Category Killer

Curiosity killed the cat.

Sometimes we business leaders can be like cats. We become a little too curious for our own good. Like cats our curiosity finds us “straying” from the core products and services that provide profit and growth to our business.I spent the first ten years of my career in the consumer electronics business. In the early eighties I found myself running the U.S. operations for a high-end audio company called Nikko Audio. Nikko was a prime manufacturer of, what we referred to in those days as, separate components. We specialized in separate power amplifiers, preamplifiers and tuners. We also sold receivers, tape decks and (Uh Oh – I’m dating myself) turntables. But the “separates” were our core products.This was well before the days of the electronic super stores. At that time the consumer electronics marketplace was dominated by small, independent, and salon type retailers. At Nikko we had built a reputation for providing a great deal of training and support for our retailers. When we pursued a retailer we would spend a considerable amount of time educating the owners and managers, training the sales people and even requiring every retailer to put at least one salesperson per location through our Nikko University. The cost of acquiring new clients was astronomical but we maintained a very loyal retailer base. We were enjoying steady annual growth, strong brand recognition and higher than industry-average profits. Our retailers were also enjoying a high profit margin and the consumer was getting a great product.Disco Days
In those “disco days” the one-brand audio system was gaining popularity. Companies like Fisher, Sony, Pioneer and JVC were packaging amplifiers, tuners, tape decks and turntables into one box in order to lower the price for consumers and provide greater profit margins for retailers.At that time I was the V.P of Sales and Marketing for Nikko Audio. I was receiving a great deal of pressure from our sales force as well as my manufacturing counterparts in our Tokyo office to enter the one-brand system fray. They agreed that our higher-end separate components were our core products and should receive our primary focus but they believed that many consumers could become audiophiles by starting with the one-brand system approach and then “growing into” higher-end separate components. They argued that many consumers simply could not afford our separate components and that the one-brand approach gave them the ability to at least have an experience with the Nikko brand. They also said that this could expand our brand recognition and top of the mind awareness with general consumers. They felt that if we satisfied the consumers need for a one-brand system then they would remember us in the future and choose our brand when their audio palette became more discerning or they had greater resources. They also felt that this would allow us to collaborate with speaker manufacturers, CD makers, cabinet companies and so on thereby making Nikko more valuable to a greater number of retailers and consumers. They argued that these large suppliers were not competitors but rather complimentors to the Nikko brand.Convincing Argument
These sounded like very persuasive and compelling arguments. They made sense on the surface. But all of my instincts told me this was the wrong solution. My feeling was that this would water down our core products, lower our position in the market and destroy our point of differentiation in the industry. In addition, I was concerned about alienating our loyal retailers when these “low cost” systems hit the street. I was concerned about losing our leadership in the market. The Nikko line of audio components were designed for discerning audiophiles NOT the average consumer. I argued that with our current cost of acquisition, the reduction in margin of these “one brand systems” would quickly chew up our profits. I even gave them projected profit and loss statements showing this potential outcome.Unfortunately I lost this debate. Nikko did introduce a line of “one brand systems.” They sold like hotcakes and I ate crow. However, it was the calm before the storm. Within 12 months the marketplace was flooded with these systems and the price war began. It was a blood bath and we couldn’t stop the bleeding. Our warehouse was full of one-brand systems that were simply “me-too.” Our pricing was 30% too high, we were losing money and we had alienated our loyal retailers. Without trying to, we had abandoned our core product selection. Our curiosity in this “one-brand” system approach KILLED the demand for our core category of products. In short, it was the “curiosity that killed the cat.”The First Deadly Sin
We made the first deadly sin of product marketing. We abandoned BEING the leader in favor of FOLLOWING the leader. The only people that won were those companies that we collaborated with – the companies that supplied us with the speakers, CD players, cabinets and so on. We lost, the retailers lost, even the consumers lost in the end.Less than a year later the bubble burst. Nearly every company that entered the one-brand category showed red ink. Companies like Sansui, Marantz, Rotel and others literally went out of business. Thank God I gave those projections to the CEO in Japan. Within months ALL of the executives at Nikko (US and Japan) were fired and those projections saved by skinny butt in the end. But Nikko was left only a shell of what it was in the past. The company was sold to Yamaha electronics for (you guessed it) the “high-end separate component” technology. I was tasked with managing the transition.Maybe you are being seduced by an attractive collaborative relationship. Tread carefully. While I am a huge supporter of collaboration, I urge you to carefully investigate the impact on your core product categories. Remember collaboration only works when it COMPLIMENTS your core product category.Beware of Wolf in Sheep’s Clothing!
As Adam Brandenburger says in his book, Co-opetition, “know the difference between a complimentary relationship and a competitive relationship.”Complimentors
A player is a complimentor if customers value your product MORE when they have the other player’s product than when they have your product alone. (Example: Oscar Meyer Hot Dogs and Guldens Mustard). No one buys Guldens Mustard INSTEAD of Oscar Meyer Hot Dogs. Guldens is only beneficial if it’s WITH Oscar Meyer products.Competitors
A player is a competitor if customers value your product LESS when they have the other player’s product than when they have your product alone. (Example: Coca-Cola and Pepsi -Cola)Also measure the reward basis. Does your profit grow when you are selling your collaborators products or does it shrink? If it shrinks, then this is not a complimentor, likely this is a competitor. Today collaboration, affiliate marketing and co-branding are very much in vogue. Many small business owners and entrepreneurs are becoming involved in what they see to be complimentary relationships when in fact they are just sharing their customer base with the competition. Take particular caution of the large market leaders. They often prey on small players under the guise of collaboration. This is very dangerous and as you can see, for Nikko, it was disastrous.Don’t Follow the Leader
Finally, find some small way that you can be the leader NOT the follower in your market. I see so many businesses making decisions based on the move of a leading competitor in their market. When I ask them why they decide on a specific course of action they tell me, “well that’s what the competitive leader is doing.” This is the very reason NOT to follow the competition. If you do this you will always be a follower – a brand that has nothing unique to offer to your customers. In fact there is greater wisdom in doing the OPPOSITE of your competitor. David Yoffie and Mary Kwak in their book, Judo Strategy talk about how to turn your competitor’s strength into your advantage. They say that the best way to defeat your competition is by NOT copying them. They recommend building your own collaborative relationships not mirroring theirs. They site example such as Real Media, Capitol One, Palm Computing, CNET and Handspring. All of these revolutionary market leaders were born from doing the OPPOSITE of the mainstream.In short product marketing success is about being different, remaining a leader, protecting your core and knowing the difference between complimentors and competitors.

Posted in Marketing Strategies, Uncategorized.

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