Home Depot Goes Into Deep: Explores Blue Ocean Waters With Localization Strategy
Purchasing Strategy Problem
Home Depot had a problem in early 2007 – one riding mower was sold in two years in an Arizona store, and West Coast stores couldn’t keep Makita power tools in stock, according to the October 7th, 2008 edition of the Wall Street Journal. Their purchasing system was out of whack, and did not take into account regional and local customer buying preferences and patterns. This stemmed from a decision in 2001 by then-CEO Robert Nardelli to consolidate nine regional purchasing offices into a centralized buying operation at its Atlanta headquarters. This led to increased inventory for a variety of items less favored or unused by local customers, and an under-stocking of items popular with local customers.
Change To Localization Orientation Is Key
The new CEO, Frank Blake, tackled this problem, and changed Home Depot’s purchasing system which favored national uniformity at the expense of local preferences to a less centralized system. His new system balanced local demand with national efficiency. Localization of purchasing for retailers is critical for two reasons. First, it can lead directly the development of blue oceans in products and services. Secondly, from a shorter-term, more quarterly perspective, it enables a retailer’s stores to own marketspace geographically. Wal-Mart’s meteoric rise is based in creating local monopolies in “small town” America. The real explosion for retailers occurs when geography is linked to demographics and usage habits.
Wal-Mart Example: Link Geography To Demographics And Usage
Wal-Mart is beginning to understand this linkage – they created a group of 350 people around the country to better respond to local preferences. Wal-Mart also hired experts to produce more detailed demographic information about each store’s customer base. By linking demographics and customer usage to a locale or region, a retailer becomes more responsive and speedier in spotting buying trends and habits which affect an individual store’s profitability and margins. These twin metrics are even more important now during our current challenging economy as consumer sentiment and buying habits are shifting more toward value. Even Target’s usual value proposition and communication to its customers of “Expect More, Pay Less” is being skewed by them to the “Pay Less” side – truly a sign of the current tough times.
Where Wendy’s Can Develop Blue Oceans In Beverage “Waves”
Hot Chocolate And Tea – Spaces To Be Owned:
Ultimately, I recommend Blue Ocean products and/or services which lead to new lines of businesses and an increased revenue stream. The hot chocolate niche is ripe for a well-resourced player like Wendy’s. Although it’s a smaller space than coffee, critically, it is an area that a large player currently does not own. They could realize a Blue Ocean in this space by developing a variety of high or mid-range quality hot chocolates with an assortment of flavors. It would be much better in this smaller space rather than having just a tiny piece and no real profile in the large Red Ocean coffee space. Also, tea is ripe in the U.S. – and is already trending up via smaller regional players throughout this country. Both hot and iced tea are not yet “owned space” of a major restaurant chain. Wendy’s could use its considerable resources to move to own this space.
Where To Go Next - And How?:
Wendy’s should considerably modify its strategy for its coffee offerings – its mid-range and long term prospects blow in the wind of too many macro and competitive factors. They should be occupying a beverage space that is less crowded, and that is “blue.” If they look hard enough, they may even find Blue Ocean seas within the fast serve coffee space, but even so, they should gravitate to other beverages like hot chocolate and tea which are wide open nationally. Then the next question for Wendy’s would be how to leverage its large resources to focus on garnering share from regional and local players. Think Wal-Mart and small “Ma and Pa” stores in the ‘50s, ‘60s, and ‘70s – that’s enough to go on. Always remember - it’s so much better to be in a calm blue bay than a huge and turbulent red ocean.
Wendy’s New Coffee Offerings: Wading Into a Red Ocean Sea of Beverages
Move Into Coffee And Related Drinks:
Wendy’s is currently test marketing specialized coffee drinks with a major new coffee program in Mississippi and iced-coffee in Phoenix, Pittsburgh and Kansas City, MO. It has introduced a drink called “Frosty-Cino” in Mississippi which is a less thick, coffee-flavored version of a Frosty. Unlike a Frosty, it can be drunk through a straw, and is offered in four different flavors. It sells for $3.69 per 20-ounce serving. This move into the coffee arena seems to be a reaction to a trend among fast-food chains placing more emphasis on beverages in light of Starbuck’s overall success. McDonald’s is at the front end of this trend as it plans to add lattes, cappuccinos and other upscale coffee drinks to all U.S. locations by year-end.
Red Ocean Coffee Space:
This fast-serve coffee space is now a Red Ocean, and has too many large and small players trying to entrench their positions. This space’s market growth has slowed, and can not support the influx of companies offering additional supply. Most players seem to be offering imitations of Starbuck’s beverages, and are trying to compete in the premium end of the space. Wendy’s offerings are “me-too” line extension-like products. If they really want to impact revenue via coffee beverages, they should try to occupy a corner or niche within this market. I would suggest a donut shop emphasis on good, affordable basic coffee done well.
Seek To Own A Beverage Space:
If Wendy’s heart is set on beverage revenue growth, that’s not a bad strategy because drinks typically have high margins. It’s not a bad place “play.” Wherever Wendy’s ultimately decides to place its bets, it should seek to own a beverage niche or space. This will generate better brand equity, and offer a higher quality perception for its food items. Thus, it will further develop synergic increases in revenue for all its other products. It will also enable Wendy’s to charge higher relative rents for its beverages. Critically, Wendy’s would be viewed by customers as a leader in the fast food industry. This would clearly differentiate them in the crowded and competitive fast food industry, and allow them their own space in the market.
Barnes & Noble: Go Beyond Books
Current Situation:
Barnes & Noble experienced a 15% drop in its fiscal 2nd quarter as sales slid 1.6% to $1.22 billion. Same-store sales declined 4.7%, and without the Harry Potter final installment last year it still would have declined 1.5%. These figures are symptomatic of the assaults retailers face on many fronts. The U.S. is in the midst of a weak economy and a significant economic downturn which is exacerbated by record high gas prices. As a result, consumers have a lot less disposable income, and more importantly, less confidence in their economic well-being. However, all was not gloom and doom for Barnes & Noble, as it did beat Wall Street expectations through lowering expenses - this led them to improve margins.
Choose Best Elements of Related Players and Occupy A Unique Space:
While this was a silver lining in their profit reduction, the health of the business must be focused on growth. Barnes & Noble must address the competitive pressures and forces facing their business. They must create a Blue Ocean line of businesses. They have the resources and current substantial brand equity to be known in the marketplace as an “intellectual entertainment” provider. This would offer the opportunity to create, develop, and brand customer and business service lines along related themes. They have the opportunity to occupy a space among Blockbuster, Netflix, Amazon, and Borders. Barnes & Noble can leverage elements of the best features and benefits of all these players to create an independent and unique space with a higher utility value proposition to consumers. They can also leverage their brick-and-mortar operations with a strategy that allows them to point online customers to their stores, and store customers to their website.
Flank Amazon with “Smart Entertainment” Spacing:
Barnes & Noble should also not look to compete head-on with Amazon.com as an “everything to everybody” online seller, but should choose an alternative theme with a strong appeal to a substantial niche of consumers. They should pick a fairly significant and lucrative arena of the market where Amazon’s presence recedes. To actualize gaining market share in this area, Barnes & Noble needs to provide features and benefits to consumers that Amazon does not provide or that utilize B&N’s physical locations. Barnes & Noble’s growth depends on realizing a broader vision and branding beyond books – it can own a place in the “smart entertainment” space, and “go beyond books.”
Spanx Owns Marketspace Through The Blue Ocean
“Blue Oceaning” A Tired Industry
Spanx has succeeded in reviving a tired industry by casting it in a fresh new light according The Wall Street Journal’s August 7th issue. A la Blue Ocean strategy, Sara Blakely and Spanx have rendered the competition irrelevant by transforming the grandmotherly product of shapewear into cool and hip. It has raised the dimensions of packaging and image, created the new dimension of invisibility and fit, and infused emotion through coolness. This has enabled Spanx to own the high-end marketspace of designer clothes wearing women.
Connecting To A Space Through Two Dimensions: Useage and Demographics
In line with the strategies outlined in my forth-coming book, Owning Marketspace, Sara owns two space factors/dimensions: usage and demographics. The usage type and occasion of the product are key – seamlessness and shapeliness under pricey garments typically worn when “going out” or for special events. Spanx captures a younger, fashion-conscious demographic. Both these dimensions are critical to developing this Blue Ocean for this business, and Sara Blakely has deftly, coolly captured this marketspace.
I am willing to talk with blog participants live via phone for free consultations. I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities. For any of these request, E-mail me . I will help my readers in any way possible – I want to share my knowledge and expertise.
Mike Bolden marketing expert and blue ocean strategist - writing to inform, enlighten, and inspire. Author of forth coming book, "Owning Marketspace". Available for consulting and speaking engagements.
Spanx: Smoothing Those Blue Ocean Waters
Spanx’s Product - Shapewear
Sara Blakely created a Blue Ocean in shapewear by fashioning hosiery material which slims a woman's appearance while remaining invisible under contemporary apparel. More importantly, to many women, it provides a dramatically shapelier appearance in their eveningwear, and for others, it opens up their clothing options by opening up the back of the closet, where they pushed clothes that no longer fit but they couldn't bear to part with.
Spanx’s Business
Blakely's Spanx Inc. markets and manufactures footless pantyhose and other types of shapewear including leggings and bras. Her company exceeded $250 million in retail sales last year. By creating this unique and innovative shapewear, Sara's Blue Ocean has become synonymous with high-end shapewear.
Owning A High-End Hosiery Marketspace
Sara successfully sought to dominate and own a marketspace in the hosiery industry of high-end shapewear. From the outset, she focused on high-end department stores where women would pay a premium price for an item that would make them look better in their pricey designer clothes. This product used classic Blue Ocean Strategy, updating the image of shapewear by raising the dimension packaging and the “cool” factor. Spanx products have sassy names such as Hide & Sleek, and its packaging is slick and colorful. This is quite revolutionary in light of the sea of beige cases that other manufacturers use.
I am willing to talk with blog participants live via phone for free consultations. I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities. For any of these request, E-mail me . I will help my readers in any way possible – I want to share my knowledge and expertise.
Mike Bolden marketing expert and blue ocean strategist - writing to inform, enlighten, and inspire. Author of forth coming book, "Owning Marketspace". Available for consulting and speaking engagements.
Monopoly Rules: The Compass, You Choose a Path
Not a Second Half Team – First Part is Clearly Stronger
This book seems to lose strength toward the end, and is less compelling in the later chapters. He guides the reader through five tests to determine whether you have a monopoly, and he talks about defending a monopoly. At the end, Lele writes "just enough" about discovering and uncovering our monopolies, which should be discussed rigorously – but isn’t. It really leaves the reader to use the book as just a compass and find the correct path to a monopoly by ourselves. I finished the book with the impression that Lele purposely left us readers with an implied invitation to hire his consulting firm if we want to learn more.
Ties to Blue Ocean Strategy
I enjoyed how the themes in this book tie to Blue Ocean Strategy. Blue Ocean Strategy clearly develops the idea of spaces in the market, and Monopoly Rules also addresses the implications of owning a marketspace to make the competition totally irrelevant. The goal of these two paradigms is to differentiate along key industry or product dimensions to own space and create situational monopolies. I highly recommend both of these books to small business owners as well as executives and managers at larger companies.
An Important Book – A Should Read
Overall, I think Milind Lele’s Monopoly Rules is important in today's economic climate and should be read by any person who is or wants to be involved in business. The idea of being able to charge high monopoly-type rents is a “holy grail” in any industry or business. The book has many strengths, it’s full of clear and pointed examples, and is suitable for many audiences, including those who are less strategically-oriented, new to marketing, or new to business in general. Monopoly Rules points you in the right direction – it is up to you to choose a path.
I am willing to talk with blog participants live via phone for free consultations. I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities. For any of these request, E-mail me . I will help my readers in any way possible – I want to share my knowledge and expertise.
Mike Bolden marketing expert and blue ocean strategist - writing to inform, enlighten, and inspire. Author of forth coming book, "Owning Marketspace". Available for consulting and speaking engagements.
Monopoly Rules: Seminal Ideas and New Paradigms for Strong Profits
Milind Lele's Monopoly Rules (2005) has very strong and applicable ideas for any business aiming to gain high profits in a given set of industry circumstances. It touts the concept of creating a "legal" monopoly through opportunistically exploiting shifts in an industry or market and competitors' blind spots. The book's major tenet? “A monopoly is an ownable space for a useful period of time.” Lele’s recognition of these two dimensions of space and time as the key to a monopoly is simple, powerful, and extremely useful to any business or organization. For this idea alone, the book is worth reading, and worth its weight in gold.
Own Space, Not a Sustainable Competitive Advantage
Lele claims that ownable space over a period of time is at the heart of every successful business, not “sustainable competitive advantage” (SCA) as Michael Porter expounds on in his book, Competitive Strategy. Lele sites that business success is not derived from unique products, strong brands, large scale, low costs, but that these factors are a means to an end, with the monopoly of capturing the marketspace for a given period of time being the true end. Starbucks, until recently, had a dominant “good-tasting-cup-of-coffee” monopoly without any SCA. Contrary to everyone’s assumptions, Southwest does not have a SCA of being a low-cost producer. It does, however, have a “cheap seat” monopoly, and thus it owns the budget traveler space. The high barriers-to-entry in the airlines industry have allowed Southwest to hold this monopoly for as long as it has. Wal-Mart’s original strategy and success was derived through being a “local monopoly,” and its large investment in small towns raised its barrier-to-entry into that area.
The Monopoly Kaleidoscope and the Dollars and Cents Value of Monopolies
This critical deduction in Monopoly Rules changes the way you can view business and what should be addressed to be successful. It is an important strategic paradigm shift, and the key strength of the book is how Lele explains his point effectively and simply through these examples. He also invests time explaining how monopolies develop through three key factors of a monopoly kaleidoscope: industry shifts, competitor shifts and customer shifts. To illustrate a company’s market value is often much higher than that of competitors in a monopolized space, he uses a simple formula of revenues per share versus share price to develop a ratio. Companies with a ratio of 3.5 or higher typically have monopolized marketspaces. In 2005, he sites Microsoft’s ratio at 8.0 and Coke at 4.5. He contrasts their success with the struggles of Revlon during this period which is reflected with a ratio of 0.61. As a University of Chicago Business School grad, I liked his quantification of the real dollars and cents’ effect a monopoly has in terms of a company’s value in the marketplace.
I am willing to talk with blog participants live via phone for free consultations. I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities. For any of these request, E-mail me . I will help my readers in any way possible – I want to share my knowledge and expertise.
Mike Bolden marketing expert and blue ocean strategist - writing to inform, enlighten, and inspire. Author of forth coming book, "Owning Marketspace". Available for consulting and speaking engagements.
Nikon: Marketspaces, Memories and Moments
Competing Against Canon and Other Players
As far as competing against its rival Canon and other players, Nikon should trade lower margins and competitive pricing for volume in marketspaces where Canon and overall competition are strong. Nikon should seek less crowded spaces or places where Canon is weak, based on the previously mentioned dimensions. In these weaker marketspaces, Nikon can leverage profitability and sales by offering a strong portfolio of accessories that cater to the needs and preferences of any photographer's lifestyle or usage occasion and type.
Emotion-Oriented Marketing and Ads
From a marketing and advertising perspective, Nikon would do well to develop strong emotion-oriented advertisement before and during the holiday seasons. They should tie ads to customers in each major strategic marketspace for the things in life that they care about; not necessarily photography-related. Nikon can make light reference to features of the camera, but the ads should focus on capturing memories and important moments.
What Do You Think Nikon Should Do?
As for Nikon’s other businesses, precision equipment, scanners, and microscopes, they should replicate the strategy-dimensionalized marketspaces, except the major focus should be usage. How would you approach Nikon’s markets? Is there anything else you would do to stem costs? Do you agree with my lifestyle and usage dimensionalization as a way to develop camera models, their features, and targeted advertisement?
I am willing to talk with blog participants live via phone for free consultations. I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities. For any of these request, E-mail me . I will help my readers in any way possible – I want to share my knowledge and expertise.
Mike Bolden marketing expert and blue ocean strategist - writing to inform, enlighten, and inspire. Author of forth coming book, "Owning Marketspace". Available for consulting and speaking engagements.
Nikon’s Perfect Picture: Returning to Profitable Growth
Nikon’s Current Profitability Drop
Nikon faces challenging times these days: its net profits fell in its fiscal first quarter to 17.95 billion yen from 23.45 billion yen in the previous year. According to the Wall Street Journal’s August 7th edition, Nikon had a 23% drop in net profit. Interestingly, revenue in Nikon’s camera division rose 14% to 165.2 billion yen, boosted by strong sales of single-lens-reflex (SLR) digital cameras. Unfortunately for Nikon, however, costs wiped out robust sales of its high-end digital cameras. This growth in costs are due partly to initial expenses involved in the launch of new products such as its D700 SLR digital camera and advertising costs in the U.S. Additional challenges include rival Canon, who is expanding sales to newly retired, deep-pocketed hobbyists, and people who switch to digital camera from traditional film. This is a key marketspace because many of these customers buy expensive inter-changeable lenses which lock in future profits for their cameras' manufacturer.
Focus On Customers’ Lifestyle and Usage
What can Nikon do to stem this profitability slide? Focus products, advertising, and marketing resources around lifestyle and usage dimensions. From a lifestyle perspective, Nikon can focus on people who are newly retired, young parents, avid vacationers, special event recorders, party throwers or goers, etc. From a usage perspective, they can also focus on professional photographers, beginners, outdoor events, indoor events, portrait pictures, action or sporting events, night shots, kids, etc. The importance of this orientation is to gear and develop models and features based upon strategic and key lifestyle and usage dimensions, and then target given marketspaces. Equally as important, targeted marketspace selection will minimize ad costs and optimize market coverage. Similar to its first fiscal quarter this year, Nikon can absorb a substantial ad cost hit initially to develop brand equity among strategic buyer groups, but these costs can and will be lower once the market has been developed.
I am willing to talk with blog participants live via phone for free consultations. I am also available to companies, businesses and organizations for consulting engagements and speaking opportunities. For any of these request, E-mail me . I will help my readers in any way possible – I want to share my knowledge and expertise.
Mike Bolden marketing expert and blue ocean strategist - writing to inform, enlighten, and inspire. Author of forth coming book, "Owning Marketspace". Available for consulting and speaking engagements.
NIkon Nikon's Profitability Drop High-End Digital Cameras Canon Lifestyle and Usage Dimensions Marketspaces Turbo Tagger