First appeared in ‘Business Day’ (South Africa.)
LEGEND has it that there was a high-profile meeting at Parker Pens Corporation in the mid 1980s.
Parker Pens had been successful for a long time. It had continued to be successful in the face of a number of challenges — cheap imports, ballpoint pens, roller-ball pens — yet somehow, by the early part of the decade, the company had lost its way.
The approach that had evolved was one of competing in foreign markets and neglecting its traditional markets. A strategic meeting was arranged with one item on the agenda: what market are we in? Answering this question transformed the business.
Someone asked: “When did you last receive a Parker pen?” Ask yourself that question. I guess, like most of us you will have a similar response to the people at the meeting: birthday present, Christmas present, presentation — a reward of some sort.
Parker concluded it was in the gift business, not in the market of competing with cheap pens. This insight transformed the business. Instead of continually cutting costs and quality, Parker spent more. Products and packages were redesigned and the advertising budget was increased by 60%. Prices were raised and Parker began to target the “style-conscious and affluent sector”. Despite a world recession, Parker increased turnover by almost 50% in the last half of the decade.
So, what market are you in? Do you know for certain what your unique selling point is?
MacDonald’s thinks it is in the real estate business. When I first read this I could not believe it. Then I thought about it and it made sense. If the fast-food industry collapsed, tomorrow MacDonald’s could survive. Think of the positioning of all their sites.
According to some you are either in the “fit” market or the “sexy” market. If you are in the fit market, you are continually adapting, changing, looking for new opportunities.
This would be an organisation like 3M. This $20bn company has proved incredibly adaptable over the years. It started in 1902 as the Minnesota Mining & Manufacturing Company, mining for material for sandpaper. For the next 100 years it changed and developed — from sandpaper to Scotch tape, magnetic tape, microfilm, overhead projectors, postit notes, respirators, pharmaceuticals and hi-tech products. One of its secrets has been the ability to adapt. This has not been an accident. There are research laboratories in 31 countries outside the US.
Or is it sexy like Ferrari or BMW, market leaders in a niche with a loyal following. These organisations work hard at staying sexy and making it look effortless. BMW employs more than 100 staff in its acoustics and vibration technology departments. It ensures everything from the sound of the windscreen wipers to the sound of the doors closing is acoustically perfect. Computer simulator designer Christian Muhldorfer said after one project, when describing the sound of a new development model: “The door now has a full, reassuring feel.”
If you are in the fit camp you need to spend as much time looking at the competition as you do at yourself. You may be the leader in a certain area but you know how quickly everyone catches up. Gary Dicamillo, CEO of Polaroid, said in 1998: “Some people think photography is going to go away as everything in our industry becomes digitised. But I disagree. I think analogue photography will endure.” Three years later it filed for bankruptcy with nearly $1bn in debts.
Even in the sexy camp you need to avoid complacency. Take the example of Coca-Cola and New Coke in 1985. Having survived as the number one soft drink since 1886, it was challenged by Pepsi. Pepsi came within 5% of Coca-Cola’s overall share of the market, and even overtook it in supermarket sales.
So what did Coca-Cola do? It panicked. It dropped the product that had kept it in business for almost a century and launched New Coke in a wave of publicity. People responded: “Tastes like sewer water”; “Two-day-old-Pepsi”; “Dear Sir, Changing Coke is like God making the grass purple”; and, “You have taken away my childhood”. After more than 400000 calls and letters to Coca-Cola headquarters CEO Roberto Goizueto made a U-turn just 78 days after the launch.
What are the lessons here for businesses? The key one is to ask yourself exactly what business you are in. Are you in the gift business, the unique craft business, the inexpensive, mass production business? Get as many people involved in discussing this. Who are your customers? What do they want? Who are not your customers? What is important to you as a business? What business are you in?
For the sexy elements of your business, you need to protect them. These are the areas that you cannot compromise on. These are the aspects of your business people buy. People stay at the Ritz-Carlton because they know they will be looked after. It may be expensive, but they know they will be looked after. If Ritz-Carlton suddenly started dropping its prices ….
For the fit elements it is a matter of looking outward as well as looking inward. What is there out there that could affect your business? Where is the next threat coming from?
Identify this threat before it ruins you, as Encyclopaedia Britannica found out when it ignored the threat of the internet.
Few small businesses are totally sexy or totally fit in this sense. There will be elements of each and you will need to pay attention to each.
Learn from the companies that thought they were fit or sexy but ultimately were not: Bethlehem Steel, Polaroid, Trans World Airlines, Delta Airlines, Encyclopaedia Britannica, Baring’s Bank, Arthur Anderson, WorldCom, Lucent … and so on.