A friend of mine spoke with a large multi-national about their dual branding strategy recently. Faced with a maturing market that had started to compete on cost, they decided that their own sales force led approach probably wouldn’t stay competitive very long. Great for building relationships and delivering that personal service, lousy for competing in a fickle market that wants the lowest price and never mind the pleasantries. Rather than cannibalize their existing business model they launched a spin-off. Using an online store linked directly into their inventory systems our multi-national was able to deliver standard products at low prices. Once the system was up and running they were able to extend this cost base advantage by introducing highly agile price changes with real-time links to their suppliers costs. Several steps ahead of their sales force led competitors e.g. “but the price you gave me last week was different…”
Q) If all this is working so well, what’s stopping your competitors from following in your online footsteps?
A) They all have SAP
That’s right. The time and cost of pushing major structural changes through SAP (like your entire cost model and pricing strategy) was just too hard. So they were stuck with it. This raises some interesting questions.
- If organisation’s exist to execute a scalable business model, what happens when the business model stops being scalable/competitive?
- When you need to pivot an existing business model, where do you start and more importantly how do you prevent ‘cannibalization’ from destroying a working business?
- How do you know when your business model is working, and when it isn’t
This last question is my favourite. Knowing when to hold and when to fold (or pivot, or spin-off) is quite a skill. When I have the answers, I’ll let you know