Margin vs market share


money_tree_small.jpgDM CONFIDENTIAL — Often topics in the business world fall out of favor once the next great mantra comes along, either replacing and/or refuting the last . One week it might be “Who Moved My Cheese?” the next “The Four Hour Work Week.”

Some concepts have legs, built more on lasting principles than buy-me-now hype. Even those with good intentions can go wrong as the fortunes of companies used as examples in many books can appear to be the bastions of stability and success only to implode in a manner unseen before.

One such concept for success that seems to have the appropriate staying power we covered, what in Internet terms would be considered a lifetime ago, but in the world of publishing is still fairly recent, February of 2005. The concept and book that shares the same name is Blue Ocean Strategy –
How to Create Uncontested Market Space and Make Competition Irrelevant – and as we wrote then, at its core a Blue Ocean approach revolves around creating demand rather than fighting over existing demand.

The book begins by telling the story of Cirque du Soliel, now a household name, but a concept that would have seemed like a long shot at best during its inception. Their name partially explains the problem – Circus – an industry in the decline with increasing costs, increasingly negative public sentiment over the use of animals, and lower overall ticket sales. Yet, any recent trip to Vegas will only illustrate Cirque du Soleils rise. Instead of struggling to find a circus to attend, you can’t escape Cirque du Soleil. They have a great product, which doesn’t disappoint users, but among their best decisions, according to the book, was not thinking of themselves as just a different type of circus, and key to blue ocean thinking – they didn’t use the competition as a benchmark. Cirque du Soleil’s success comes from their genius in attracting customers who didn’t fit the traditional circus-goer mold – adults and corporate clients, an audience that just so happened to be used to paying ticket prices multiples higher than those of the normal circus.

As mentioned before, Cirque’s success stems from a variety of factors not just their decision to avoid focusing on the traditional circus market. They built a good product with entertainment power and as a result staying power. It wasn’t a gimmick. Those who go pay a lot but feel they get a lot – a true win-win. It doesn’t always happen, and it’s not always necessary. Our industry for example is littered with successful companies that made money the old fashioned way – by trying to do it better than someone else. Online business models aren’t like real estate where once you have it, you have it. In our space, often once you have, others will see it, and try their best to copy you. Google is a perfect example. They didn’t invent search or paid search, and in hind sight we can say many things about how they succeeded, but it had nothing to do with business model innovation just better execution on the problem. Facebook didn’t invent social networking, and two years ago, it’s hard to think that anyone would have really guessed it would top MySpace or even be considered a threat to Google. One of the more recent offline examples is McDonald’s Southwest Chicken Sandwich. It’s a complete copy of the Chick Fil’A Chicken Sandwich. No originality there. McDonalds saw its popularity, has a bigger retail footprint, and figured it could grab some of those people who might be closer to them than Chick Fil’A.

Making money the innovative way seems hard, overly daunting, and generally undesirable, but the examples are more numerous than we might think. Cirque du Soleil is a grand example. Here are some less obvious but not necessarily insignificant examples.

Listerine – there was a story we read that stuck with us. The company needed to sell more product. Nothing unique in that desire. But, there are only so many people that will use Listerine, and only so many scare tactics or comparisons versus brushing alone to push people into using it more. You could move into new markets by getting parents to use it on their kids (still a scare tactic), but what if there was a way to get people to use it more? It’s not a truly regulated product, and while it carries the ADA seal of approval, that doesn’t prohibit them from making certain changes…like the cap size. There are no rules preventing the company from increasing the suggesting portions. And, that’s what they did. Result – more bottles sold.

Flog – despite our love to hate relationship with the flog, we have to give credit where credit is due. It is a brilliant, albeit more often evilly executed, idea that found a way to sell products which either didn’t sell when directly promoted or sold in a much lower volume. Offline has advertorials and infomercials, but no such first person means existed online until the flog.

Burger King Burger Shots – the downside to fast food is that in many ways it’s a race to the bottom. Companies must continually offer more for less; a la carte value menus must continue to grow. Burger Shots are a slider by another name. It’s a small hamburger. But cleverly packaged, a small hamburger can now sell for more than their normal small hamburger on the value menu. Add brilliant emotionally charged marketing campaign and voila – increased sales of a higher profit item.

Coppertone Contiguous Sunblock Spray – one of my favorites. For those who don’t worry about sun exposure, this might not apply to you, but for the quick to burn, extended time in the sun means the ritual of sunscreen. Despite the fantasy tie in, the application of sunscreen generally underwhelms. It takes a while and is somewhat messy requiring washing hands after at the very least. Enter Coppertone with the idea of spray on sunscreen. No more proverbial getting one’s hands dirty. Just point and shoot. Problem solved and profit solved. It costs more and people who use it will, like the Listerine cap example, go through them much more quickly than their more traditional counterparts.

Swisher Sweeper – if you’ve mopped or swept, you get it. Plays so well into our disposable culture, and ultimately the advantages in how well it cleans have less to do than the feeling of relief that comes from not having to do it the old way.

Dyson Vacuums – sometimes a better product is all you need, and those who have bought a Dyson are among the most ardent supporters. Up to $500 for a vacuum is absolutely insane, but you will start to justify it after one use.

The real distinction among the above is lasting power, i.e., how long until the next innovation is needed. The ones who stay create unparalleled experiences which also present a barrier for others who want to copy. At the risk of overusing Cirque du Soleil, their competitor won’t come from someone trying to create a similar show. It will come from someone who creates a more popular but different show.

In the examples above, each has its own staying power, and intuitively you can grasp those that will have a small advantage versus those with a larger one. Big gambles can pay off, but it’s nice to know that little ones can too.

Courtesy of DM Confidential editor

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