Are you different?
The reasons behind the collapse of electronics chain, Dick Smith, and for the closure of Woolworths’ hardware chain, Masters, are complex. The two failed businesses had one characteristic in common: neither was clearly differentiated from its competition.
“Me-tooism” is dead. For company directors, the collapse of these businesses should prompt a near-continuous review of the risk of being a follower instead of a leader.
Dick Smith wasn’t always a follower. Once, this company had a strongly differentiated position in the form of its founder. A huge personality and a fierce defender of the “made-in-Australia” push, Dick Smith gave his stores personality. Customers signed up to support Australia when they spend their dollars in Dick Smith’s stores. But when Dick Smith sold 100 per cent of his company to Woolworths by 1982, it was no longer different. It was just another electronics store fighting on price against increasingly intense competition in the form of JB HiFi, Harvey Norman, The Good Guys, and later, online stores and eBay.
Woolworths opened its first Masters store in 2011, a strategy aimed at challenging Wesfarmers’ hugely successful Bunnings hardware chain. But Bunnings had defined the category. Back in 1994, when Bunnings opened its first warehouse (Wesfarmers had assumed 100 per cent ownership) it was an astonishing experience for most of us to walk into a store of such scale. Masters hardware was a me-too play. In theory, we should have been thrilled as consumers. Bunnings is a “category killer”. Its entry into the market led to thousands of small hardware shops closing their doors, put out of business by aggressive price competition and enormous range of goods. Local paint shops and plant nurseries followed suit. With competition down, Bunnings’ profits grew.
But consumers are creatures of habit. They know their way around Bunnings stores, they know where they are, and they are familiar with the service. With no compelling difference between the new Masters stores and the Bunnings stores they knew so well, they stayed away in droves. Those that did turn up measured their experiences against the incumbent. Bunnings set the standard on everything from customer services, to product range, layout or location. Customers saw differences as deficiencies. In 2015, long after Masters entered the market, Bunnings’ profits grew by 10 per cent.
Consumers need a reason to make a change from what they know to what they do not. Often, though, that reason is less complex than company leaders think. My local plant nursery is within a kilometre or so of a Bunnings Warehouse. Yet it is crowded with buyers every moment of the day. Those not buying plants are in the café or the outdoor furniture shop. It cannot compete on price. It sells on the quality of its plants, its inspiring presentation, its range of services, and its expert staff who step forward to help you. It also sells on its success. Thriving businesses have a great vibe about them.
For directors, the lessons are clear. Risk lies in lack of differentiation.
Not every business strategy has to be based on disruption. Incremental innovation can be just as powerful. What if Masters had provided multi-lingual staff? In Melbourne, for example, three in 10 people speak a language other than English at home. Once it had multi-lingual customers in the doors, it might have wowed them with outstanding customer service. (Actually, reports suggest the business did the opposite – disappointing customers with shocking service.)
For directors, the lessons are clear. Risk lies in lack of differentiation. Directors who respond by constantly scanning for challengers and focusing on recruiting the skills their company will need in future stay ahead of rivals. Directors who mitigate risk will challenge their leaders to implement strategies to stay different. Here are some:
- Recruit for diversity – more opinions, more backgrounds, greater resilience.
- Train staff to be flexible and adaptable.
- Get advice from outside your organisation.
- Listen to your customers, but remember they don’t know what is possible like you and your competitors do.
- Respect new players, no matter how small, for their disruptive potential.
- Spend less time planning and more time testing.
- Test and iterate new offerings quickly.