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The Importance of Looking at External Threats and Opportunities

May 17, 2009

My recent forays into the housewares industry and events within my own community have heightened my sensitivity to the importance of looking at our businesses and organizations in the context of the environment within which we operate.

My friends in the housewares industry are very concerned about how their major clients will react to any efforts that they undertake to create new channels for their products and services. Still, the advent of online communities, while representing a unique opportunity, also represents a perilous threat. If the industry ignores the opportunity and someone else chooses to capitalize on it, their businesses may be further imperiled.

Closer to home, my community is experiencing a tuition crisis. The core lifeblood of the community for several generations has been its ability to educate its children about religious and cultural values. The recent economic downturn has accelerated a crisis that has been developing, and been largely ignored, for years. Parents are finding it difficult to pay for this type of education and many, by economic necessity, are choosing to send their children to schools that do not supply this core sustaining educational program. Leadership in identifying and addressing this problem has been conspicuously absent.

What both situations have in common is that there is an external environmental factor that needs to be seriously considered and addressed.

In the case of our housewares friends, failing to act and create that other channel may result in a significant competitor that further erodes their businesses. In the case of the community, failing to act may decrease the connection between the members of the community and their culture and ultimately lead to an unwillingness or lack of desire to support projects that are integral to the community’s growth, simply because the connection to its values has been compromised.

The lesson in external threats and opportunities is that failing to act has as significant a set of consequences as choosing to take action. Decisions and non-decisions have consequences. As long as one is prepared to accept the consequences, any decision is acceptable.

The important thing is to make sure that those consequences are considered before choosing whether to move ahead or whether to pass on an opportunity.

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And in summary…part 1

May 1, 2009

Our session to the housewares association is less than a week away. It seems appropriate to review the lessons that we have learned and the strategic underpinnings for our recommendations.

The challenge that was posed was this:

What should you do if you find your company to be one of those that now must sell its products to a handful of superstores such as Wal-Mart, Target and Bed, Bath and Beyond and these “clients” are now in a position to dictate your pricing, the way that you do business and even your margins?

Underlying this big question was a series of smaller but no less important ones:

  1. Are there alternative marketing channels that can be leveraged?
  2. Where does the social media fit into addressing this challenge?
  3. Is there a way to identify products that need to be invented and how can we test them faster and better?

With the help of several very talented, knowledgeable and experienced friends and business colleagues, we sought to develop and create a framework, if you will, for addressing these questions.

Here is a quick review of the lessons that we learned.

Lesson 1: There is Nothing New Under the Sun. What the housewares industry is experiencing now has happened to many industries before it. This is not meant to be cold comfort and it is important. It teaches us that there are historical experiences and prescribed and proven methods that can be incorporated in our plan and framework.

Lesson 2: The Only Way to Fight the Tyranny of Kings is with Creativity. When we live inside a problem, it can be very difficult to identify the way out of the problem. All is likely not lost. Brands can be reinvented through consumer franchising, where the goal is to communicate distinctive brand attributes, develop and reinforce brand identity that is consistent with the image of the brand, build long-term brand preference, encourage repeat purchase and long-term patronage, and engage active consumer involvement.

Lesson 3: Know Your Segment and Know Your Category. Those products that add value and are successful are often so because their manufacturers and marketers understand to whom they are selling. Many companies segment broadly hoping that they can earn a “small slice of a large pie.” However, all too often, the solution is realized by segmenting finely and catering to a very defined and discrete group. We learned some tried and true ways to do this.

Lesson 4: Think Beyond the Obvious. One of the easiest and most difficult exercises to do – at least by one’s self – is to challenge what one knows to be a “fact.”  We have difficulty doing this because as intelligent and educated people, we learn and we learn well. While effective for many, many circumstances, this mechanism actually works against us in addressing these issues because we naturally self-edit and discard options that. although inappropriate at a particular time, are now valid and appropriate. (This is why when brainstorming, really top flight facilitators will not allow anyone to eliminate an idea when people are putting them up for consideration). Marketplaces change. Technology eliminates one issue but generates another. These are new opportunities for inventors. There are some wonderful books on rethinking the marketplace such Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant by W. Chan Kim and Renée Mauborgne if you wish to explore this thinking in more detail.

Lesson 5: A Brand Community is a Business Strategy. Reconnecting with your customers will alter everything about your business. It will change the way your products are designed, delivered, marketed and supported. If done well, it will generate passion and excitement for you and your staff as well as for your customers. To effectively accomplish this, you will need to be vulnerable and open.

In our last post before Tuesday’s session we’ll review the remaining lessons that we learned.

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Lesson 4: Think Beyond the Obvious

March 30, 2009

When it comes to finding the right market for a product, one of the most important ways to go about this is our fourth lesson, think beyond the obvious.

When I first undertook this project, one of the challenges that I immediately began to “noodle” on was how to build this housewares community. At first blush, it would seem that it would be difficult to identify a specific community for each of the products in the housewares industry. After all, when a product is sold in this industry, the consumers do not register for support or service. It is very difficult to know who purchased a product — let alone what was thought of it.

Applying our fourth lesson made this a relatively easy task.

My wife, Annie, started the process. When it comes to cooking, I consider Annie a subject matter expert. She has taken courses with some accomplished chefs and the food in our home is the best evidence that she has learned quite a bit about the art and science of baking and cooking. She also uses a fair share of gadgets.

Annie explained that in this industry KOLs and communities were everywhere.

Culinary demonstrations at Williams-Sonoma...The Food Network…Chef Central… Rachel Ray’s web site…Epicurious.com…Gourmet Magazine… The Today Show…cool new product presentations…

These are all examples of sites or media or events that cater to people who use houseware products.

Suzy, in our conversation, had mentioned that I should consider all circles of influences. In fact, she pointed out that book clubs, mom’s groups and PTA meetings frequently go off on tangents about life in the home and how to make things easier and better. Another opportunity.

Suzy also reminded me that one of the great ways to access these opportunities to promote houseware products was through the effective use of public relations, which she referred to as free media. I liked this idea because, as you may recall from one of the earlier posts, it had been noted that this industry does not allow for the investment of heavy marketing dollars to create the brand.

While all of this was exciting, there was still one more area that I felt compelled to investigate so I turned on my computer and went to google.com. In the search box, I typed in — “blogs’ and “housewares’ — with quotes around the key words. Naturally, and “obviously” one would expect there to be very few people who write passionately about housewares.

To my surprise Google returned 1,060,000 sites. That’s right, more than a million blogs! This tells us that there are large communities of people who share a fascination about houseware products. Wow! And get this — searching for “blogs and brushes” returned 1,380,000 blogs! (Author’s Note: While there are painter’s brushes and a host of other types of brushes, still many of these blogs related to houseware industry brushes. To further illustrate the point, “blogs” and “brooms”, a category that is more defined, still returned 78,200 blogs)

Suddenly, channeling this interest was very exciting. The ability to create a consumer franchise by leveraging the impact of appropriate on-line advertising, public relations, search engine optimization and web marketing did not look so daunting…

In fact, it was beginning to look so much easier.

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Lesson 2: The Only Way to Fight the Tyranny of Kings is with Creativity

March 23, 2009

Carl had exposed an interesting point to consider. If indeed this situation had occurred before, there probably would be some lessons to be learned in how these challenges were met in the past.

The solution, he explained, lies in creating a consumer franchise, a brand that is powerful enough to necessitate that the retailers seek your product out and put you in a position where negotiation is from strength. In consumer franchising, the goal is to communicate distinctive brand attributes, develop and reinforce brand identity that is consistent with the image of the brand, build long-term brand preference, encourage repeat purchase and long-term patronage, and engage active consumer involvement.

Put simply, if you are operating in a commodity category, you must bring something unique to the party.

There is, however, significant complexity in our particular challenge. In the housewares industry, there is a low frequency of purchasing items, that is, unlike other items, people do not purchase them again and again or very often. This attribute does not allow for the investment of heavy marketing dollars to create the brand.

Given that constraint, how can a housewares company develop their brand?

According to Carl, one of the most important elements is communication at the point of purchase. There are many factors, including packaging and color that can make the difference in getting consumers to try a product. He referred to this as the “sell-in” effort. (More definitively speaking, sell-in typically means how well one has been able to get the product into stores. Sell-through refers to how well the stores have been able to get the product into the hands of consumers.)

To be successful here, one must apply the greatest levels of creativity. He then offered a few insightful examples.

To sell a purse mirror for women, his company developed an end of aisle spinner that had mirrors placed on all sides. It proved effective because his target market, women who wanted to have a mirror available at all times to see how they were presenting themselves, would catch their reflection as they passed the display. They would stop, pause, and then notice the purse mirrors. Getting them to notice the product was the key first step in making the sale.

With corn brooms, his company took the unusual step of displaying it upside down, which was not how brooms were usually displayed, and again, would catch the attention of the consumer. By adding a distinctive angle to the handle, the product was further distinguished.

To achieve these distinctions and to create a unique selling proposition, one must look at each item separately and develop the element that makes it unique and impactful.  Should the design be simple? Can you “dress it in a tuxedo” and make it feel more upscale? What would make the difference to the consumer?

This means that inventing the product is only the beginning of the effort. The next step is to dissect the use of the product.

  • Visit stores and analyze how comparable products are displayed.
  • Who buys them?
  • Which displays and packages made the person stop?
  • Define the profile of the person who stopped at the display.
  • Ask them what caused them to stop.
  • Find out the process that they went through in making the buying decision.
  • Once the product has been bought, ask them why.
  • Be curious and creative in discovering why your products are worth buying.

Carl closed our discussion with a very interesting story.

A long time ago, Carl’s team was tasked with the responsibility of selling toothbrushes. The division had been losing significant money. To learn more about his targeted consumers’ motivations, Carl arranged for a focus group with a local dental clinic. The focus group members were asked why they were choosing certain toothbrushes and the answers he received were about the size of the brush head (husbands had larger mouths than wives and children required smaller toothbrush surfaces) and that some brushes were harder than others.

Valuable information…

The participants were then led into a room and on the wall of the room was a display of every possible toothbrush on the market at that time. The participants were then told that as a reward, they could select toothbrushes for their families.

After selecting their toothbrush reward, the participants were then led into another room and asked why they had selected these particular toothbrushes.

Their answer most often…color!

It seems that at this particular time there were only four colors available in the toothbrush industry. Carl and his team learned that even though it was never mentioned as a factor in the focus groups, color was deemed to be the most important attribute. Armed with this information, his team began to produce toothbrushes in 24 colors! The net result the product, which was a losing venture a year earlier, became a source of substantial profitable revenue within a year.

Carl had illustrated his point – creativity and research on an item by item basis was critical in establishing a brand and challenging leverage.

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Have we seen this challenge before?

March 20, 2009

“David, there is nothing new under the sun.”

And with that brief message, my mentor Carl, shared the first lesson about this challenging issue.

I am very fortunate to have Carl as my mentor. Besides being blessed with remarkable business acumen and a wealth of experience leading companies and divisions in the food, electronics, housewares and fashion industries, Carl possesses the most important traits that a mentor must have. He is a very giving person with a strong desire to share, better others and educate.

Carl went on to explain that in the 1940’s and 1950’s, the food industry experienced the very same issues that these houseware companies are going through now. When his mother shopped at the local grocer,  he made the decision about what brands she could be purchasing. Choices were limited. Yet, less than a generation when his wife shopped, she was the one who chose the brands.

What had occurred in the intervening years was a change in how food was sold. The grocer of the past was replaced by the retailer. This new brand of retailer stopped being a merchant and became more of a landlord. In reality, he was selling space and his “tenants” were the products that he sold.  Those who paid more for their position and location received more favorable space.

To compete, the supermarket owner had to leverage a different kind of appeal, one of better selection and lower price. Their key measure was the return on investment against cost per square foot. Their goal was to stock the floor with products that gave them the best return.

There were some exceptions and those retailers although new at what they were doing, learned about these exceptions very quickly. There were certain items that, even if they didn’t meet the ROI criteria, still had to be carried in the store. If these staples were not in the store, the consumer would have to go to another store. If the consumer did, the storeowner risked the possibility that the consumer would begin to shop in another place for not only those staples but for other items as well.

Sounds familiar, huh? A large store model replacing the mom and pop stores and more items competing for the attention of the consumer. The retailer controls the space and influences price and margins. Customers flock to these stores for convenience and better price.

So the first lesson then was that there is historical precedence to this dramatic change. In our next post, we’ll learn about the methods that Carl used to meet this challenge in the very same industry that our housewares executives are working.

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Branding and Gaining Control of Your Business in the Age of Twitter

March 19, 2009

Today, I received a really provocative and interesting challenge. A business that makes kitchen gadgets has lost its leverage with its customers and wants to know how to get that leverage back.

The kitchen gadget industry is really quite interesting. Inventors create and design products. These gadgets need to solve a problem and be very easy to use. Once they have created a prototype and tested it with some audiences, these inventors then take their products overseas to be manufactured. Some of these inventing companies protect their products with patents and sometimes they don’t because the patent will not afford them enough protection to prevent others from copying their products with minor alterations in design.

But now, the business environment is even worse for these companies.

It wasn’t that long ago that the inventing companies could sell these products to lots and lots of stores. But then the industry began to consolidate. Soon, it became apparent that if you wanted to sell to your target market, the only way to do that was to sell these products through superstores like Wal-Mart, Target and Bed, Bath and Beyond.

This is a problem though for these companies. Because these distribution channels are so large and dominate the marketplace, these department and superstores can dictate the margins and the way these products go to market. The inventing companies must tolerate and accommodate the requests made of them because upsetting one of these large companies could doom the product.

The question that was posed to me today was how to help these companies build a presence so that alternative channels for identifying products that need to be invented can be identified, products and related concepts could be tested faster and better, and alternate marketing channels could be developed.

This seemed particularly fascinating to me so I agreed to take this on.

Here’s my plan.

I think that this is a serious and meaningful strategic question for our times so I’ve decided to be public about it and write about it in this blog.

I am also identifying and approaching a cross-section of friends and colleagues to provide insight. They include one of the fellows accountable for building communities for a large software developer, a PR firm, a specialist in search engine optimization and web site development, my mentor who is an expert at identifying market targets, a senior advertising exec at large advertising company, my son who is one of the founders of TeenTechBlog www.teentechblog, my wife who is a stellar teacher and master chef… and you.

I would like to invite you to join me in this research. If you are interested, please e-mail me at david_blumenthal@msn.com. I plan on speaking on this topic in six weeks and if you assist me, I will share my session with you.

The journey promises to be a lot of fun.

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