CEOs looking to gain ground and grow their companies when the economy is down should re-examine their approach to strategy and innovation. A strong business strategy will reduce your investment in offerings that are not vital to your business, while increasing your customer base and the value of your products.
How do you find new markets that are not dependent on fierce competition, expensive marketing and big R & D budgets?
There are four steps to substantive growth, whether in an up economy or down economy. These approaches were first described in the book Blue Ocean Strategy by Chan Kim and Renee Mauborgne. The Blue Ocean Strategy process offers a suite of tools to help companies brainstorm, analyze and determine the best course of action for growth via strategy and innovation. Those tools help companies achieve the following four steps or business refinements:
Eliminate everything that does not add value to your target market. Take the fat out of your offering by eliminating what the customer doesn’t value. One notable example is Casella Wine (makers of Yellow Tail wine). The company eliminated aging in the wine making process. Aging, long a part of the wine process, is important to wine aficionados; however, Casella was targeting primarily beer drinkers as its customers. And this segment didn’t care about the aging process and liked the taste of “un-aged” Yellow Tail just fine.
Reduce the investment in everything that is over-offered. Many times our resources go into products and services that have the sole aim of keeping up with our competitors. By reducing spending on product features and services that customer don’t value, we end up with more profit. When Satoru Iwata, CEO of Nintendo, developed the game console Wii, he eliminated the DVD player amid a chorus of criticism from gaming-bloggers. Iwata argued that most game-console purchasers already own a DVD player, so why add the extra functionality at the risk of slowing production of the fast-selling units and increasing its costs? Nintendo recognized that most competing game consoles contained DVD players, but the company chose to only include the features most valued by their customer.
Raise the investment in those things being under-offered to the customers. Increase your investment in what your customer values, but which is not widely offered by competitors.
Allan Jones, CEO of Discovery Ice Cream in Kingsport, TN, raised his investment in “fun” and “activity” in his ice cream business. Recognizing that children love ice cream, love to push buttons, and like activities, he invested in an ice cream robot that children operate to create their own ice cream order by pushing buttons. Jones was able to reduce his investment in the over-offered element (people) as the robots gave more value and enjoyment to the customers, thus eliminating the need for some of the staff.
Create new elements of value. If you’re offering what your competitors offer, then you will always be fighting them for customers. How do you create new elements of value? Where do you start? There are six pathways or places you can look to find new factors of value to consider for your market.
1. Existing alternative solutions. Look for alternatives to your solutions that already exist, and then target the users of those alternatives. For example, Southwest Airlines understood that auto travel was an alternative to flying, and they went after this market with low fares on short routes. Curves, the women’s health gym, considered home exercisers as an alternative to going to the gym and they targeted this market for their gym. If someone doesn’t buy your type of product or service, how are they solving the problem?
2. Strategic groups within industries. The auto industry has luxury cars, mid-size cars and economy cars; the wine industry has budget and premium wines. These inter-industry strategic groups are typically defined by price and complexity. Japanese car makers combined two groups mid-size and economy cars, to create a new, large market. What strategic groups can you combine or create within your industry?
3. Universe of buyers. Does your industry sell to distributors, retailers, resellers or the end user? Novo Nordisk, the pharmaceutical producer of insulin and sugar tests for diabetics, had historically focused their marketing on doctors who treated diabetics. When they refocused their efforts and marketed directly to the diabetic, they became not just a manufacturer but a diabetes care company selling directly to the end user. Are there other potential buyers of your product who you have yet to sell to?
4. Complementary products and services. If you spend time with your customers and look at what they do before, during and after using your product or service, you may discover ideas for new products. Phillips realized that when the Brits make tea, they first boil water, then clean the lime scale (hard, off-white, chalky deposits found in kettles) out of the water and brew the tea. Phillips developed a tea pot with a filter that would catch the lime scale and give tea drinkers a beverage without lime scale.
5. Functional or emotional appeal. What would happen if you stripped the emotion out of your product and made it purely functional? If it’s a functional product, what would happen if you made it emotional? Cemex Concrete in Mexico turned its functional concrete product into an emotional one when they started selling concrete gift cards to people for wedding gifts, so the bride and groom could build a house when they had enough “concrete credit.”
Most cosmetics are sold based on emotion. Charles Revlon of Revlon fame said he sold hope. One cosmetic company took the opposite approach and went functional with make-up and skin care. The Body Shop, a beauty products line, stripped out much of the “emotion,” thereby reducing expenses and tapping into a market that prefers an unemotional approach to cosmetics.
6. Future trends. Does your industry show signs of a future trend that is established, irreversible and has a clear trajectory? Ted Turner foresaw the demand for news at any time in any time zone and created CNN. Steve Jobs, in creating iTunes, recognized that customers wanted to legally buy songs unbundled from an album. What future trends do you see?
If you use traditional planning tools, without incorporating the new resources that lead to the creation of value and innovation, then you may be missing out on new opportunities.
Dr. Sarah Layton is Managing Partner of Corporate Strategy Institute, Orlando, Florida. She is qualified by the Blue Ocean Strategy Initiative Center – London, in Blue Ocean Strategy concepts, tools and frameworks. Please visit her website www.corporatestrategy.com and her blog www.blueoceanstrategicplanning.blogspot.com. Email Dr. Layton now to receive free instructions for the strategy canvas tool at email@example.com