Coinstar, the Bellevue, Wash.-based company that puts change-counting machines in groceries and discount stores, figured out a “marketbusting” move, according to Ian MacMillan and Rita Gunther McGrath. The company took something that had been an annoyance for both banks and consumers — counting and handling spare change — and turned it into a profitable business. “Coinstar has all the earmarks of a classic strategic move,” McGrath says. “It identified an unmet need that was pervasive. And it created a focused solution. It does one thing and does it well.”
MacMillan and McGrath’s new book, Marketbusters: 40 Strategic Moves that Drive Exceptional Business Growth, is intended to help managers identify similar high-impact opportunities within their own companies and industries. MacMillan, a Wharton management professor, and McGrath, a management professor at Columbia University, collaborated on a prior book, The Entrepreneurial Mindset, published in 2000. Marketbusters grew out of it.
But where the Entrepreneurial Mindset focused on fostering innovative behavior among all employees, Marketbusters concerns itself with “moves by upper-level managers that, even in a mature industry, might increase a firm’s market share by 2% to 2.5%,” MacMillan says. Below, the authors discuss some of the insights from their book.
Knowledge at Wharton: Strategy has been known to get bad press. It’s sometimes seen as the business equivalent of navel gazing. What is your view of strategy?
MacMillan: People confuse strategy with budgeting and planning. Strategy is about how you take charge of your competitive destiny and conceive of new opportunities, whereas budgeting has to do with the perpetuation of your past successes.
McGrath: The word gets misused. Companies will say, ‘We are strategic thinkers.’ But a lot of them are unwilling to articulate a strategy because they don’t want to make choices. They say they have a strategy, but their decisions are really a little of this and a little of that. Or managers go off to the mountaintop and talk about big ideas, come up with some goals, come back down from the mountain and print t-shirts with slogans on them. And everybody else rolls their eyes because they know nothing is going to change.
Knowledge at Wharton: You offer 40 marketbuster opportunities. Isn’t that too many for a company to manage?
MacMillan: There might be only five marketbusters that apply to your company. What we are providing are provocative guidelines. We give you tools like consumption-chain analysis and attribute mapping, demonstrate our case with examples, and provide a series of questions you can ask while doing your own prospecting.
Knowledge at Wharton: Unlike a lot of management how-to books, yours is not just a catalog of successes like, say, Royal Insurance Italy, which invented the market in Italy for direct-to-consumer, as opposed to agent-sold, auto insurance. Your book includes failures too. One of the more fascinating ones was CargoLifter, which tried to create a niche for giant cargo-carrying blimps. As you point out, the company ran into a lot of obstacles. For example, blimps need special frames for loading and unloading as well as tons of water for ballast and a place to discard the water once they are loaded.
McGrath: We were not dumping on companies. But we felt strongly that we needed to look at the difference between trying and succeeding, and trying and failing. A lot of academic research just focuses on successful companies and tries to draw conclusions from them. What you need to do is pick, say, 30 companies that attempted some strategy, some successful, some not.
Knowledge at Wharton: One of your themes is that industry flux offers opportunity. Where do you see examples of that today?
McGrath: Look at healthcare. That’s an entire industry filled with enraged customers. You go to the pediatrician, and you wait. Then first thing they want is your insurance information, not to know how your child is feeling. Then you go to the drugstore and wait again. Every step is fraught with negatives. And now we are seeing doctors and companies in India respond to that. People are going to India for nose jobs. You can spend $50,000 here and have all of the hassles or go there and pay $10,000. And they will treat you like you are on vacation.
MacMillan: Or look at the music business and digital downloads. You would have thought that Sony would have conceived of something like the iPod. That’s been a real marketbuster. But people like to stick to their traditional ways of doing things. They get comfortable with steady profits.
McGrath: UPS is another example. They have seized on the changes created by the Internet and just-in-time inventory management. They don’t see themselves as delivering parcels but rather synchronizing commerce. UPS has employees at one of its facilities repairing Toshiba computers. IBM is similar; it has transformed itself into the “commerce on-demand company.”
Knowledge at Wharton: Yet IBM had big strategic problems in the early 1990s.
McGrath: IBM has always been good at providing integrated solutions to problems that big companies have. But in the early 1990s, its solutions became standardized and the premium it could charge was eroded. IBM got stuck in a place where companies without as much overhead were providing similar offerings. But later in the 1990s, it found a new marketbuster by starting to help companies integrate their supply chains and their global communications.
Knowledge at Wharton: You point out that improving products and services isn’t just about adding new features, but also eliminating annoying ones or adding “parallel differentiators” that please customers.
MacMillan: Victoria’s Secret is the best example of a parallel differentiator. It sells women’s underwear, but, as of a couple of years ago, it had also sold five of the 14 million-seller classical CDs. You get a guy in there, and he gets some nice underwear for his wife or girlfriend. Instead of looking crass, he wants to look classy, so he buys the classical music, too. Another famous parallel differentiator is the McDonald’s Happy Meal, which includes a toy and a colorful box. Parents buy it because they feel guilty that they are not giving their kids a meal at home. They are assuaging their guilt with a toy. McDonald’s tapped into a psycho-social context there as well. More parents are working full-time, giving them less time to cook.
Knowledge at Wharton: But you make the point in the book that it’s foolish to segment your market by demographics because everyone, including competitors, does it that way.
MacMillan: Demographics are useful, but you have to be careful about stopping at demographics. You want to do more than that. You might, for example, look at behavioral context, as McDonald’s did. We believe there’s a lot of value in that.
Knowledge at Wharton: The dot-com era seemed like an explosion of the sort of creative thinking that you advocate. Yet many of the dot-coms cratered. What went wrong?
McGrath: It’s not enough to create value for customers. You have to be able to capture it, too. I’ll give you an example from my own life. I have been a member of Hoover’s Online since it started and paid $199 for my membership. I do research there, not the sales prospecting that a lot of people do. I got a memo from them recently saying, ‘We are moving all our customers to $2,500.’ I suspect they realized that they have created something that, for certain segments of the market, has enormous value. But they went in at so low a price that they weren’t capturing that full value. For me, it’s not worth $2,500. I might only do research on companies four or five times a month. But for someone who is finding sales leads there every day, it’s certainly worth it.
Knowledge at Wharton: How does a manager figure out which marketbuster is right for his or her firm?
MacMillan: There’s no one right answer and no one right way to get to an answer. People might arrive at the same solution by using different tools. One way to analyze the business world is to look for shortfalls and surpluses. You might find a way of moving a surplus to where there’s a shortfall. Somebody with economics training is likely to see that. Another way is to think about reduction of barriers, which is something an engineer might see. Economists see market opportunities, and engineers see physical and technical barriers. Depending on your training, two different lenses may be used to spot the same opportunity.
Knowledge at Wharton: Any advice for managers as they try to apply your methods?
McGrath: I worry that managers have stopped building thinking into their daily lives because they are so busy. A piece of advice that I would give is look at your calendar and ask yourself, ‘Do I have time to think or am I just lurching from impulse and impulse?’ Conduct a calendar audit and figure out what you are spending your time on. People will say that innovation is really important to them, but they are not spending any time on it. We tell people to make a date with something important. Plus, over time, people’s commitment wavers. It’s like New Year’s resolutions to start exercising. A calendar audit is a self-correction mechanism.
MacMillan: There are enough cues and prospecting tips in that book that, if you get a small team together and they know their industry well, you don’t need 100 marketbusters. You need one. If you use those questions and really challenge your people and yourself and the group can not come up with at least one marketbuster idea, then they are not earning their salaries. Your people are candidates for what I call the ‘ding-dong strategy.’ You should take the team down to the doorstep of your competitors, leave them there, ring the doorbell and run like hell. If you can’t find at least one idea using the book, there is something seriously wrong with your company.