Target Misses the Bullseye in Canada

Joe Cataldo writes a detail story that serves as a solid autopsy on how Target failed in the Canadian market. His story moves beyond the superficial analysis of another American company failing to understand a foreign market. Through interviews with several people associated with Target's Canadian operation, Cataldo paints a pictures of a company that did not properly allocate its resources. The money list:

  • Human - Target hired people with little retail operations experience to develop its inventory and distribution systems.
  • Informational - Target could not provide properly and accurately complete the fields in its inventory software system. Indeed, Target bought an off-the-shelf title that it had no experience with using.
  • Organizational - Target had never expanded into a new country and lacked the competence to manage issues such as different currency, distribution centers, and suppliers.
  • Physical - Target acquired locations from Zellers, a poor performing Canadian retailer, that proved to be inadequate. Customers were not willing to drive to them regardless of the brand on the front of store.
  • Relational - Target and its suppliers could not agree to a receiving date for ordered goods. As a consequence, warehouses were stuffed with inventory while shelves at retail were empty.

Given the misallocation of its resource, Target ultimately achieved inferior financial performance. It reported a $5.4 billion quarterly loss. However, in reading Cataldo's story, the loss seems bigger than what has been reported.

Possible Target employees try to enter data in its inventory system.

Apple's Role in Radio Shack's Demise

Radio Shack has officially declared bankruptcy. Now, a judge will determine who will get paid and how much. Everything including the name will be auctioned. The analysis have already begun with the ink barely dry on the bankruptcy petition, including:

  • Joshua Brustein provides a concise history of the retailer's slow, lengthy demise.
  • Knowledge@Wharton offers lessons for managers to learn from Radio Shack.
  • Jodi Xu Klein recounts the role of a small lender - suffering its own run of misfortune - in Radio Shack's collapse.

Mark Pelletier writes about his experience from working on the floor at Radio Shack. The money employee insult:

I had a customer come in to buy an iPod for her son’s birthday. After building rapport with this customer and spending some time with her, this customer eventually purchased the iPod (which was not the color or capacity she wanted, but she wanted to purchase it from me anyway), a $600 laptop, a neoprene case for the laptop, a Nikon digital camera, a memory card for the camera, a leather case for the camera, a $50 iTunes card, headphones for the iPod, external speakers for the iPod, a few more add-on items and service plans. The sale came to over $1500. The customer left happy that we had fulfilled her needs. The very next day I was told that if I didn’t sell a cell phone that day I would be “written up”.

Pelletier gives additional examples that boil down to one thing: the in-store experience matters. Brustein's story also alludes to issues with the in-store experience. Both recount anecdotes of store managers abusing the floor employees. An abuse floor employee will contribute to an awful in-store experience.

Radio Shack was also plagued by bad floor layouts, terrible plan-o-grams for shelving and displaying merchandise, and employees who knew little about the products.

Americans would have put up with this experience if not for Apple. The company, which was reviled for opening a retail store, showed what was new in store design, merchandise arrangement, and floor employee management. Consumers responded by buying enough merchandise and services from Apple to drive the company's sales-per-square-foot figure to more than $4,000.

Radio Shack's management struggled to learn from Apple. Its attempt to reduce the amount of merchandise under The Shack repositioning effort was too little, too late. As Brustein repeatedly illustrates, Radio Shack's management struggled to learn. In turn, management could not better allocate its resources including financial, organizational, human, and physical. Hence, Radio Shack remained stuck in a position of low value and high cost and, ultimately and continuously, achieved inferior financial performance.

After seeing Apple, Radio Shack could not keep consumers in its stores. The ultimate Radio Shack lesson for managers is: competence matters. The signs and signals of poor retail management.

A more inviting retail experience

Samsung Ignores HP's Misfortunes, Mistakes, Missteps

Given Samsung's current competitive disadvantage in the smart device market, the South Korean company learned nothing from Dell or Hewlett-Packard. The two former high-flying PC assemblers ultimately achieved inferior financial performance as customers kept moving toward lower price PCs. The lessons from Dell and H-P seem lost to Samsung's management. As Katie Benner discusses, Samsung wants to double down on HP's mistakes. The money management misstep:

Samsung has reportedly been in talks to buy BlackBerry, apparently because it's enthralled with the mobile operator's patents and a secure network that manages e-mail traffic for the U.S. government, military agencies, and, of course, major corporate customers.

The BlackBerry offer stands at $7.5 billion, and should increase as other companies such as Google, Motorola, etc. start to kick the tires. The parallel is not perfect. As the saying goes, history does not repeat itself; it merely rhymes.

In this case, the rhyme stems from HP's ill-fated purchase of the Palm OS for $1.2 billion in 2010.

In the smart device market, Hewlett-Packard found itself struggling to extend its brand from the PC market to the smart device market. The company needed the extension to improve it financial performance as HP's PC sales volume continued to slide and its PC operating profits shrunk.

Hewlett-Packard tried selling handsets with the Microsoft CE operating system and licensed the iPod for resale. The Palm purchase marked the American company's effort at changing its competitive advantage.

The company acquired information and legal resources through the Palm purchase in the guise of the OS and patents. However, HP could not better allocate its organizational resource as the company could not develop a handset that met the needs of a market segment. Currently, HP is licensing webOS (nee Palm OS) to any firm willing to pay the fee including Samsung.

At one point, Samsung held the most market share among smart device manufacturers similar to how HP and Dell held top spots among PC manufacturers. HP and Dell like Samsung did not control the OS that powered its devices. All three companies watched customers buy cheaper, competing products that offered similar designs and the same OS.

The bigger threat for Samsung appears from the Internet of Things, and not from Google or Apple.The Internet of Things is about chips, operating systems, and networks. Three market offerings that Samsung lacks in its product portfolio. Given how hardware companies have struggled to reverse their fortunes (see Commodore, Dell, HP, IBM, Motorola, Nokia, etc.), Samsung's $63 billion cash will only buy it time.

Samsung goes on an acquisition spree.

Friday Fun Question

Most Fridays, I usually answer a question or questions from Principles of Marketing students about marketing. This Friday, though, I am breaking from that pattern to answer a question from a Retail Management student. This week’s question: When dealing with competitors or when examining competitors, we talked about any business located near our client as a possible competitor. This view seems too broad because not every business competes against our client. How do you know who your competitors are?

Several approaches exist to classify or determine your competitors including cluster analysis and multidimensional scaling. The below typology fits well when dealing with service firm such as a food retailer. This website provides additional discussion while this blog post gives an example drawn from higher education. The typology classifies competitors into six forms based on buyer needs and competitors' processes to fill those needs, including:

  1. Direct competitors: Those competitors that fill the same buyer needs you fill in the same way that you fill them;
  2. Alternative use competitors: Those competitors that fill different buyer needs but do so in the same way that you fill your buyers’ needs;
  3. Substitute competitors: Those competitors that fill the same buyer needs you fill but fill them in a different way;
  4. Economic competitors: Those competitors that fill neither the same buyer needs you fill nor use the same ways but do compete for the same buyer budgets;
  5. Complements: Those sellers with which you cooperate to fill buyer needs but then compete for the larger proportion of buyer expenditures;
  6. Buyers: The propensity and ability of buyers to fill their own needs

This classification system should involve over time, consistent with R-A theory. Also, it could be extended to other service providers in the fast casual market, financial services market, or the vending/grocery market.

Breaking a Gun's Story into Three Pieces

While Glock: The Rise of America’s Gun is a good, easy read, the book was not as easy to summarize because of its narrative structure. The book could have been divided into three, unequal parts.

In the first part, Barrett explained how the Austrian company founded and capitalized on an opportunity. The Austrian military wanted a new pistol. Glock, which never made guns, created a gun that was better than its competitors. Following the introduction, Glock implemented strong marketing programs to expand sales beyond Austria including entry into the United States.

In the second part, Barrett linked the relationship between gun violence and gun sales. With each mass killing spree, some members of Congress denounced gun violence while other members spoke of protecting gun owners’ rights. In turn, fearing a looming restriction on guns, new customers entered the gun market while current customers bought more guns. More gun violence ultimately generated more gun sales.

In the third part, Barrett shifted to Glock’s corporate drama. He recounts the various schemes the company employed to avoid paying taxes in the United States and Austria. Barrett also examined how two company lawyers defrauded money from Glock. Finally, Barrett reviewed the boardroom machinations.

Not surprisingly, the first section of the book resonated most given my position as a marketing faculty member. Gaston Glock, the company’s founder, hired excellent executives both in the United States and Austria. These people greatly assisted with Glock’s rise. Barrett ably communicates the contribution of these resources as part of Glock’s success.

Barrett also noted how Glock created a brand community for its product. In the American market, company executives understood the importance of sales to government agencies such as the FBI, military branches, and local police departments. The company initially allocated its resources toward these groups. Looking at these government agencies for cues for a good gun, consumers started buying Glocks.

The company invested in activities associated with the brand community. For example, the company started using booth babes at shows targeted to gun retailers. The company hosted training and selling seminars for government agencies at its American headquarters.

Despite the book’s reading level and content, the lack of a thesis became problematic. The book really was a collection of three, smaller books that were bound by a single product. The book’s subtitle, “The Rise of America’s Gun,” neatly summarized the problem.

The story focused on rise. Without a fall or a decline, the story lacked a tension. Even the rise contained mildly interesting nuggets. For example, Glock provided a multi-day sales and training experience that was capped with a night at a large strip club. Glock was not the only company to close a deal or cement a relationship with this approach.

However, there were no stories of corporate skullduggery, shenanigans, or malfeasance to suggest Glock achieved its positional advantage with something other than better marketing. Indeed, Barrett could have developed a book of marketing exemplars such as Glock, Toyota, Samsung, etc. to illustrate how better allocation of marketing resources allowed these firms to sell more product compared to its rivals.

Conversely, Barrett could have waited for Glock’s inevitable decline to revise the subtitle to “The Rise and Fall of America’s Gun.” The decline would have provided Barrett a stronger thesis and, ultimately, provided a better book.

Unlike Glock the gun, Glock the book is not better than the sum of its parts.

Tipping Off with Information Asymmetry

After conquering the NBA where all franchises now operate a SportVU system, three NCAA Division I teams also installed it with more teams expected to use it. At a price tag of $100,000 annual cost, expect many teams though not to install it.  Michigan State head men's basketball coach Tom Izzo provides the money quote:

I'm sure (SportVU) will be (the source of college basketball's next arms race). It will separate the haves and the have-nots a bit more.

While SportVU will allow firms to generate market intelligence, there's little evidence that firms can adequately disseminate and/or respond to market intelligence. Without those two components than the market intelligence generated by  SpoortVU will not provide a competitive advantage. That is, possessing this intelligence remains insufficient. A coach like any manager must be able to formulate and implement a plan based on the intelligence for the intelligence to prove value to the team or firm.

For the teams that cannot afford this technology, perhaps they would be interested in a pair of innovative basketball shoes that reduces the rate of some foot and ankle injuries.

Fashion Retailers' Reliance on Design, Production

Three articles focus on sources of competitive advantages for fashion retailers. For one set of retailers, management's renewed attention on design could allow for a competitive advantage in the marketplace. For another set of retailers, the production schedule provide a competitive advantage in the marketplace.

  • Ikea is launching a set of products designed to fit younger Americans move to smaller spaces.
  • Gap's new CEO is adding black jeans and other new designs to restore the brand's financial luster.
  • Korean, and Mexican immigrants create a Los Angeles garment district that allows the fast fashion industry to exist.

More Pecha Kucka Examples

Besides looking through this blog for content related to Pecha Kuckas, students should look at these examplars. [embedplusvideo height="315" width="420" editlink="http://bit.ly/1fYdBjP" standard="http://www.youtube.com/v/jJ2yepIaAtE?fs=1" vars="ytid=jJ2yepIaAtE&width=420&height=315&start=&stop=&rs=w&hd=0&autoplay=0&react=1&chapters=¬es=" id="ep8916" /]

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Bourbon Distillers Remain MIA on Climate Change

A recent blog post discussed how many consumer package good companies are realizing how climate change is affecting their respective profit margins and operating profits. Other than this entry in 2006, very little has been written or talked about how bourbon distillers are affected by climate change. Yet, nothing threatens the continued growth (bubble?) in bourbon sales than changes in climate. Climate change affects bourbon's manufacturing stage. Following the distillation process, the unaged alcohol (usually called moonshine) is poured into white oak barrels until filled and then plugged. The barrels are placed in multistory, unheated, and non-air conditioned barns referred to as rick houses. The barrels are then moved within the rick house in attempt to provide a more even aging process.

Converting moonshine into bourbon one story at a time.

The summer heat and the winter cold push the bourbon in and out of the wood barrels. This movement gives the bourbon its flavor. The longer the bourbon remains in the barrel, the more flavor it takes on because the seasons affect the taste.

Climate change is altering this process, though, with shorter, more intense weather systems. Instead of a several consecutive days of cold temperatures, bourbon distillers are experience brief temperature drops followed by dramatic climbs. The summers are also getting longer. The average daily temperatures are rising as we continue to record hotter years.

Given how the weather patterns directly influence the market offering, it is startling how little the industry trade groups are talking about the issue. The Kentucky Distillers Association nor the Distilled Spirits Council of the United States mention climate change on their respective website. The Distilled Spirits Council of the United States lists several public policy issues but none deal with climate.

Today, most bourbon distillers are enjoying superior financial performance. Resource advantage theory states that societal resources such as weather patterns affect the competitive process. Consistent with R-A theory, we would expect that climate change will alter the competitive position for bourbon distillers. In turn, we would expect them to achieve either parity or inferior financial performance because climate change will alter the market offering to probably no longer meet the demands of a market segment.

Wonder what this bourbon will taste like in 4 to 20 years.

Three College Grads Talking Trash About College

At something called the New American Foundation, three men questioned the value of a college education, including Dr. Eric Schmidt, Jon Steinberg, and Peter Thiel. Besides attending this conference, and getting themselves quoted a lot, this trio also possess a complete and utter lack of the product that universities produce along with a complete lack of perspective. Universities produce, and store knowledge. Like any activity associated with creating, maintaining, and expanding a resource, information costs money. Yet, these three argue for free resource. Indeed, if Schmidt is such a believer of universities of giving away their product, then when will Google release its core product - the page ranking algorithm - to the general public?

Universities compete on knowledge because it allows them to produce a market offering that meets the demand of a market segment. By combining knowledge with other resources, universities can improve or maintain its positional advantage, and, ultimately, achieve superior financial performance. No reason exists for an organization including universities and Google to give away its source of a competitive advantage.

Finally, this argument seems easier to make if the person graduated from an elite institution such as:

  • Eric Schmidt - Princeton University (BS), and the University of California, Berkley (MS, Ph.D.)
  • Jon Steinberg - Princeton University (BS), and Columbia University (MBA)
  • Peter Thiel - Standford University (BA, JD)

If someone who graduated from a low or a middle tier public university would argue that colleges should provide a free education, or question the value of a college education, then perhaps the argument would resonate more.

Instead, this trio sounds like men who got theirs but do not want others to enjoy similar opportunities.