Bob Rinderle / Business & Beyond

Healthy Growth Is Not Engineered

Excerpted from Good Strategy, Bad Strategy by Richard P. Rumelt

The problem with engineering growth by acquisition is that  when you buy a company, especially a public company, you usually pay too much.  You pay a premium over its ordinary market value - usually about 25% - plus fees.  If you have friendly investment bankers and lenders, you can grow as fast as you like by acquisition.  But unless you are specially positioned to add more value to the target than anyone else can, no value is created by such expansion.

Healthy growth is not engineered.  It is the outcome of growing demand for special capabilities or of expanded or extended capabilities.  It is the outcome of a firm having superior products and skills.  It is the reward for successful innovation, cleverness, efficiency, and creativity.  This kind of growth is not just an industry phenomenon.  It normally shows up as a gain in market share that is simultaneous with a superior rate of profit.

More To Netflix Impact Than Meets The Eye

What I find interesting about the story behind this infographic isn't that Netflix gave Blockbuster a big push into bankruptcy, but that Netflix's current revenue is only one-third of what Blockbuster's revenue was in 2004.  Did Neflix win the battle but lose the war - was there a better way to grow the industry?

Although Netflix accounts for 20% of all downstream Internet traffic between 8 PM - 10 PM and is now the #2 video subscription service behind Comcast, the bigger story to me is the continuing fragmentation of devices on which video is being consumed, as show in the second graphic below. 

   
Source: HolyKaw.Alltop.com and DailyInfographic.com; click on images to enlarge 

Starbucks No. 3 Food Chain

According to Advertising Age, "Last week Starbucks blasted past Wendy's and Burger King to become the No. 3 restaurant chain, posting $9.07 billion in domestic restaurant sales last year, up 8.7% from 2009. For a company that's outspent on advertising anywhere from two to eight times by rivals and just a few years ago faced 600 store closings and negative sales, that's quite an achievement.

At the heart of that turnaround are menu and product innovations, and the ability to maintain steady price points—which tend to be higher than other chains—even through a recession.   

'It's more about just cultivating a brand than traditional advertising,' said Morningstar analyst RJ Hottovy. 'Once you've got a brand consumers' love, they're going to continue to visit the store. Plus, Starbucks has done its advertising more efficiently. It's been all over social media, mobile payments—stuff that elevates the image of brand."

 

Volvo For Life

Volvo isn't kidding when they use this line in their ads. Always known for their safety, Volvos just don't quit. 

My 13-year old V70 wagon rolled past 260,000 miles today. 

I love this car.

   
 

Stop Gap Measures

Well, that didn't take long. Just months after Gap's widely publicized logo miscue, the company has overhauled its marketing and design functions. North American President Marka Hansen, and Ivy Ross, Gap's VP Global Marketing, are both gone, as is long-time agency Laird + Partners.

   
 As MarketingWeek reports:

"The Gap branding team had no idea what they were dealing with in terms of intellectual property. They didn’t recognize what currency the original Gap logo had with consumers and how strongly they felt about it. Nor did they understand how to deal with the dilemma in a multi-channel and vocal media culture."

The Myth of Differentiation

It has become apparent that competitive differentiation is a myth.  Or to put it more precisely, in category after category, companies have gotten so collectively locked into a particular cadence of competition that they appear to have lost sight of their mandate - which is to create meaningful grooves of separation from one another.  Consequently, the harder they compete, the less differentiated they become.

From Different: Escaping The Competitive Herd, by Youngme Moon.