Has Your
Strategy’s Shelf Life Expired?
In my
last post, I wrote about why distinctive
customer targeting is a smart strategy. But over time,
this strategy has to evolve. Consider two iconic companies, the National
Football League and Walmart.
In 1966, the National Football League merged
with the American Football League and hosted the first Super Bowl. Fifty years
later, the league attracts more male fans than just about any other
professional sport in the United States. Walmart, meanwhile, spent the last
five decades developing massive, full-line discount stores across the United
States. Today, the company has few places left to build.
Both
the NFL and Walmart are nearing the limits of their target market. They are
outgrowing their target customer. To continue growing, both need new markets to
conquer. But that’s easier said than done. For example, in August 2015, the
NFL’s Tampa Bay franchise introduced
a campaign to attract more women to its games, but
many found its approach condescending and insulting. Likewise, in early 2016,
Walmart announced that it was shuttering
its small-store format, Walmart Express. Express
was an attempt to grow in urban areas and towns too small for a Walmart
superstore.
An
important lesson here is that when you’ve outgrown your target customer, you
have to stretch every element of your strategy — namely, your target market,
value proposition, and capabilities system — in a coherent way. Consider Gap
Inc. It created Old Navy in 1994 when its namesake business was nearing the
saturation point with the target market for its classic-style, moderately
priced clothing basics. Old Navy, now the jewel in Gap’s crown (although it
just suffered a weak
holiday season), sells on-trend clothing at a lower price
point with a materially lower-cost store design. Its value proposition was
designed to attract a different target customer, while leveraging the same
design and supply chain capabilities that distinguished the original business.
Now
contrast Gap’s Old Navy and Walmart’s Express strategies. The latter requires
new capabilities — for example, inventory and supply chain management that
involve smaller, more frequent direct-to-store delivery drops — and a financial
model that is low-volume, high-margin (the opposite of large stores). And it
has a value proposition (locational convenience) that the general population
doesn’t associate with its brand. As I predicted back in January 2014, it was doomed to fail.
If the
challenge for the NFL and Walmart has been outgrowing their target customers,
the challenge for Lego and IBM was the opposite. With the explosion of video
gaming in the 1990s, making things with Lego’s famous plastic bricks lost its
cool factor with children at an increasingly earlier age, thus shrinking its
target market. In 2004, Lego almost
went bankrupt after a failed attempt to enter the
video game business.
Similarly, in 1993, IBM faced bankruptcy and
calls to dismantle itself after its entry into the PC business failed to offset
waning demand for its mainframe computers. The invention and rapid
commercialization of midsize computers (known as “servers” today) with desktop
terminals made corporate IT departments think differently about their computing
needs. In other words, for Lego and IBM, instead of outgrowing their target
customer, their target customer was outgrowing them.
To
return to growth, each had to revitalize its relevance and distinctiveness with
its target customer. This, too, is challenging but possible. For example, MTV,
the cable channel owned by Viacom, launched in 1981, bringing televised music
videos into the homes of teenagers hungry for this medium. But then those
teenagers grew into adults, and the teenagers that replaced them found new,
preferred ways of consuming their music, through CDs, MP3 players, and
eventually the streaming Internet. MTV was facing terminal decline until
it pivoted
its programming toward reality and scripted
TV shows geared specifically to teens and newly minted adults.
Similarly,
when Lego brought in new
leadership in 2004, it entered areas — amusement
parks, education, virtual model construction, and movies — specifically to increase the engagement of
children (and parents) with Lego building blocks. Lego went from
near-bankruptcy to becoming the world’s largest toy company, recently
surpassing Mattel.
Like Lego and MTV, IBM’s renewed success was
achieved by revitalizing its appeal with current customers. Instead of breaking
itself up, IBM’s board brought in a new chief executive, Lou Gerstner, who
promptly reinvented the company’s value proposition from providing a product
(mainframe computers) to providing a solution (integrating hardware, software,
and business processes). The company regained its status as an essential
partner to the world’s largest and most important enterprises.
Successful strategies ensure that companies
will eventually outgrow their target customers. Competition, innovation, and
demographics ensure the opposite: that target customers will outgrow their
strategies. Both scenarios create existential threats. The only way out is to
stretch your strategies in ways that will open new markets to conquer when
you’ve hit the limits of your original markets, or to breathe new life into
your current markets when they are starting to slip from your grasp.
Ken Favaro
Ken
Favaro is a contributing editor of strategy+businessand the lead
principal of act2, which provides independent counsel to executive
leaders, teams, and boards.
http://www.strategy-business.com/blog/Has-Your-Strategys-Shelf-Life-Expired?gko=d2304
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