTS
Follow the solution to the situation, not the individual. If you follow the individual, you will become unfocused in what you offer as you try to be all things to all of their situations. By contrast, if you follow the solution to a situation, you will continue to get better at owning a point of focus.

Strategic Planning Analogy #515: Follow the Recipe

THE STORY
The nice thing about a “To-Do” list is that you can pretty much do anything on the list in any order you want. The individual items on the To-Do list are independent of each other. If I choose to clean the garage first and mow the lawn second, that’s okay. Or if I choose to mow the yard first and clean the garage second, that’s okay, too. Or if I can get a friend to help me and do both at the same time, that’s also okay. All that matters is getting the stuff on the list done.

A recipe doesn’t work that way. Things need to be done in a particular order. You have to measure the ingredients BEFORE you mix them together. You have to mix the ingredients BEFORE you bake them. If you bake before mixing or mix before measuring, you will have a mess on your hands. The recipe will not turn out as desired. Unlike a To-Do list, a recipe needs to be done in the proper order.

This is especially true if you expect me to eat what you make.

THE ANALOGY
There is a long list of activities associated with strategic planning, like coming up with Visions or Mission statements, analyzing the environment, formulating a budget, creating a position, designing KPIs, assigning implementation tasks, and so on. To get it all done in a timely fashion, there is the temptation to treat it all like a To-Do list. Just get every activity assigned to somebody and let them work at—all at the same time.

That may sound efficient at first. But strategic planning is more like a recipe than a To-Do list. Connections and dependencies exist between the tasks. There tends to be a need to do things in a general order. Otherwise, you end up with a mess.

Unfortunately, I see companies skipping steps or doing them in the wrong order. That’s like mixing before measuring and skipping the baking. I wouldn’t accept that in the kitchen, and I won’t accept it in the world of planning.

THE PRINCIPLE

The principle here is that before embarking on strategic planning, get a good recipe and do the tasks in the proper order. In this blog, I will offer such a recipe. Since most recipe books come with pictures of the recipe, I have one, too—as you can see in Figure 1. Click on it to see a larger version.

Learning

I have summarized everything into three major tasks—learning, deciding and doing. These are the planning equivalents of measuring, mixing and baking. The first task is learning—getting smart about understanding the current state and expected future state. This applies to the state of your internal company/brand and the state of the external marketplace where you will compete.

To learn about the external environment, you need to study the consumers, the competition, regulations and other external factors which can impact your success. To learn about your internal environment, you need to look at your strengths and weaknesses and how you get things done.

This learning is a lot like the measuring in a recipe. You are measuring four things—current state, direction, magnitude and speed. This applies to measuring customer segments, competitive positions, technological advancements and internal issues. The four measurements work like this:

1. Current State: What do things look like today (market share, number of people, size of industry, attitudes, threat of Porter’s Five Forces, internal competitive advantages, etc.)? This is a sort of good or bad measurement.
2. Direction: In the future, how will the current state measurement change in size? Will it go up or down?
3. Magnitude: In the future, how massive will those changes in direction be? Will the changes (up or down) be huge or small?
4. Speed: How fast will the future changes occur? Will it happen almost immediately or will it take some time (fast or slow)?

This is not about making precise measurements. Measuring the future is not that easy and precision takes too long (you have to wait until the future gets here before you can precisely measure it and then it is too late to be useful in planning). For planning purposes, it is usually enough to know good or bad, up or down, huge or small, and fast or slow. I talk about this in more detail here.

Deciding

Once you become smart via learning, you are ready for step two in the recipe—to make some key decisions about how you want to play the strategic game. This is where you put together your unique mix of attributes and processes that you will stand for and win with.

Without gathering the knowledge first, your decisions for this mix will be little more than guesses, hopes, or wishes. Yet, I often see organizations start with some decision activities as their first act. They want to dive in and create visions and missions from the start. They want to decisions about what they want to be begin the planning process. It’s like mixing before measuring.

The problem is that is somewhat irrelevant what we initially want our mix to be. That’s because we do not operate in a vacuum. We operate in the context of the environment and time. The idea is not to pick a place that is pretty and desirable. The idea is to pick a place where we can succeed. And the best place to succeed depends on everything else going on in the marketplace relative to our strengths. And we won’t know that unless we do the learning first.

I remember going to a franchising seminar and hearing a lecture from a successful franchisee. He said that some of the most successful franchisees ignore the glamorous businesses and enter businesses which are dirty, ugly and risky. Why? Big corporations tend to avoid the dirty, ugly and risky. This makes them more profitable for the little franchisee. The idea here is that analysis and learning may point you to away from your first choice (the glamorous option) and put you somewhere else which will make you far more successful. Remember, nearly everyone in the smartphone business is losing money. It may be glamorous, but not a place where everyone can succeed.

In making decisions for your strategy, keep in mind the context of yourself within the environment. Make sure the position you choose is seen by the marketplace as desirable, sizable, ownable, preferable, achievable, believable, understandable, and profitable. I talk more about these concepts here. And then, once you have made your choice about what you want to be, translate it into an external message (position statement) and an internal business model (how I must operate to make the position a deliverable reality).

Doing

The third step is doing—the hard work of making your decisions come to life. This is where you “bake” the strategy. This, by necessity, has to come last. Until you make your decisions, how will you know which actions are the right ones to take? Until you know your way to win, you cannot know which are the winnable actions for your business. 

For example, Aldi and Whole Foods are both grocery retailers. Yet they have decided on radically different positions. Aldi aims for the lowest possible price while Whole Foods aims at health, nutrition, and natural/organic. The right actions for success at Aldi are almost the opposite of the right actions for Whole Foods, and vice versa.

It’s not that some actions are always good and others are always bad. Good and bad is determined by the position. A good action for Aldi can be bad for Whole Foods, and vice versa. So how do you know what the right actions are prior to deciding the position?

Yet, I often see businesses rushing to do the actions first. They claim there is no time to learn (or the future is unlearnable) and that consumers make all the decisions. Therefore all we can do is act quickly and learn from our mistakes. I don’t think it’s quite that simple. I don’t want to stick random ingredients in the oven and then taste them afterwards to learn if it is good. Random actions are not as efficient as making the right action tradeoffs based on a chosen position.

The “doing” actions you choose to prioritize need to address both internal and external challenges. Externally, one needs to convince the customers and the supply chain that you own our position and that it is in their best interests to prefer us. Internally, we need to be sure we have a model capable of delivering the position.

Cycles

Those who want the “doing” to come first aren’t entirely wrong. There are some things which are best

learned via doing and experimenting. But that doesn’t mean that you skip the traditional learning and deciding steps. It means you use the “doing” actions of your current planning cycle to begin the learning of the next cycle.

You can see this in Figure 2. Planning is a continuous series of cycles. Just as you don’t just eat once and quit eating ever again, you don’t just plan once and quit. The planning process never really stops. When you get to the end of one cycle, you use what you learned to influence the next cycle.

SUMMARY
Strategic planning is more like a recipe than a To-Do list. Good planning tends to do things in a particular order, without skipping steps. First you learn by measuring what’s going on (and expected to happen) in the internal and external environments. Then you decide how you want to mix together attributes and processes in order to create a position and business model which optimizes your chances for success in that environment. Third, you “bake” your strategy by doing the implementation actions which make your mix decisions a reality. Finally, you use what you learn from those three steps to do an even better job in your next planning cycle.

FINAL THOUGHTS
This recipe for planning isn’t 100% etched in stone. There is room to experiment with this recipe. But don’t throw it away.

Strategic Planning Analogy #242: Normally Speaking

THE STORY

Here in the United States, I am treated like an odd alien from another planet because I prefer to drink my soda at room temperature.  However, when I am in Europe, that behavior is considered to be normal.  I like mayonnaise on French fries as well, which makes me appear odd in the US, but normal in parts of Europe.  I also think US sweets are "too sweet," and prefer some of the less sweet treats from Europe.

 

Perhaps when I was a child…in the middle of the night…some mad scientist switched my taste buds with the taste buds of someone from Europe.  That might explain my cravings for food at odd hours—my taste buds are in the wrong time zone!  Of course, having transplanted tastebuds (a sort of Frankenstein-of-the-Tongue) would make me odd most anywhere.

 

THE ANALOGY

What is normal?  As we saw in the story, what is normal in food taste tends to depend on where you were raised.  Normal cravings in one place are seen as quite odd in other places.

 

But it doesn't end with just location.  Look at the usage of new media by age.  What a twenty-something thinks is normal usage of new media would seem abnormal to many older people, and vice versa.

 

And stand out of the way when many people of opposing political viewpoints start to argue.  Each sees their viewpoint as "normal" and reasonable.  They find the opposition to be odd at best, and insane or dangerous at worst.

 

Even things as mundane as brushing teeth can challenge the concept of normality.  Proctor and Gamble tried to determine the normal teeth brushing routing routine, so that they could design the ideal tooth paste.  They found no normal.  Some wet the toothbrush before putting on the paste, some wet the toothbrush after putting on the paste, some don't wet the toothbrush at all.  And that's just the beginning of the tooth brushing routine.  Once the toothbrush enters the mouth, even more variety in behavior occurs.

 

We live in a highly fragmented world.  There are so many different lifestyles, attitudes and ways of everyday living.   And the trend appears towards even more fragmentation.

 

At some point, even the notion of there being a "normal" seems quaint and old-fashioned.  We are told to "celebrate diversity" and see those who propose conformity to a norm as "narrow-minded."

 

As a business, this poses some strategic challenges.  How do you create a business strategy in a "post-normal" world—a place where the idea of normal ceases to exist?

 

THE PRINCIPLE

Business strategies are executed out in the marketplace.  If the marketplace is diverse enough to make normalcy obsolete, then strategic choice—how to win in that marketplace—becomes less obvious.   The good news is that in a diverse marketplace, there is not just a single best way to win.  If someone has already locked up a solid position in the market, it doesn't mean that you've lost your chance.  With all that diversity, you are more likely to find a different strategic path where you can also win.

 

The bad news is that fragmentation decreases the size of any behavior segment, so that when you win your audience, it may be too small to support your infrastructure.  Economies of scale are harder to obtain (although the digital world often tends to reach scale sooner than the physical world).

 

Listed below are five generic approaches for trying to reach a post-normal world.  As we will see, some approaches are better suited for this world than others.

 

1.  Fight for Average

In order to maximize scale, one can aim for offering a single solution targeted to satisfy the average within the diversity.   In other words, if diversity scatters behavior randomly in all directions, the single position which is closest to each individual would be the position in the middle—average features, average prices, average performance, and so on.

 

In a world without normal, this can be the most dangerous position to take.  There is no longer the large bulk at the center of a tall, bell-shaped curve.  The dispersion of people is more equalized, putting fewer people close to the center.

 

Average at everything means you are the best at nothing.  Trying to please everyone a little bit rarely works, because you are not competing against others who are also striving for average.  You are competing against hoards of specialists.  Although none of the specialists have broad appeal (and may actually be hated by more people than your average approach), for each demand group one of these specialists will be preferred over your average approach. 

 

As a result, an average approach may never come in last, but it will never come in first.  The average of black and white is gray.  If you offer gray, you appeal neither to the whites (you are too dark) nor the blacks (you are too light).  Middle of the road products and retailers have been losing out to specialists for years. We talked about this in greater detail in a prior blog.

 

2.  Do it All

If trying to cover everyone with a single go-to-market strategy targeted at average is wrong, then how about the opposite?  There are two ways to do this.  The first is to try to be the absolute best at everything in a single offering—the perfect product.  The second is to offer a near infinite assortment of offers, each targeted at a different fragment.

 

Lucky you if you can pull off the single perfect product.  It is extremely difficult to do because there are usually trade-offs which make this impossible.  Adding more features creates complexity, which fights against simplicity.  It is nearly impossible to best at all and be best at price.  In addition, there probably is no consensus anymore on what "best" really means.  Some may think the best design is contemporary while others may think traditional design is best.  For some, bigger is better…for others, smaller is better.  Best is no longer an absolute term in a post-normal world.

 

The reality is that if you are going to get a product out in the marketplace at a reasonable price, you have to make trade-offs.  You cannot afford to do it all at the level of perfection.  Customers are willing to make trade-offs to get what they want at a price they can afford.  They will migrate to firms who offer their ideal trade-off.  If you do not trade-off as well, you may be priced out of the market.

 

But then, to create a near infinite amount of trade-off offerings (one for each fragment) has its own set of problems.  First, you may not get enough scale for any one of those offerings to create a profit.  Second, you can create brand confusion.  It's hard for a brand to be known as best at everything.  If all these products come out under the same brand, it can confuse a customer as to what the brand really stands for.  In addition, customers will not believe that a single brand can be good at producing that many varieties of trade-offs.  Generalists are not usually viewed as powerful a brand as specialists.

 

So "Do it all" is difficult pull off in a post-normal world as well.

 

3.  Cluster Portfolio

If trying to please everyone with one product (as average or as best) doesn't work, and trying to please everyone with near infinite products doesn't work, how about something in between?  This would be to create a portfolio of a manageable number of offerings which are best or average for large sub-sectors (clusters) of the marketplace.  This tends to be the approach taken by people like Proctor and Gamble.  They have great technological expertise in paper/absorbency.  How do you exploit your full potential with that competency?

 

With toilet paper, the Charmin brand uses four sub-brands to cover the bigger niches: Ultra Strong, Ultra Soft, Basic (price) and Plus (with lotion).  With paper towels, there are three basic niches for the Bounty Brand: Extra Soft, Regular (thick and stylish), and basic (cost).  With diapers, Luvs stands for price and Pampers stands for good parenting.

 

The trick is to find the sweet spot between covering more fragments without diluting the brand.  If you can find that sweet spot, you may be able to get the best of both worlds—economy of scale plus specialized trade-offs.

 

4. Laser Focus

One strategic option reasonably well suited to the post-normal world is the laser focus.  Choose a relatively large niche in the marketplace and own it better than anyone else.  Specialize in understanding the niche and meeting its unique needs.  Essentially forget about all the other diversity.  Aldi isn't trying to please everybody, nor is Whole Foods.  Each has found its own niche in the grocery marketplace and is exaggerating its offering to the tradeoffs most desired by that niche.  They don't care that others may hate their offering and never patronize them.

 

Although the world may no longer have a normal, there is usually an agreed upon normal within the niche.  In fact, it is their version of normal which tends to define that niche.  Play to that normal (ignoring the rest), and you can win, provided the niche is large enough. 

 

5.  Enable Personalization

Rather than specializing in the final product for every fragment, how about providing the means so that every fragment can create their own?  A good example is Zazzle.com.  At Zazzle you can get the ideal t-shirt just for you.  They have an enormous number of customizing options.  And if you do not like any of them, you can create your own individual customized look and they will make it for you.  There are tons of firms like this who will customize clothing, food and other everyday needs to your individual tastes.

 

In this web 2.0 world it is easier to work with the customer, allowing them to customize and personalize their own unique solution.  Your solution is no longer the end product.  Your solution is to be the enabler that allows each fragment to find or build their own unique end product.

 

SUMMARY

In a post-normal world, a one-size-fits-all strategy is out of place.  It is better to either narrow your strategy to a single niche, pick a small cluster of niches, or enable the fragmented world to create their own unique solution.

 

FINAL THOUGHTS

Next time someone accuses you of being abnormal, just say thank you.  In a post-normal world, that is a complement.

Analogy #231: Where's the Finish Line?

THE STORY

What if every participant in the Tour de France bicycle race got to choose their own unique race course?  Some might pick flatter courses.  Some might pick shorter courses.  Some might decide to race in Canada rather than France.

 

If this happened, how would you determine who won the race?  With every racer having a different finish line at the end of a different course, that could be quite difficult.

 

Perhaps as a guide, we can look at the race for the presidency of the United States.  Not all of the candidates chose the same route.  Some entered the race early; others came in later.  Some candidates skipped the early primary states and focused instead on some of the later, larger prizes.  Some candidates charted their race through the internet more than others.  Some took a grass roots path while others went after the political party establishment.  Tactics, messages, and issues varied from one candidate to the other.  Sometimes, they varied for the same candidate from one month to the other. 

 

So how do we know who won?  It was the candidate that had the most cheering fans at their designated finish line.  That's the one who ended up in the White House.

 

So, to apply this to our Tour de France contemplation, perhaps the winner would be the cyclist who had the most cheering fans at the end of their designated finish line, wherever that might be.  Even if we weren't positive they won the race, at least we would know they won the hearts of the fans.

 

THE ANALOGY

Strategic planning is very much a race—a race to a desired future position.  Whoever captures that position first gets to "own" that position and reap disproportionally higher rewards from the customers desiring that position.

 

This business race, however, is more like the hypothetical Tour de France in our story than the real one.  Each business determines its own race course and has its own finish lines.  Not every firm chooses the same desired position.  Not every firm tries to get to their position in the same manner.  Business strategies can vary all over the place.

 

So the question remains—how do you know if your strategy is a winner?  Check out the crowds at your finish line.  How many people have paid to see you cross that line?

 

THE PRINCIPLE

Given the fact that the race of business has everyone on different courses with different finish lines, one should consider the following four principles:

 

1. Good Training and Good Execution are not Enough

If everyone were running the same course under the same rules, then the winning strategy would be simple—just perform better than the others on that course.  Your focus would be on training well and executing well. 

 

However, if everyone is running different courses in different ways, the task becomes exceedingly more difficult.  Not only do you have to perform well, but you need to choose well.  Since the race course is not given to you, you have to choose one.  Making the wrong choice for your course could be more damaging than how well you run the course.  Getting quickly to a bad destination doesn't qualify you for the winning Tour de France yellow jersey.  

 

So many times I have seen companies get singularly focused on the concept of "training and execution."  The idea is that if I can just perform a little bit better at what I am doing, I will win.   Just lower costs a little, raise quality a little, improve service a little, or lower prices a little, and I will do well.  In other words, if I run just a little harder, I can win.

 

This concept is flawed, because it assumes that you are running the right course.  In fact, you may be on a terrible course.  For example, I don't care how well you may operate a five and dime variety store.  It is an obsolete retail format.  The customers have left and are cheering on other retail formats, like discount stores, dollar stores, or supercenters.  To win, you first need to change your course to a retail format that is still viable in the marketplace.

 

Choosing the right course is just as important, if not more so, than getting the execution right.  Therefore, one's focus needs to expand beyond just performance and also concentrate on making the right choices for course and destination. 

 

2. Chasing the Competition is not always a Great Idea

If everyone is running the same course, then the goal is to chase the leader and overtake them, so that you can get to the finish line first.  The focus is how you are doing relative to the other racers.  However, if you have different finish lines in different locations, your position relative to competition becomes less relevant.

 

In most industries, there is room for more than one successful position (i.e., finish line).  For example, in grocery retailing, there can be success at being the lowest priced (like Aldi), the most convenient (7 Eleven), the best one-stop shopping experience (a supercenter), the best and most healthy food (Whole Foods), and so on. 

 

Each of these successful positions is pointed at a different finish line.  Whole Foods will not win its position by chasing Aldi, nor vice versa, because their desired end-states are in different places.    Each needs to stay true to their own path. 

 

Again, I have seen many companies lose because they were too focused on following the competition.  For example, I remember when Wal-Mart was first expanding to the east coast of the United States.  This was an area owned by Roses discount stores.  Roses saw that Wal-Mart had a winning strategy, so they tried to follow it.  Roses tried to copy everything Wal-Mart did, including repainting its store walls to the same color as Wal-Mart.  In the end, Roses had made itself into an inferior Wal-Mart.  When Wal-Mart came to town, Roses lost and quickly disappeared from the retail marketplace.  People didn't desire an inferior Wal-Mart (Roses) when they could get the real thing (Wal-Mart).

Roses made the mistake of running towards Wal-Mart's finish line (a race they could not win), rather than finding a course where they could win.

 

By contrast, when Wal-Mart expanded north into Shopko Discount Store territory, Shopko took a different approach.  It started backing away from aspects where Wal-Mart was strong and put more resources into areas where Wal-Mart was weaker.  The goal was not to beat Wal-Mart but to successfully co-exist by choosing a different course.  Now, twenty years later, Shopko still exists. 

 

The moral of the story is to focus on running your race, rather than the race of someone else.  Keep the eye on your finish line, not theirs.

 

3. Remember that Rules are Fluid

In the comic strip Calvin and Hobbes, Calvin invented a game called Calvinball.  The rules were simple:  a) no two games are to be played by the same rules, and b) you make up the rules as you go along.

 

In many ways, real life business strategy is a lot like Calvinball.  The environment is constantly changing.  Rules that worked in the past may no longer apply.  The cheering crowds may have moved to a new location. 

 

In this type of race, you don't just set the course once and forget about it.  Instead, you need to periodically make course adjustments.  You may need to put your finish line in a slightly different place.  In extreme cases, you may need to abandon the race altogether and start a different one.

 

Strategic planning is not a one-time event.  The end result is not a huge book detailing steps to be followed exactly to the letter.  Instead, it is a continual way of thinking about the marketplace so that your running gets you closer to your cheering crowd.  When the crowd moves, you need to move as well.

 

4. It's Most Important to Have the Crowds at the End of the Race  

Most great new innovative strategies start small.  This is because innovation implies change, and people tend to resist change at first.  Habitual established patterns can be hard to break.  However, great innovations do eventually win out over habit.

 

Therefore, do not be afraid when striking out on a new, innovative course.  If the innovation provides a clearly superior solution to customer problems, it has a great chance of winning in the long run.    

 

The important thing is not how many adoring fans you have at the beginning of the race, but at the end.  Barack Obama had very few fans when he started the race for President.  But at the end, when it counted, he had enough fans to win the election.

 

Therefore, choose the destination that is in the same location as where people are going, rather than merely looking at where they are today. 

 

SUMMARY

Strategic planning is about winning a race for the future.  However, your race is not the same as everyone else's.  You need to find the course that is best for you.  Therefore:

 

1.  Spend Time Choosing the Right Course

2.  Don't Chase Competitors who have Chosen a Different Course.

3.  Be willing to modify your course in the middle of the race.

4.  Run to where the crowds are going to be.

 

FINAL THOUGHTS

A friend of mine invented his own Tour de France:  a bicycle race down France road in Minneapolis.  It may not be as big as the race in Europe, but at least it was a race he could win.

Successful Retail is about making PAR (part 2)

THE STORY
Many, many years ago, I did some consumer research to try to understand the difference between a Wal-Mart customer and a Target customer.

The people who loved Wal-Mart thought that Target customers were stupid, because:

1) Target shoppers are were paying too much (and that’s wasteful—which is a bad thing). They could get the stuff cheaper at Wal-Mart.

2) Target shoppers were seduced by all the frills and glamour, which at the end of the day is worthless, because the only thing you get to take home is the product.

At the same time, the people who shopped Target thought that the Wal-Mart shoppers were stupid, because:

1) The Wal-Mart shoppers were putting up with a dirty, undesirable shopping experience when they did not have to.

2) Don’t the People who shop at Wal-Mart realize that by going into those stores they are associating with the undesirable people of society, so by association they would be considered an undesirable person?

So in the end, both sides thought that they were the smart shopper and that the other shopper was stupid.

THE ANALOGY
We tend to patronize those companies that reinforce the way we look at life. The Wal-Mart shopper tended to have a moral code which was against wastefulness. Many of them saw wastefulness as an indicator of being a bad parent, since money wasted at the store was less money they could spend on their family. Since Wal-Mart seemed to waste the least amount of money, that’s where these shoppers went.

Conversely, the Target shopper saw shopping as more than just a task to get a product as cheaply as possible. They also valued the shopping experience and how that experience would influence how others thought about them. Whereas the Wal-Mart shopper was more directed by an internal moral compass, the Target shopper was more influenced by external direction from the culture around them. Since the external culture thought more highly of Target, Target became the store of choice.

Therefore, when creating strategic direction for your brand, one must take into account how the customer integrates this purchase into their larger view of life and self worth. Otherwise, they will miss out on some of the key motivators of purchase and perhaps end up looking like the “stupid” choice for a large sector of people.

THE PRINCIPLE
This is the second of two blogs looking at how to be successful as a retailer. Once you get past mastering the basics of retailing (right product, right price), there are three more areas one must master. We called it mastering PAR, because this acronym spells out the three areas:

1) Personality
2) Advocacy
3) Respect

In the last blog, we looked at personality. In this blog, we will look at Advocacy and Respect.

2) Advocacy
If one assumes that most stores in a particular sector sell about the same stuff at roughly the same prices, then what becomes the tie-breaker to get you to choose one over the other? Often, it has to do with which store is doing a better job of being an advocate for your way of life.

One way a store can be an advocate is by helping its core customers get more of what they want and less of what they don’t want. Most people do not want to wade through acres of stuff they are not interested in so they can find the stuff they are interested in. An advocate store will know its customer type well enough to pre-select only those products important to their customer. This can be a great time-saving service.

Walgreen’s recently found out from its customers that they would enjoy the experience more if the selection was reduced, so that is what they are doing. In the area of food, Trader Joe’s and Aldi have been successful by narrowing the choice to just what their customer is looking for. In fashion, specialty stores tend to do well if they focus on a particular type of fashion statement rather than trying to be too many things in the same store (such as the successful focus of American Eagle Outfitters versus the muddle of the Gap).

For additional selection options to become meaningful choice, it needs to be relevant to the customer’s way of life. Otherwise, it no longer represents choice, but only clutter. Advocates get rid of the clutter on behalf of their customers.

Another way to become an advocate is by reinforcing the fact that you endorse the lifestyle of your customers. These retailers seem themselves as more than just sellers of goods, but also as outfitters of a lifestyle. Whole Foods is about more than just product. It is trying to advance an entire way of healthy living. Hot Topic makes the Goth teen feel like their lifestyle is welcomed, understood and appreciated. Christian bookstores are not just selling books, but endorsing and supporting a particular spiritual lifestyle.

A third way to be an advocate is to be a fighter for your customers. It is sort of like being a concierge for your customer, looking for special ways to help out your customer. This could include anything from special ordering product to lobbying for the rights of the customer. It’s going that extra step to make the customer’s experience special.

Finally a store can be an advocate by supporting the same causes which are important to their customer. More than ever, customers want to patronize stores which direct some of their profits to help make the world a better place. If the causes which are important to the customer are also important to the store (and the store puts their money where their mouth is) the store will tend to be patronized more. This could include environmental causes, neighborhood causes, or helping those less fortunate.

3) Respect
Closely associated with advocacy is respect. Customers do not want to be taken for granted. They want to be appreciated for their patronage. About a week ago, MSNBC ran a web page asking people to write in about how to improve Wal-Mart. One of the biggest complaints was the long lines at the store. People felt that those long lines showed no respect for the customer’s time. If you do not respect a customer’s time, then they will shop at a place where they get the respect. One of the reasons for the success of Carmax is the fact that they do a better job than the competition in respecting the time of their customers.

Customers want stores that respect the choices their customers make. Don’t be patronizing or judgmental. Believe in what you are selling and be proud of it.

Finally, show respect for the customer beyond the store experience. The relationship shouldn’t end at the cash register. If you sell poor quality junk that breaks down shortly after purchase, you have not shown respect for your customer. Stand behind what you sell and make sure the post purchase satisfaction is just as important as the in-store satisfaction. Repeat business creates profits. If you let down the customer after the transaction, you might not get another transaction from them.

SUMMARY
Customers have too many choices of where to spend their money. To get them to choose you, a retailer must go beyond just having the right goods at the right price. Instead, they must form deeper relationships which reinforce the lifestyles and moral codes of their customers. You must stand alongside your customer and become an advocate for the things most important to their way of life. In addition, you need to respect their time, their choices and their post-purchase experiences. Otherwise, you are seen as just a cold-hearted business. And it is difficult to excel high enough on the retailing basics in order to overcome this bad impression.

FINAL THOUGHTS
Sometimes, I think many retailers spend too much time defining themselves in terms of what they sell rather than who they serve. If a retailer were to focus more on pleasing a particular type of customer, they may find many more opportunities to profitably sell many more things which they would never dream of doing if they defined themselves by some narrow product category.

Full Circle

THE STORY
One of the most important satirical novels of the 20th century was Animal Farm, by George Orwell. In this story, the animals on the farm were sick and tired of the harsh and inhumane treatment they received at the hands of humans. Finally, they took matters into their own hands started a revolution—kicking all the humans off the farm.

At first, everything after the revolution was wonderful. All the animals felt equal and appreciated. The noble cause of the revolution was put to song. To ensure that the animals on the farm would never again suffer as badly as they did under the humans, they enacted the Seven Commandments:

1) Whatever goes upon two legs is an enemy.
2) Whatever goes upon four legs, or has wings, is a friend.
3) No animal shall wear clothes.
4) No animal shall sleep in a bed.
5) No animal shall drink alcohol.
6) No animal shall kill another animal.
7) All animals are created equal.

For the animals not smart enough to remember all of the commandments, they were shortened to one chant: Four Legs Good, Two Legs Bad.

Over time, Napoleon the pig started gaining more power. The more power he gained, the crueler and more dictator-like he became. Slowly, Napoleon started changing the seven commandments in order to justify his dictatorial behavior and the fact that he was letting the pigs ignore the rules. The commandments started to read as follows:

No animal shall kill another animal without cause.
No animal shall sleep in a bed with sheets.
No animal shall drink alcohol to excess.

Over time, most of the older animals who remembered the great cause behind the revolution die off. Squealer the pig, one of the last of the original group, assumes power and continues the cruel and harsh dictatorship from the pigs which began under Napoleon. Squealer even taught himself to walk upright on two legs and began to wear clothes.

Squealer changed the chant to: Four Legs Good, Two Legs Better. Then he changed the Seven Commandments to a single commandment: All animals are created equal, but some are created more equal than others.

The pigs decided to invite the neighboring human farmers over to show off how productive the farm was (due the harsh treatment of the non-pigs). As the other animals watched the dinner proceedings through the window, they realize with horror that they can no longer tell the pigs’ faces from the human ones.

THE ANALOGY
New businesses often take off and become successful because they have done something “revolutionary.” It may be a revolutionary way to deliver a product so that the price is dropped significantly below what it could be purchased for previously, like what discount stores did to department stores. It may be a revolutionary approach to service that pleases the customer far more than what they had before. It could be a revolutionary way of treating the employees, which creates unusually high morale and productivity, such as what was done at Costco. It could be a revolutionary process which produces never-before seen levels of quality.

It could also be a special way in which the company bonds with the community, going above and beyond the call of duty to give back to the local community. It could be a devotion to particular causes, like sourcing locally, being environmentally friendly, not testing on animals, and so on.

Whatever the source of the revolutionary concept, the new twist on the way things are done can often result in success. Success can change the attitude of companies.

In the Animal Farm story, the revolution started for a noble cause—to eliminate cruel treatment of animals at the hands of the humans. At first, this creates great joy among the animals, who are willing to make sacrifices for the greater good. Eventually, the noble cause is forgotten, and the pigs become just as cruel to the animals as the humans had been. In the end, the animals cannot distinguish between the humans and the pigs.

This same thing can happen when revolutionary companies get large and successful. The idealistic leader is eventually replaced with a “professional manager,” schooled in the old ways. When tough times come (and they always do), instead of sticking to the cause of the revolution, they begin to cut corners. Those unbelievably low prices start to become closer to what others charge. The revolutionary service becomes less revolutionary. Employees are treated less like partners in a revolution and more like costs which need to be contained.

Eventually, there are very few people left in the organization who remember the humble beginnings of the revolution. Now, all that the management sees is a large company.

Before you know it, the customers have a difficult time seeing differences between this formerly revolutionary company and all the old, large companies it used to be taking share away from. The pigs look just like the humans. The customers stop patronizing the company and move on to the next revolutionary company. And thus, everything has gone full circle, from revolution to normalcy to stagnation…and then the cycle begins again with another company’s revolution.

THE PRINCIPLE
It is very difficult to keep from falling into the trap of going full circle, of losing your reason for success due to losing the spirit of the revolution. The revolution will not stay alive on its own. Natural forces will tend to push a company more towards normalcy. A company must proactively put into place mechanisms to keep the revolution alive.

Look at Apple. Apple started out as a very revolutionary company, doing things differently from others. These revolutionary differences were the driving force behind the success Apple was having. When Steve Jobs left Apple, the revolution faded, and so did the fate of Apple. Steve Jobs had to come back and start the revolution all over again. Now Apple is back to designing revolutionary products under a revolutionary philosophy and selling them in a revolutionary way. The success is back, bigger than ever.

A similar situation happened at Gateway Computer. Ted Waitt started the company in an Iowa farmhouse in 1985. His rural Midwestern culture and personality (which was not like traditional businessmen) helped to create a revolution in the computer business. Eventually, the success caused the company to become quite large. Ted felt that his style of leadership and approach to business was no longer appropriate for such a large firm.

As a result, in 1998 he moved the company from South Dakota to California, where all the other big technology companies tended to be. At around the same time, he hired a bunch of “professional managers” to run the place, people schooled in the traditional way of running large companies. In 2000, Ted Waitt completely backed away from active management and left the “professionals” in charge. Between the move to California and the professional managers, the revolution at Gateway died…and so did the prosperity of the company.

Not very long later, Ted had to call off his retirement and come back to manage the business again. He fired the professional managers and tried to resurrect the old culture via TV commercials. Unfortunately, by then it was too late. The revolution was dead and could not be brought back to life. Regarding the professional managers, Ted said, “They were really nice people, but they didn’t seem to do anything,” at least not anything in the hands-on manner that Ted was used to.

The situation at Whole Foods may soon be approaching the loss of the revolution. The recent revelation about outbursts of CEO John Mackey on internet stock message boards is forcing the board to have to reign in Mackey a bit and make the company more “professional.” The old homey, down-home natural approach to the stores is starting to be replaced with glitz and glamour. At some of the newer stores you find things like fancy restaurants, fancy day spas with personal shoppers to purchase your goods while you get a massage, fancy cooking schools, and so on. The potential loss of the revolution could lead to big trouble down the road.
This is why strong vision statements and attention to culture are such an important part of strategy. They help to keep the revolution alive—the differentiation which made the company great in the first place. This may ultimately be more important to long term success than any other part of the strategic process.

SUMMARY
When designing a strategic planning process, it is important to proactively work to retain some of the revolutionary heritage which created the initial success. Otherwise, when the leaders and other revolutionaries retire, the revolution will die. Then you will just be another big company, and indistinguishable from everyone else. You lose your competitive edge and are replaced by the next revolutionary company.

FINAL THOUGHTS
Wal-Mart has succeeded for so long because the revolutionary culture surrounding low cost/low price started by Sam Walton has been so ingrained in the culture that the revolution has survived more than a decade after his death. Recent cracks in that success stem in part from a new culture of paranoia filtering through the company as well as a desire to be a little more upscale (walking away from the strong foundation).