Friday, February 20, 2009

Testing Mettle: One Benefit of an Economic Downturn

When the economy is growing and consumers are feeling flush, it’s relatively easy for businesses to thrive because there is more than enough money to go around. However, there is a dark cloud surrounding this silver lining. Economic booms create a false sense of accomplishment.

The more confident consumers feel about their economic situations, the less discerning they are about how they spend money. As a result, relatively durable goods become more disposable. Switching phones, cars or even homes with lightning speed becomes commonplace. And disappointments are diminished due to the turnover. All of which enable companies to flourish with only a mediocre effort.

It isn’t until external pressures force people to reconsider spending habits that companies and their offerings come under the microscope. Tough times allow companies to find out what they are truly made of. Some fail, thinning the herd. Others survive. Those who survive are stronger and flourish—at least until the next test.

Friday, February 6, 2009

Consumers Only Need One Best Buy

Imitation may be the purest form of flattery, but it doesn’t make for good business. Take Circuit City, for example.

While we’re not privy to all of the inner workings of Circuit City, it has been obvious for some time that they were heading down a dangerous path. Not only was Best Buy the first retailer to “warehouse” the electronics industry, they have proven to be fairly good at it. Circuit City followed with essentially the same offering, and the differences between the offerings became fewer and fewer as Circuit City’s financial troubles mounted. Following the leader was its demise. And it appears that Ultimate Electronics might be heading in the same direction with their “shop the competition” tactic.

The problem with companies following the best practices of a category is that it produces nothing but carbon copies. Two or more identical offerings provide no benefit for consumers and as a result the category leader typically wins because they are the default choice. The leader’s ubiquity reassures people. Familiarity creates routine. Absent an intervening event, consumers have no reason to reconsider their behavior. Which isn’t to say that category leaders can’t be displaced. They can, just not with an identical offering.

Ideally, all companies should have the strategic fortitude to think for themselves. Some ideas are worth stealing; however, just don’t mimic the competition. Every tactic can be executed in multiple ways. And every organization should have a unique perspective on how it would execute a similar tactic differently than its competition. If it doesn’t, it should take a step back and focus on strategy rather than execution.