Monday, March 1, 2010

Defining Value

Street sign for Wal*Mart Drive, south of Gordo...Image via Wikipedia
Your business must present some unique value in order to rise above the competition. What you can offer depends availability of resources, and what customers perceive as value, which will vary from market to market.

Let us take a toy retailer as an example.

First of all, what kinds of toys are there? Toys is such an all-encompassing word. It varies from balls and bicycles / tricycles and dolls, to board games, to action figures, all the way to game consoles and related games, accessories, and more. It could be for babies all the way up to teens. Everything from alphabet blocks and Legos (tm) to Nintendo Wii (tm) and Tickle-Me Elmo (tm) are toys. Thus, there are quite a few sub-market for toys: toddlers, kindergarten, elementary, middle-school, and high school. All have different interests and thus, different toys.

Second, who buys toys? Kids usually don't buy their own toys, until they are older, like middle-school and high school. Usually, it's the adults that buy toys... with or without the child's input.

Third, who sells toys? (i.e. who's the competition?) Toy's R Us is still around, but have severely shrunk in retail presence. Wal-Mart and Target / K-Mart have pretty much taken over. Specialty stores like Warner Brothers / Disney stores have lost quite a few retail stores as well, and only those specialty stores like Discovery Store or Zany Brainy with special emphasis survived. Kay Bee Toys specialize in closeout stuff, but who really buy those in malls? And finally, FAO Schwartz have pretty much went the way of the dodo. What do each of them offer?
Wal-Mart -- cheapest prices, only the bestsellers and nothing else (except maybe end-year season) and convenience when shopping other things

Toys R Us -- great selection, so-so prices

Kay Bee Toys -- lousy selection, low prices, good location in malls

Disney/WB stores -- great brand name leverage, relatively high prices, unique products

Specialty stores -- unique products and high prices

So where can a toy retailer compete? It's clear that without the size leverage, a smaller retailer can never get close to the size of a typical Toys R Us, or the low prices of Wal-Mart, or compete with brand stores and/or specialty stores. Thus, one must study what constitutes value in the mind of a customer, and how to provide more of it to compete.

What constitutes value in terms of a toy shopper?

* price
* selection
* helpful advice in what to buy
* availability of must-have items
* gift-wrapping (very important for Birthdays and holidays)
* easier availability / financing
* and more

It's clear that a normal retailer can't compete with Wal-Mart on price, and not with Toys R Us on price / selection. Thus, a new retailer must go after a "niche", so to speak, that nobody would be able to get into without significant cost.

Having good advisers (for the shoppers) is good, and this is where things gets a bit conflicting. The more selection you have, the less your employees know about each one. That's why specialty stores do so well: their staff are trained on limited amount of products, and can easily demonstrate many of them to prospective buyers. This basically is going after customer intimacy, and solving the problem of "gift-giving". Of course, you will have to at least offer a range of products for various price ranges.

Gift-wrapping is good, and staff can be trained to offer this easily for slight additional charge (or even free as special promotion). Cost is minimal, it's mostly labor.

Availability of must-have items is tough. If it's that must-have, the big stores would have gotten them first. So there's not too much one can do there, except suggest alternatives.

Well, that's just from some brainstorming sessions. If you are honest, and gather a team that gives honest ideas, and don't discard ideas until after MUCH debate (i.e. never dismiss an idea out of hand as "we can't do that") you should get a bunch of ideas. Only then should you start culling the ideas.

Beware of NVI (not invented here) syndrome. It is automatic rejection of any new ideas that came from the outside, i.e. "if it's that good of an idea, we'd be the first to do it. We didn't, so it can't be good." That's circular logic. It's corporate pride and bravado, and that's emotion, which should not be running the business.

Another syndrome to beware is WDDTH, or "we don't do that here". When Southwest Airlines started, all of the existing airlines laughed and said "nobody will fly that: no meal, no baggage handling, tiny planes, no long flights." Who's laughing now? All the other airlines had WDDTH, and as a result, lost the short-haul market to Southwest. UA came closest in recapturing some of the market with United Shuttle, by copying Southwest (only small planes, only busiest airports, like SFO to LAX, short flights). Guess imitation is sincerest form of flattery, as everybody has pretty much eliminated meals except a very light sandwich. Some will even sell you sandwiches onboard for $$$. If you are told WDDTH and nobody can utter a particular reason that makes sense, you have a problem.

So remember, in order to provide customers with more value, you have to first identify what value will they actually go for. THEN you can think about what values CAN you provide what sets you apart from your competitors that they cannot copy. THAT is your edge.

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