Best Buy Throwing in the Towel?

The evidence now is clear that the consumer electronics manufacturing and retailing industries are both at a profound strategic crossroads, and weak-kneed responses from top retailers and product brands alike are dramatically reshaping the competitive landscape in potentially destructive ways for tomorrow’s consumers.

In the early-2000s we saw CompUSA and Circuit City go bankrupt and ultimately defunct on the back of tragic customer experience decisions to buckle under rampant flat screen price commoditization pressures. Passivity by lead product vendors was a missed opportunity then and a bigger one now. Thankfully we still had Steve Jobs around to offer an exciting new Apple Store shopping experience that consumers lined up for, even while the same Apple products were available in old school retail locations down the street (sometimes even at a lower price).

So it is disheartening to learn that Best Buy is throwing in the towel and all but abandoning any hope of reinvigorating its core customer experience (see this article in the WSJ on 12 October 2012). Does anyone really believe that Best Buy can out-online Amazon and other stripped-down, low-cost, no-frills, “services are free” and "taxes aren’t paid" online discounters?

The future is cloudier than ever for top branded product manufacturers as well, especially those investing heavily in innovation. When all the so-called “retail showrooms” are closed down or turned into local online shipping warehouses a la Wal-Mart’s lead, where is it that consumers will touch, experience, learn and get excited about new product innovations? Will vendor paid online recommendations and testimonials really do the trick for tomorrow’s shoppers?

Look around investors, where are the new strategic visions worth betting on? And consumers beware, it’s still true that’s there’s no free lunch.

Time to Reduce Frictions

Past articles in the Wall Street Journal traced demand for an electronics product all the way from the consumer-facing retailer, Minnesota-based Best Buy,  around the world a couple times, and finally to a California machine tools shop near the opposite, upstream end of the supply chain.

As the Journal shows, the chain doesn’t really function as a unified system. It’s more a series of one-to-one contractual interactions. Separate pieces only connect with each other in a logistical sense.

Almost miraculously, and not through any real planning, the product (a DVD player) takes shape as it progresses from supplier to supplier back to Best Buy. Nobody in the process has a clear idea what’s happening with everybody else.

In good times, this crude set-up works well enough. But when demand or supply shifts suddenly in one part of the chain, the others get jolted. The thing is, because the data and strategy linkages are so weak, responses to the change in one place are apt to be too big in some places, too small in others. As a result, upstream suppliers have been caught with millions of dollars in unsellable excess inventory and the need to lay off much of their workforce.

Downstream, retailers haven’t had enough inventory to catch the wave when buying restarts.

I’m delighted to see this important issue getting press coverage. Businesses have to get much, much better at working together as integrated routes-to-market systems. Technologically and operationally, giant suppliers like Procter & Gamble and giant retailers like Wal-Mart have been discussing and dabbling in this for years. But strategically, “partners” in a value chain system rarely work together as partners.

As the Journal article shows, there is an urgent need to shift from frictional relationships to smooth ones.  And that is fundamentally the new generation's top management challenge.

The Merry Meanderings of Marcom

Published articles and papers suggest that as the global economy drags itself out of the doldrums, the pitched battle between yesterday's generation of financial engineers and the new generation of marketplace-driven marketing engineers is heating up.

Advertising and marketing communications (fondly referred to as Marcom) strategies are getting caught in the crossfire. As we sort out fantasy from reality in the business world, it's no wonder that the cable show MadMen is such a poplular hit. It's hard to believe what went on in previous eras sometimes.

And the ad business is struggling mightily to sort out its future in a Digital 2.0 world. Maybe it's worth remembering one critical Marketing basic: Brands build sustainable, long-term equity by acutally delivering meaningful value to end consumers, not by creating clever illusions of value.

Creative ads for strawberry flavored mouthwash might have once been seen as good marketing; I certainly hope those days are over. And while much-hyped Superbowl ads are fun to watch,  robust businesses they do not create single handedly. Lead is best used as a verb when referring to market position; the hard work of block-and-tackle marketing is where the real action is.

But it's also worth remembering: Advertising's role is to communicate value propositions, not substitute for them.

Why Verizon is Down 30%

Verizon’s FiOS strategy of taking super-fast fiber optic internet access to consumers' homes held great promise when it was unveiled. Internally at the company it was held up as the path to renewed marketplace dominance. It was going to be the platform Verizon would use to fight back AT&T and T-Mobile (remember them?) on the old carrier war front, and Apple, Nokia, Samsung, Dell, HP, Microsoft, and others on the new mobility solutions front. The company’s top-most executives, including its CEO, unabashedly trumpeted the super-fast, broadband service as savior of the old guard's future.

Things don’t seem to be playing out, and the question on the minds of next-gen Leaders at Verizon, as well as interested on-lookers, is why and what can be done about it. They might want to start by digging in with a more critical eye to that distant image, their end consumers.

Only a few short years ago I sat amazed as the head of corporate strategy at a top wireless player wagged a finger and exclaimed: “I sense you have a handset bias, but our data shows conclusively that consumers care first and foremost about their choice of telecommunications service provider, and only then about different hardware options”. As quaint and nostalgic as that view may sound, It illustrates well a pandemic problem in many of today’s long-established businesses.

It is extremely hard for died-in-the-wool veterans in any industry to give up out-dated notions of how their customers think and how well-suited their companies’ old business models are to today’s world. Certainly AT&T’s near total dependence on Apple’s innovative products must rub salt on the wound, even as it generates the core fear that drives such resistance to hearing important new truth.

In a world where customers are influenced most by exciting, innovative, often expensive, downstream hardware, applications, and retail channels, won’t the telecommunications carriers become more and more commoditized back-end providers? For Verizon, can they really build a sustainable, margin-rich growth platform by simply wiring consumers' homes with faster and faster broadband? What really sits behind Apple's, and AT&T's through coat tails, success? [Hint: think about how the iphone creates - relative to other companies' offerings in the field - actual, tangible, demonstrable shifts in end consumers' lives and mobility experiences. What used to be called "value" added before value became equated with lowest price].

At the end of the day, lost legacy players will always encounter forks on the road to reinvention, growth, differentiation, and profitability. But unless they have the luxury of monopoly, taking the path that refuses to acknowledge the voice of the customer is never the best decision.

Microsoft Escalates Vertical Integration Wars

The WSJ reported today that Microsoft has decided to enter the rapidly escalating battle over how the consumer electronics market space is being fundamentally restructured (Microsoft Seeks to Take a Bite Out of Apple With New Stores).

Unlike Gateway's anemic efforts at forward integration into retail (1997-2004), I anticipate Microsoft's moves, along with those of other leading players, will dramatically reshape the landscape. Those moves include Best Buy's backward integration in private label (see: In Hard Times, Is Best Buy’s Best Good Enough? ), Wal-Mart's and wireless service reseller Tracfone's entry into mass market electronics (see: Wal-Mart Wireless Expands), Samsung's designs on the content and apps end of digital retail (see: Samsung Seeks Some iPhone Magic ) and Amazon's rabid appetite to dominate the conventional 'click and buy' internet merchant space (see: Can Amazon Be the Wal-Mart of the Web?).

But back to Microsoft's forward integration into consumer electronics retailing: here's the bottom line perspective from the company:

"Our customers have told us they want more choice, more value and better service, and that's what we'll deliver through our Microsoft Stores" David Porter, corporate vice president . Microsoft retail stores, WSJ, 10/15/09

This is only the latest entry of another major player in what is shaping up to be a battle of the titans. Noisy dithering by wall street analysts, journalists, and other pundits over who's making the most aggressive price reductions, who's sourcing smartest, who's ramping up their M&A engines for greater scale and efficiency, and who's "getting the value message from consumer" is simply obscuring a more fundamental and ultimately dramatic business model restructuting hidden in plain sight.

So, buckle up - it's going to become a (much) bumpier ride competing in the consumer electronics space! (due credit to Bette)

Gaining a (Distribution) Toehold

As a long-time triathlete, I take an interest in shoes that help avoid repetitive stress injuries. So I paid close attention to a recent Times article about the new breed of  “barefoot”-wear that aims to reverse the quarter-century trend toward more padded, more complexly engineered training shoes and return footwear to thin soles and lean structures. The idea is that feet have gotten lazy and out of shape when set in Cadillac-sized immobilizers, and this lack of foot fitness percolates up to create problems in our calves, knees, hips, and backs.

I was intrigued. But where would I be able to try on a pair of these toe-fitting things that look like what pre-teen girls wear to sleepovers? Could I find them at Footlocker or Sports Authority? It seems doubtful. Shoe companies have grown to big businesses by convincing us to buy bigger and more structured (and more expensive) shoes. Their proposed ideal has become the shoe equivalent of an SUV.
How could a sales rep say “more shoe structure is better” when talking about 95% of the store’s inventory, then turn around and pitch a “less is more” barefoot-style pair? It would be like trying to sell eco-friendly cars on a Hummer lot. Or like introducing radial tires at a Firestone outlet way back when; you had to wait, years, for Firestone to finally make their own.

As a distribution strategy guy, I started to wonder how Terra Plana, the fledgling business behind these new shoes, could get mainline retail exposure. In a sense, it’s the same problem that Red Bull and many other revolutionary product faced. How can an upstart get traditional distributors to market innovations and overcome loyalty to legacy core revenue products? (Say what you will about offering customers a range of options, but behind the scenes in quarterly management meetings with vendors that view seems not so much enlightened as crazy).

Product transitions are tough because changing entrenched distribution patterns is tough. Yet it can be done. The most feasible, least risky ways to do it require sound analysis. Not big expensive studies or, initially, even pilots. The simplest, and best, step is simply to start talking and selling to growth-minded retail partners, in depth. 

You’d be surprised at what you find out just by smart questioning of innovative retailers. And persistent selling. For more insights, see my earlier post on joining the new generation of marketing and distribution leaders.

Where the (Retail) World is Going?

In his column Consumed for the New York Times Sunday Magazine, Rob Walker offers us a glimpse of our business future as seen by private-equity. It is a rather unsettling world of The Pure Brand. No assets, no employees. Just a website, a handful of trademarks, and hopefully millions of loyal shoppers.

Of course, as Walker’s article indirectly points out, private equity is uninterested in actually building such a brand. Their preference is to ride the brand down post-bankruptcy. Walker focuses on Linens ‘n Things, which has been “reopened” on the Web by its new PE co-owners, Gordon Brothers and Hilco Consumer Capital, who picked up just the name and site for $1 million. Prior to that, of course, LNT had built its brands by spending $ billions on stores, advertising, infrastructure, and staff over several decades. The residual of that considerable effort is a brand people continue to recognize, visions of domestic goods-laden store floors still stuck in their heads. Over time, those memories will fade however, and the question is whether Web-based brand-building can noticeably slow this inevitable deterioration.

Walker sums up with a quote from Gordon Brothers’ Paul Venezia:

“The economy is cleansing business right now.” The new Linens ’n Things, Venezia argues, is a model of efficiency, offering competitive prices and freeing business from the cumbersome liabilities that come with big-box leases, pricey brand-building campaigns — or a work force. “It really reflects,” he says, “where the world is going.”

Meantime, Smith & Hawken is also liquidating its stores and inventory. But S&H has already taken its site off the Internet and, as far as we know, has no plans to reopen as an asset-less venue. Maybe someone will try to resuscitate it as a sleeper brand someday.

Virtual/online or oblivion. Are those really the only two paths left to struggling retailers?

iPhone a Home Run for AT&T

AT&T gave up a lot to get its exclusive deal on Apple's iPhone. Increased data load on its network, higher phone subsidies, changes to it's customer support and retail practices. Not the kind of power that wireless carriers like to cede to a handset maker. Some pundits have decided that at the end of the day AT&T's exclusive deal with Apple was great for Apple, but just not worth the "gives" for AT&T (see the WSJ's Martin Peer's latest story here).

While I can understand how easy it is to draw this conclusion, upon deeper analysis I think this view is flawed.

Sure, on its surface, AT&T's "new" iPhone customers represent a small share of its almost 80 million subscribers, and a dramatic increase in costly service and support supply activity. But peel the onion on this exclusive arrangement and it becomes clear why the iPhone is so valuable:

• New iPhone customers might have accounted for 25% of AT&T's "Gross" new subscribers in the first quarter of 2009. Success at gaining new subscribers is an important metric that gets lost in the fuzzy math of looking at iPhone's share of "total subscribers" who tend to stay with their carriers.
  
  
• New iPhone customers bolster the significantly more lucrative business of "contracted" customers versus ones that buy minutes at a retail store on a month to month basis.
  
  
• AT&T's overall "subscriber churn" (subscribers leaving AT&T) seems to be dropping over the iPhone's life at the carrier. While wireless carriers tend to have low churn anway (usually around 1.5% of subscribers), they do try to lower it. The iPhone helps.
  
  
• While AT&T's network is experiencing a dramatic increase in performance problems and overall usage load, that trend is happening at all carriers. The iPhone may be spurring AT&T to act faster than its rivals on this future strategic crisis - a not insignificant benefit for slow-moving lumbering carriers that come out of a culture that is still clinging to their landline businesses!

So when you dig a little deeper, it's safe to say that an exclusive deal on the iPhone has Branded Manufacturersbeen a Home Run for AT&T.

The Factor, Hidden No Longer

The possible collapse of CIT Group brings to light a side branch in distribution channels: factoring. Factoring is a complicated if dusty business. In its simplest form, a factor buys up manufacturers’ receivables as soon as goods are sold, at a nice discount off their face value. In return, the factor waits for retailers’ checks to arrive within 60 days of billing. Very precise calculations of carrying costs and risks are required.

In good times, factoring is a good business. In bad times it is not.

From my angle, the CIT story spotlights the very essence of a distribution channel: its in-between parts. In this case, in between a manufacturer making something and a retailer selling it is a factor greasing the financial gears where the movements of the two rub together. Each player contributes its own specific, and crucial, value to the channel. Each assumes its own specific, and characteristic, risk.

When a manufacturer forward integrates by buying a retailer, it extends its value and takes on unfamiliar activities and risks, the factor’s role included. Same goes in reverse for a retailer that backward integrates into manufacturing. My own view is that companies should be very cautious about integrating their value chains through ownership. While the shorter-term value gains tend to be seductive, the longer-term complexities and the risks are more hidden; so are the costs.

CIT’s peril gives us a surprising, and therefore, excellent object lesson in what some of those risks entail.

Healthcare Distribution - A Must-Read

In my twenty-five years of work on distribution strategy, I have never read a more fascinating analysis of distribution system challenges and opportunities as the one recently published by Dr.Atul Gawande, a surgeon, writer, and a staff member of Brigham and Women's Hospital, the Dana Farber Cancer Institute, and the New Yorker magazine.

If you have not yet read his piece in The New Yorker, I strongly encourage you to take the time. It's an absolute must-read analysis for anyone interested in designing and managing higher-performing, lower-cost complex distribution systems.

Enjoy!

Is Private Label Taking on Water?

RetailWire reports that according to numbers from The Nielsen Company, sales of private label goods in food, drug and mass lost share year-over-year for the period ending April 18, 2009.

For retailers who were simply sourcing for higher gross margin, the picture is bleaker as they factor in all the costs of taking responsibility for a category, including innovation, quality and safety control, inventory, promotion, and logistics to name only a few. And what about the loss of vendor support funds? And national brands have been fighting fire with fire, " introducing value lines or lowering the cost of existing items to cut into the price advantage held by retailer brands".

Unless the retailer is as dedicated to private label as, say, a Trader Joe's, the strategy will often backfire. Of course, this begs the question: instead of getting revenge, wouldn't smart independent brand players use this opening as a chance to structure new relationships built on trust, system wide improvement, and win-win results?

Say It Ain’t So, Mike

Abercrombie & Fitch, one of the lone holdout brands steadfastly upholding its image and price premium, has finally capitulated. 

CEO Mike Jeffries announced yesterday that Abercrombie had to drop its resistance to  "a headwind where the consumer is reluctant to spend on premium brands." The company website already has a huge SUMMER CLEARANCE sign plastered across its landing page.

Say it ain’t so, Mike. Talking with a friend just hours earlier, I extolled your virtues as the bravest of brands. The rearguard defender in the struggle against commoditized mass merchandising and brand equity decimation. If you too are withdrawing from head-to-head combat, maybe there really is no other choice for now. Still, I hope you and your like will regroup and reengage soon under the 'value=benefits' banner.

Post-Crisis Retail Taking Shape

The dominant mindset among branded product makers and retailers struggling to survive in today's tough economic environment is not only clear and homogeneous across companies, it's logic is rarely challenged by the media and Wall Street pundits:  cut costs, lower prices, improve "value" to the consumer.

But it may be that the current economic crisis is only giving short-term cover to painfully outdated management thinking just as the old efficiency-obsessed leadership models are taking their last breaths.

Don't get me wrong, efficiency is a [very!] good thing. I like efficient routes-to-market business models. But efficient at what? If the only end game for efficiency is lower prices than competitors, where does the treadmill stop? Efficiency must serve a higher master - effectiveness. And the only correct arbiter of effectiveness in consumer markets? Of course it's the end consumer, and their view of whether their total package of retail experience elements are being met. It's simply insulting to consumers to suggest that they - as a large, single issue group - care only about lowest price. For example, where do salmonella and melamine fears fit in to that equation? Where does 'healthy' fit in to that equation? Trusted? Reliable?

The good news is that signs of more forward-looking retail strategy are already emerging. Zara has always been a favorite of mine (fast fashion AND reasonable prices), and they're growing share and profitability over rivals Gap and H&M who are clearly stuck in the past. The Wall Street Journal reported on another great example - regional apparel retailer Buckle.

The Journal article explains the fresh appeal of the Buckle retail model: "Buckle's appeal seems to be fit, selection and service, not some quirky fashion trend, like Crocs footwear. The merchandise isn't cheap (the company says it sells "medium to better priced" apparel) but still represents value to customers. They end up buying more than they planned on". 

Listen to the voice of the customer for evidence:

"[The salespeople] are always really attentive and friendly and they always end up bringing you so many other cute jeans and shirts to try on ...and then you end up buying more than you planned on."

"I [like] the type of clothing they have, which is different from other places like AE, Hollister, A&F... I feel the clothes they sell are definitely worth the price".

But what about results? Is this model working?

 Here's what the Journal had to say about that important question: "The formula seems to be working. Last week Buckle reported an 18% increase in same-store sales for April, its 21st consecutive month of double-digit gains. And this during the worst recession since the Depression. Buckle is gaining market share (Abercrombie same-store sales were down 22% and American Eagle's were down 5% in April) and is planning to expand into the competitive but potentially lucrative Northeast market".

It's still early. Wall Street and media pundits, along with some old school business leaders, will continue to pile on the low cost-low price path to riches. Old generals are always fighting the last war. But no worries, free markets will eventually self-correct.

Remember CompUSA and Circuit City?

What does a Mother Want?

Let’s mash up two insightful news pieces and see what we get.

--  Story 1: Branded food processors are fighting off store private labels, usually by dropping prices or giving more food for the same price.

-- Story 2: Women are more risk-averse than men, research shows.

Not exactly news flashes but both pieces, from veteran journalists  Stuart Elliott of the New York Times and Jason Zweig of the Journal, pull out fresh insights.

Now apply the lesson of one article  to the other. Women are most families’ food chooser. Mom makes out the grocery list, even if sometimes she hands off picking to her spouse.  Does Mom care about lowest-price? Sure. But, we now know, not as much perhaps as she cares about food safety. Preserving her family’s health is vital if sometimes costly, whereas food isn’t always the most expensive item in a family's budget to begin with.  So most women may reason, ‘Minimize all food safety risks to my family first. Don’t skimp.’

Branded manufacturers should ratchet up their promotion of 'higher quality and lower risk'. Branded manufacturers have spent decades building reliable, closely monitored supply chains (at necessarily higher cost than private label ones typically) that enhance their quality and guard their image. The best of these quality-control systems reach all the way back up the chain to checking on raw ingredients. Meat packers like Tyson’s and Perdue can practically give you the blood tests and biography of the cow or chicken whose products you’re eyeing in the supermarket cooler. 

Retailers, on the other hand, are new to this back-end product supply management dimension. In my experience even those with established private labels are not doing as much as they need to on supply management. Few of them really want to bear those costs anyways. And frankly, supply concerns shouldn’t be their business.  Retailers have more than enough to do managing  their customers’ in-store and post-purchase experiences. Sourcing and merchandising something as basic and packaged as a safe box of lotion-enhanced facial tissues is not a challenge to be sneezed at.

Independent, national brand managers’ goals should be to help the public  understand the safety benefits of their end-to-end value chains. And of course, they should work hard to maintain and improve those systems' integrity. Operations of upstream partners must be open to inspection – and monitoring must in fact be performed. They need to raise the bar on retailer private label systems - they really can’t afford to dig into the distribution system like that.

Brands that try to compete on price are like generals who fight this war with strategies from the last one. In war, the result is Pickett’s Charge or the Maginot Line. In business, it’s self-commoditization. Why go there?

Deep channel expertise (supported, not overshadowed, by advertising!) is the ultimate reason for existence of a branded producer.

Getting Back on Target

Target Corporation, a strong mass merchant respected for its fashion and branding sense, has watched its stock drop as investors have turned toward Wal-Mart and its hyper-efficient operations. I read today that a big investor is agitating for new strategies and a new board to drive them at Target. In reply, Target management points to its expanded grocery department and ads emphasizing lower prices.

In other words, moves that will make it more Wal-Mart-like.

There are other ways to win against Wal-Mart' ones that Target is well prepared for. The one I favor is distribution-based differentiation. Wal-Mart does compete, vigorously, on this dimension. Using overwhelming market power, it forces suppliers to invest in expensive information and tracking technologies, deliver product to its specifications, and lower their prices to Wal-Mart from one year to the next. In the short term, Wal-Mart’s approach is great for consumers. They get better prices. In the long run, it’s not nearly so good because it leaves suppliers drained of the extra energy and reserves they need to innovate.

There are lots of manufacturers out there, Target, that would love nothing better than to regain healthy margin. I’d bet that many would even happily forgo Wal-Mart volume to get that. 

Just as attractive, suppliers would do handsprings if a market channel like Target worked with them cooperatively rather than punitively. This isn’t a guess. Plenty of manufacturing executives have said it to me; some are already embedding execs inside Target and others. They’ve also said they believe that a manufacturer and retailer  working together can not only devise better customer experiences for a Target, they could do it cost competitively.

And that is something that is very much in character with Target’s traditional, winning strategy.

 

Retail Repairs

Economic tides are reshaping the auto industry’s retail shoreline. New-car dealerships are being washed away, as brands like Pontiac disappear or like Saturn and Hummer are, hopefully, sold. What’s left are repair businesses, nursing more mileage from existing cars (or dishwashers or dress shoes) , as consumers shift their mindset from  a manic buy/use/dispose to  keep/repair/keep longer.

What we are seeing more and more is commoditization of basic product attributes, as the center of differentiation gravity moves into post-production: distribution activities that meet new sets of consumer needs. Smart players will find ways to generate plenty of growth and margin there. It’s going to be continued retail channel  revolution.

At this stage, it’s hard to envision the reconfigured landscape of auto sales and service channels five years out. We do know that there is a lot of raw material out there for tomorrow’s owners and entrepreneurs to work with: service centers, parking lots, parts inventories, skilled automotive technicians, and maybe most important, a mature infrastructure to funnel whatever is needed from suppliers to installers.

The strongest G.M. and Chrysler dealers may flourish, sopping up added business in a more thinly populated franchise environment and buying books-of-business on past sales to take over service contracts. And it’s easy to imagine marginal G.M. and Chrysler dealers converting to service centers without showrooms. Replacement parts and periodic overhauls have long been for most dealerships where the real money is.

A big question is how the automakers will adapt. Obviously they’re going to have less market power. Remaining dealers, probably multi-brand or service-only, will have more. The way that Detroit comes at this new equation will have much to do with its survival.

 

Fighting the Wrong War?

There’s a price war on among the large on-line hotel booking services, started by Orbitz and followed grudgingly by Travelocity and Expedia. Savings to the Orbitz consumer should run around $7 per night, on average.

I don’t see how Orbitz can come out ahead on this. Can you?

Of course, price-cutting typically does make sense when shoppers can see no real difference between competing alternatives.  And I’d be willing to bet that in 99 out of booking 100 occasions, they can’t - in either the price or the overall shopping experience. Why should a consumer think twice about minor disparities in rival booking fees?

 Bigger considerations will wash over all of this. Hotels vary in look and feel, amenities, location, and prestige, not to mention base price and daily deals.  Personally, I don’t think consumers can even tell if Orbitz is saving them a bit of money. I decide based on the all-in package deal. Don’t you?

More to the point for bookers, don’t on-line consumers prefer a website largely for its navigation characteristics? Personally, I hate sites that force me to reenter the airport names, number of tickets, time of departure, and so on every time I try a different destination or travel date. The aggravation and lost time cause me to write off the site entirely. Grrrrr....

More value in the customer experience is where on-line bookers should be competing head to head. Ironically, on this front Orbitz may already doing well. I know scores of Orbitz loyalists. Their repeat business has nothing to do with cuts in price, and everything to do with Orbitz’s cleverness in cutting their time spent and improving their ability to find a great destination.

Shouldn't they hold the line just like physical stores that have something better to offer? Didn't research just come out that discounts cheapen consumers' perceptions of a product long after the discounting stops?

 

 

Sony, Where Are You Going?

Another storied powerhouse in branded product innovation may be throwing in the towel. It seems that Sony’s USA operation is fixated on bringing lower priced, contract manufactured, me-too cheap products to market as their primary growth play. What happened to the Apple-esque Sony who brought us the famed Walkman? What happened to the Sony whose core competence in miniaturization was unparalleled and drooled over by academics and authors of the day?

Are me-too, low priced products sold through uninspired consumer electronics customer experiences the future for Sony? Look where that strategy led CompUSA and Circuit City.

“We have no alternative but to dramatically change the fundamental ways we do our business” said CEO Howard Stringer not long ago. Is the new “under $200 Webbie HD” squeezed into current retail shelves with a 4X4 inch promotional sign three years after rival products were introduced, the evidence of those  new business model changes?

If so, the bar has been lowered not raised. As an old Sony devotee it really saddens me.

 

 

 

super-ReValu?

SuperValu, America’s no. 5 food retailer, just announced it will stop delivering goods that consumers order on line.

The end  of a distribution channel?

Not exactly, and that’s what caught my interest. 

SuperValu has listened to its customers (in surveys 60% of on-line shoppers say in-store pick-up is actually more convenient for them) and they’ve looked at the economics of individual specific operating activities (channel flows). They aren’t eliminating the channel. They’re sculpting it. Shoppers will still get the convenience of on-line ordering and store-staff picking of selections from the store aisles. They just won’t get that ($$$) drop-off at their doorstep that is so hard to coordinate and frustratingly inconvenient.

Retailers — and manufacturers — should do a lot more of this: determine what experience provides end customers the most benefit. Compare that benefit to its cost to you.  Will shifting some activities to a partner (e.g., delivery via local trucking companies) improve net value? Will restructuring the offering in a novel way that comes at consumers’ need from a different direction (e.g., pick-up at loading dock available when store is closed) add more value?

There are always improvements to channel systems and better alternatives. As a rule of thumb, the most resilient distribution systems are multichannel and adaptive. 

Bottom line: avoid shutting any route to market entirely. Try reshaping it instead.

Imported Beer Going Flat?

Sales of mature imported premium beers Corona Extra and Heineken’s have fallen far faster than lower-priced domestic brews, according to the Wall Street Journal. Could uninspired and commoditized marketing and value-added downstream in the retail system play a part? It seems so easy these days to simply blame global consumers’ “new frugality” as largely responsible.

In any event, the premium brands are reported to be raising ad budgets and lowering case prices to hang on to business. Sounds like an expensive rear-guard defense. Why don’t the imports go on the attack instead, by doing more with their retailers.

For instance, inventory is a big issue for off-shore brands. How can they reduce retailers’ inventory-carrying costs? Given the length of import pipelines, there have to be postponement strategies these brands haven’t fully exploited yet, like tightening data exchange so that cases show up at the back door just in time. Done right, postponement helps both the upstream and the downstream partner.

Or helping the retailers provide chilled product to consumers as Diageo is doing (see my earlier post). While these distribution-intensive types of growth investments are sizable, so are old-school, me-too ad budgets. Whatever they do, it should be something of real value to the beverage server or store. But Heiniken knows all this, as public comments they have made make clear.

‘‘Now more than ever, you need to give consumers a reason why you’re worth paying more for,’’ said Christian McMahan, chief marketing officer at Heineken USA (Jan 2, 2009)

With smart help and new experiences from the brewer, retailers might just push these brands harder. And focusing downstream, especially on the consumer, might just earn both brewer and retailer the right to maintain prices in hard times as well as good.

But beware old school generals and their management advisors, who are always fighting the last war. They will make the case for comoditized actions like discounting, promotion pricing, and private label products. Yawn! RIP!