Wednesday, November 6, 2013
USING INFORMATION TO CREATE A COMPETITIVE ADVANTAGE
I have been involved in developing marketing strategies that required the developing a competitive advantage in markets filled with strong competitors. I have consistently found that developing solid information on the market and the competitors was critical in building a foundation for the strategy.
Gathering information on the market and the competition is readily available if you know where to look. Information on the market is available through census data, industry data and consumer research. Most of this is readily available on the Internet.
Gathering data on the competition is also readily available. Some of the information can be taken from financial reports if the competitor is a publicly traded company. These reports usually give key statistics, profiles of key managers and basic financial data.
Information on competitors can also be gathered from customers, vendors and public records. Developing financial profiles of a competitors business can also provide valuable information.
This information can point to some strengths and weaknesses of the competitors, opportunities and threats in the market place, in the environment and customer profiles.
Below are a couple of examples that underscore how specific information can help in developing a competitive advantage.
The Houston Post
In late 1994 newspapers were confronted with rapidly rising newsprint costs. I was the Financial Director at the Houston Chronicle at the time. We decided that although we had good relationships with suppliers and strong contracts through our parent company, Hearst, it would be important to project future newsprint rate increases and develop advertising and circulation rate increase programs. As a result, the Chronicle announced that it would have three 8% rate increases: one in September 1994, one in January 1995 and one in June 1995.
We were concerned about our major competitor, the Houston Post. They, of course could, decide not to increase their ad or circulation rates and gain market share.
I had been tracking the ad linage each day for the Houston Post by purchasing their newspaper and measuring the ads. I estimated their ad rates based on what we learned from customers that bought ads from the Post. Making assumptions based on circulation and the size of their organization I was able to have a pretty good idea of the Post’s revenues, expenses and contribution margin. My projections showed that the Post had a small contribution margin and my guess was that they too would increase ad rates for two reasons. First they would increase ad rates to accommodate the rise in newsprint costs and second they would increase ad rates because local advertisers wanted two major newspapers competing against each other to hold ad rates down.
One of the interesting things I learned while doing the research was that the Post did not have long -term newsprint agreements with the manufacturers and was buying newsprint on the spot commodities market. This meant their newsprint costs would be much more volatile than ours. This made it even more likely that they would increase their ad rates in concert with our announced rate increases.
Unbelievably, the Post announced that they would not increase ad rates and the Chronicle reports of rising newsprint costs were inaccurate. As soon as this announcement was made, I went to the Chronicle’s President, Gene McDavid, and said that I couldn’t see the Post making it for another 6 months using that strategy. Clearly newsprint rates were going up and if the Post were able to gain more advertising by not raising rates they would require more newsprint at volatile spot market rates.
Interestingly, in April 1995, the Chronicle bought the assets of the Post and Houston became a one major newspaper town.
Creating a pricing strategy for advertising and circulation during this time was dependent upon gathering quality information on the market and the competition. The sources of information had to be reliable. Newsprint rate increase information came form the vendors selling newsprint with which the Chronicle had outstanding relationships. Information on the competition came from tracking the competitor as well as newsprint salespeople who let the Chronicle know about the buying habits of the competition.
While the Chronicle did not anticipate the move made by the Post on advertising rates, the approach used by the Chronicle set a strategy that would be successful regardless of the actions of the competition.
In late 1995 the Houston Chronicle embarked on a strategy to recapture advertising revenue lost to direct mail, specifically revenue lost to “marriage mail”.
Marriage mail is a program that allows several advertisers to put their circulars in a mail package and share the postage expense. This provides a cost savings to the advertiser. ADVO became a leader in providing this type of advertising package nationwide. During the 1980s many retailers moved their circular advertising out of newspapers and into ADVO’s marriage mail program.
Houston newspapers lost virtually all of the grocery advertising to ADVO in the mid 1980s. Prior to ADVO grocery advertising had been a key advertising revenue source for the Houston Chronicle.
I led the effort to create a product to compete with the ADVO program. It seemed that the Chronicle would be able to combine mail delivery (for non-newspaper subscribers) with newspaper delivery (for newspaper subscribers) and provide an advertising product similar to ADVO’s product that would be less expensive since circulars could be added to newspapers without increasing the delivery costs.
In the information gathering process we discovered that ADVO earned low postal rates by providing saturation coverage (covering 100% of the households). ADVO also saved costs by eliminating the mail labels on each package (each package had the same contents and went to every house thereby eliminating the need for a label and making delivery very easy for the post office).
We knew that by combining newspaper delivery with mail delivery, we would need to provide each mailed package with a label since no area would be comprised of mail only or newspaper only delivery. We also knew that to get the lowest postal rates we would have to put our mail packages in postal carrier walk sequence to make the delivery for the addressed package as easy as the ADVO package,
Developing a newspaper and labeled mail delivery product for the Chronicle advertisers resulted in a program that could provide customized delivery for advertiser. That is, since we knew the addresses of subscribers and mail delivered nonsubscribers, we could have different circulars in each package. For advertisers this meant that they could have different advertising circulars for different neighborhoods or subdivisions or specific addresses. This was a feature that could not be offered by ADVO with the undifferentiated, unlabeled marriage mail packages.
Over the course of a year or so following the development of the newspaper and labeled mail program the Chronicle won back all of the grocery advertisers and has held that advertising category to this day.
The success of this program resulted from gathering information on the competitor’s product and developing a complete understanding of the sales and production process. This information led to the development of program for the Houston Chronicle that grew to be one of its key revenue sources.
I now teach marketing strategy courses to undergraduate and MBA students at the University of Houston Bauer College of Business. These classes are divided into teams and work with real clients to develop specific marketing strategies during the semester. The first half of the semester is devoted to gathering information on the market, the competition, the company and the environment. With this information and specific objectives set by the client company, students spend the second half of the semester developing marketing strategies.
In every case students are told to look for that one piece of information that can contribute to developing a marketing strategy that can have a significant positive impact on the client companies.
In the example of the Houston Post it was the financial tracking and the knowledge of the newspaper-purchasing program that led to the Chronicle’s successful strategy.
For the ADVO example it was the knowledge of the packaging and delivery process that allowed the development of a strategy to which ADVO could not respond.
Over the years I have been involved in many strategic marketing efforts and every successful project can be traced to developing solid information on the customers, the market and the competition.