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Harry was kept awake yet again by the declining revenues. Wal-Mart had opened up a huge store in his town. His customers were now shopping at Wal-Mart allured by its low prices. Once a coveted specialty store, his store was now losing business due to competitive prices in other stores.

As he started yet another dull day at his store, he overheard two ladies talking softly – ‘similar piece I can get at Wal-Mart for half the price’; ‘really? Then why are we wasting time here?!’ With that they left the store.

Harry was tired of what had become a routine ‘“ he could count on fingers the number of customers who made a purchase each day.

Exasperated, he decided to fight back. The only question looming in his head was ‘“ HOW?

Harry’s problem, as you may agree, is quite common. Competition is healthy, declining revenues are not.

Analysis

1. What is Harry’s problem? Define.
2. What are the possible solutions?
3. How can a business differentiate itself?

Answer 1: Harry’s Problem: Market Differentiation

What makes a customer choose one store over another? Why should people shop at Harry’s store if the same products are offered in other stores? In the past Harry’s store was different; it sold products that were not available in other nearby stores. So customers had a reason to shop at his store. But now stores like Wal-Mart do the same ‘“ it not only sells similar products but also offers competitive prices. So customers have a reason to choose Wal-Mart over Harry’s store ‘“ low prices. Harry’s store has now lost its market differentiation ‘“ the ability to make its products or business more desirable than others. So Harry’s problem is essentially market differentiation ‘“ the deciding factor in the success of any business. He needs to persuade his customers that his store is REALLY different from others.

Answer 2: Possible solutions

1. Compete on prices
2. Do nothing
3. Do something different

What if Harry decides to compete with Wal-Mart on prices? What if he decides to take things as it is and does nothing to stop Wal-Mart? What if he decides to do something new to compete with Wal-Mart? What will happen? Let’s find out from Claire, the fortune teller.

Harry met Claire, the animated fortune teller, on a website.

Claire: ‘I am Claire, your Assistant. I am here to help you make important decisions by seeing your future. I will show you how your wishes will materialize. This way you will know which decisions make sense.

Claire: ‘Go ahead and make a wish and I will show you what it may look like.’

Choice 1: Compete on prices

Harry: ‘Wal-Mart has been giving me a hard time. It has hurt my business. Now I want to compete with Wal-Mart ‘“ I want to offer competitive prices.’

Claire: ‘Okay. Let’s see what can happen if you compete with Wal-Mart on price.’

Claire disappears for a moment while Harry listens to Mozart. Soon Harry’s store appears on the screen. The store is full of people and Harry is helping them buy their favorite products.

Harry: ‘What’s happening?’

Claire: ‘This is your store and people are buying as much as they can ‘“ at same prices as Wal-Mart. Today you are offering special sale on all items.’

Harry: ‘Wow, I have never seen so many people in my store!’

Soon all the shelves are empty. The warehouse keeper informs Harry that they have to re-order stock.

Harry: ‘I always knew I could beat Wal-Mart. People are so happy ‘“ give them low prices and they buy ‘“ that’s the secret. This way I can beat Wal-Mart or for that matter anybody who wants to compete with my prices!!’

Claire: ‘Yes anything is possible.’

Next on the screen, Harry sees the clippings of his success ‘“ he is smiling into camera on the TV, headline stories in news dailies, etc. Suddenly Harry has become the hottest story of specialty retail success. This goes on for a few months. Harry forwards the future to see how much money he has made. What he sees next is very different. He sees himself yelling at his children and wife.

Harry: ‘What’s the matter with me? I can never behave like that. What’s wrong?’

Claire: ‘You are in deep debts.’

Harry: ‘Debts? How’s that possible? Weren’t people buying from my store instead of Wal-Mart? Wasn’t I making money?’

Claire: ‘Yes you did. You attracted people to your store in droves but the low prices hurt your bottom line. You have incurred huge losses, borrowed money to keep the prices low. Now it’s time to pay back and you don’t know how to do that.’

Harry: ‘But how I can make losses?’

Claire: ‘Low prices are good for customers. But you did not gain anything. The supply chain of Wal-Mart is such that it is able to pass the benefits to its customers in the form of low prices. But you do not have such benefits and that’s why you suffered while your customers enjoyed.’

Harry: ‘Oh no’¦I can’t be so foolish. No I don’t want to fight Wal-Mart like this.’

Claire: ‘No problem, we will delete this. This was just a simulation of your wish. You have nothing to worry.’

Harry: ‘Better that way. Let’s try something new. That way clearly isn’t the answer.’

Choice 2: Status Quo

Harry: “I am better off the way I am today. Let me see what can happen if I continue my business without changing anything.”

Claire: ‘Sure if that’s your wish.‘

Claire disappears again for a moment. When he returns, he is next to the screen which shows Harry reading newspaper in his store. The store is empty ‘“ there are no customers neither his employees. The same happens everyday – Harry reading the newspaper, dusting the shelves, etc alone.

Harry: ‘What’s happening now? Are my employees on vacation?’

Claire: ‘You decided not to do anything and take life the way it comes. There are no purchases. You have just enough money to pay the bills for another month; your employees have left because you cannot pay their salaries. And so you are alone.’

Harry: ‘That’s pathetic. I can’t imagine myself so helpless. Are you saying my business will close in no time?’

Claire: ‘I hate to say this but yes that is what will happen if you don’t want to improve your business.’

Harry: ‘No, this is even worse than the previous story. I was just trying to see what is worse. Anyway this can’t happen to me.’

Claire: ‘Of course.’

Choice 3: Differentiation

Harry: ‘I wishI have a prosperous business and a happy family. What if I decide to differentiate my business from Wal-Mart? What will happen?’

Claire: ‘Good idea! Let’s see.’

Claire shows a beautiful mansion to Harry.

Harry: ‘What’s that?’

Claire: ‘Your new store My Home.’

Harry: ‘Wow. Is it a spa or a vacation resort?’

Claire: ‘No it’s your new specialty store.’

Harry: ‘The surveillance system must cost a lot.’

Claire: ‘Yes it does. In fact the technology used inside the store is world class and very expensive.’

They see a lady swiping a card in the driveway.

Harry: ‘Who is she? What is she doing?’

Claire: ‘She is your customer. She is swiping a card to enter the store. It’s like a house key. All your customers have a house key. They treat this store as their second home.’

Harry: ‘eh… That sounds weird.’

The store is actually an ancestral home which Harry bought and revamped. It has a pleasant drive and ample space for his guests to park their cars. Just like you don’t change the setting of your house every week or too often, Harry’s guest house is just the same. The products are displayed in rooms as they ought to be used and changed every season thrice. The family members tidy the house, use the products as a demonstration, etc.

Harry does anything possible to make his guests feel ‘at home’ just like their own house. The interiors are now visible on the screen. It’s a neat house, tastefully decorated and stocked with specialty products. Harry’s family is also seen there.

Harry: ‘What is my wife doing?’

Claire: ‘Your wife and other family members look after the house.’

Harry: ‘Why is my nephew dusting the house? Don’t I have employees?’

Claire: ‘You have volunteers who do the housekeeping. Your nephew is on his summer break.’

Harry: ‘Not bad’¦ J’

They move around the house, admiring the décor.

Harry: ‘Where is the check-out counter?’

Claire: ‘There are no check-out counters. Remember this is a home and not really a store. So there are no shopping carts, no aisles or display racks, no customer service counters, no departments, no store timing!’

Harry: ‘So do people buy anything? Or it’s a charity store?’ asked bemused Harry.

Claire: ‘Every house owner (registered card holder), visitor (not registered) are welcome. House owners have a key to the main entrance; visitors get assistance for entering the house. Visitors must obtain the house key to shop.

House owners use their key for shopping items in the house; they swipe their key at the machine installed in each room; all items are placed in the owner’s car in minutes.

The house key is also a credit card; the bills are sent to the owner’s residence. Items are delivered to the owner’s first home if required

The owners can use the house the way they want including shopping. They can make a drink at the bar using the special bar tools and gourmet liquor; or read a book in the patio overlooking a lake; or watch a movie in the home theater; or take tips from the housekeepers or product helpers as they organize and demonstrate the use of special items. It has a very ‘at home’ environment.’

Harry: ‘Is this a new business model?’

Claire: ‘Yes. And also radically new, don’t you think? The business does not compete on price. It competes on experience. You save cost on billing machines, hiring, and inventory. Limited numbers of SKUs are stocked in the store’s basement; the rest are shipped to the customer’s residence on order directly from the vendor. Technology is at the heart of the business.’

Harry: ‘What about Wal-Mart? Don’t people like low-prices?’

Claire: ‘Yes they do. But they also like your store for the experience you provide. You have a sound customer base who shops at your store repeatedly.’

Harry: ‘I am sure I don’t have any competitors!’

Claire: ‘Correct, no direct competitors as yet!’

Harry: ‘And I am sure I make huge profits.’

Claire: ‘Yes you do.’

Harry: ‘Look how content I am. I must be sleeping well every night!’

With that, the screen of Harry’s computer becomes still.

Claire: ‘That’s it. Do you know what you want now?’

Harry: ‘Of course. Can you make it happen?’

Claire: ‘No way! I was here to help you make decisions only. It’s all up to you now.’

Answer 3: Differentiation by Innovation

‘Commercializing new ideas’, ‘introducing something new’, ‘successful exploitation of new ideas’, ‘doing things differently’ are some possible definitions of the term innovation. In other words, innovation is a means of creating value. Innovation can happen anywhere in the business ‘“ processes, products, services, etc. The following are suggested areas of innovations.

Types of Innovation ‘“ P.O.E.M.

Innovation type: P

Process Innovation: This refers to how a company creates and adds value to its products/services. In other words, it defines the how an activity is performed efficiently to meet its end goal of making products or services. Any business process such as order filling, inventory, delivery, etc which are the core part of the company’s products or services form the target for innovation and deliver competitive value. Shell Lubricants and Progressive Insurance successfully innovated their business processes and now have competitive edge.

Innovation type ‘“ O

Offerings Innovation: These are the value propositions – products or services – that a company offers to the customers. Traditionally, innovation has been associated with new products (or services). The potential for innovation in this area is huge and we have seen several examples of innovative products that have changed our lives. Consider the examples of kitchen products and IPod in detail.

Innovation type ‘“ E

Customer Experience Innovation: This defines how your customers feel when they interact with your company & its offerings. Their experience dictates how they spread the word about your company ‘“ good or bad. It also talks about the customer’s loyalty to your products and their willingness to pay a premium. Nordstrom’s customer service is a perfect example.

Innovation Type ‘“ M

Business model: This refers to how a company makes money. In other words, it defines the company’s sources of income, its value propositions or products, how it reaches the customers, its partners and alliances. Over time, different types of business models have evolved like multi-level marketing model, click-n-mortar or dotcom, online auction, etc.

Some of the most successful innovations have been Dell also called direct-marketing business model and eBay also called online auction. Let us find out what makes the business model of Dell and eBay so successful.