Tag Archives: Strategic management

June 15, 2015 · 10:53 am

Too Big To Care

More bad publicity for the folks at United Airlines over the weekend.  This time, a mechanical issue in-flight resulted in a plane full of passengers having to spend the night in a military barracks.  Obviously there was no issue with the need to land the plane – who wants to be 6 miles up with a mechanical issue?  But what happened next is yet another black eye on United’s record of customer care.

English: United Airlines Boeing B747-400 at Be...

(Photo credit: Wikipedia)

What company needs this headline:

Hundreds Of United Airlines Customers ‘Abandoned’ In Remote Canadian Barracks Without Heat, Little Food

I won’t reiterate the list of stories that portray United as a company that hates its customers and instead I want us to have a think about a bigger question.  Only four airlines—United, American, Southwest and Delta—now control 85% of domestic air travel due to mergers and acquisitions. I think we’ve all seen higher fares and worse customer service pretty much across the board. According to the Department of Transportation, airline-related complaints increased by 26% in 2014.  This same sort of routine – a business sector becoming more consolidated and customer service declining while prices rise – has played out elsewhere.  Banking, cable TV and broadband providers and insurance are just a few areas where we’ve all seen this play out.

My thinking is this.  Companies become too focused on improving systems without focusing on how those improvements affect customers.  United, for example, may focus on improving financial performance by increasing baggage and other fees while angering their customers.  Maybe their attitude is “If everyone does it, what choice will the customers have anyway?” and that has, for the most part, been true.  What’s also true, however, that the many of the quality metrics – are declining along with their costs.

Smart companies improve the bottom line but not at the customers’ expense.  They maintain the small company mentality even as they become quite large.  Customer satisfaction is always a front and center metric, and product improvements are made to benefit the customer, not always the bottom line.

All of which makes me wonder if “economies of scale” generated through dynamic growth can actually not mean “too big to care”.  Do you have any thinking on that?

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June 12, 2015 · 8:41 am

Watching Out For Cannibals

It’s Foodie Friday, and this week our topic is an announcement made by Whole Foods the other day.  If you’ve ever shopped there you know that the “Whole Paycheck” nickname the chain has acquired is accurate.  The products there are generally first-rate and are priced as such.  With the growth of lower cost competitors such as Trader Joe’s that offer an almost equal level of quality at more reasonable prices, Whole Foods decided to fight back:

“Today, we are excited to announce the launch of a new, uniquely-branded store concept unlike anything that currently exists in the marketplace,” said Walter Robb, co-chief executive officer of Whole Foods Market. “Offering our industry leading standards at value prices, this new format will feature a modern, streamlined design, innovative technology and a curated selection. It will deliver a convenient, transparent, and values-oriented experience geared toward millennial shoppers, while appealing to anyone looking for high-quality fresh food at great prices.”

I guess he never heard of Trader Joe’s but let’s put that aside.  The store will be called 365 by Whole Foods which is their store-branded line.  This move raises the question (not a food question!) of cannibalization.  You see, according to the folks at Harvard, history shows us that most of these lower-cost brands are created explicitly to win back customers that have switched to a low-price rival. Unfortunately, once deployed, many have an annoying tendency to also acquire customers from a company’s own premium offering. To prevent cannibalization, a company must deliberately lessen the value, appeal, and accessibility of its lower-cost brand to its premium brand’s target segments.  That means you’re knowingly offering an inferior product, and in my mind that always bears the risk of tainting the premium product.

Whole Foods isn’t going to put Trader Joe’s out of business.  I’m willing to bet that they’re going to take some serious losses (new stores aren’t cheap) as they start up and if all customers are doing to going to the new place to buy the same goods they would have bought (along with some of the higher-priced stuff), you’ve reduced margins even if you’ve maintained sales.

I guess the lesson in my mind is one I’ve put out there before.  Be who you are as a brand.  Embrace those who love you and create new fans every day by explaining cost and value aren’t the same and why you’re the best solution to a customer’s problem.  It’s worked for a lot of high-end brands.  Why not Whole Foods?

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May 29, 2015 · 9:14 am

Big Food

This Foodie Friday, let’s talk about Big Food. No, not the somewhat passé trend of stacking a dish’s components into a tower. Big Food – the large food processors who account for a lot of what we have in our homes and, eventually, in our stomachs. There is a revolution going on and it’s one that provides some guidance for all of us no matter what our business may be.

You saw another manifestation of the revolution in this week’s announcement by Taco Bell and Pizza Hut that they will be phasing out artificial ingredients in their food. McDonald’s is getting rid of antibiotics and Subway will be making their bread without some unpronounceable substance which has been called the “yoga mat chemical”. I’m assuming those things got there to begin with in an effort to make the products more consistent, less expensive to produce, and more appealing. All of those reasons are kind of selfish when you think about it. They help the company while putting the long-term health of their customers at risk.

If you want an in-depth discussion of what’s going on with Big Food, Fortune has an excellent, well-researched piece which you can read here. It contains this quote from a Hershey executive:

Research had found that 68% of global consumers wanted to recognize every ingredient on the label, and 40% desired food made with as few ingredients as possible. “There is a connection in consumers’ minds between overall health, wellness, and knowing exactly what I’m eating,” says Hershey’s head of global R&D Will Papa. “Consumers want treats, and they want to know that the treat is really good and wholesome.”

Consumers are not just giving that lip-service. Organic food sales more than tripled over the past decade and increased 11% last year alone to $35.9 billion, according to the Organic Trade Association. And one analyst said that the top 25 U.S. food and beverage companies have lost an equivalent of $18 billion in market share since 2009.

Why is this important to your business? It demonstrates how we all need to be in lock-step with the changing priorities of our customers. It might be easy to write off a decline in sales to a bad quarter or the weather. It takes foresight and guts to recognize a shift in tastes (pun intended) and to disrupt everything from product formulation to your supply chain.  Good companies might look to maintain sales and profits by cutting costs or running promotions.  Great companies listen to their customers and respond.  Which are you?

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