Quick fixes don't work

By Kay Plantes

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Companies with a dominant market position face competitors determined to identify and capitalize on their weaknesses. Wal-Mart beat Sears and Kmart by doing just that. But now Target is making Wal-Mart a victim of the strategy it once perfected.

Target recognized that price trumped style in every Wal-Mart decision, creating a bland, albeit low-priced offering. So Target reinvented its store appearance, advertising, merchandising processes and vendors to offer discount-shoppers stylish merchandise. "Shabby-chic" discount and department store shoppers flocked to Target.

Wal-Mart made two mistakes. First, it missed two important trends that raised performance requirements. "Upper-class products for the masses" has been a trend for well over a decade. Wal-Mart ignored style-oriented customers' (think teens) demand for fashion, while Target exploited it. The second, more recent trend is the expectation that companies act as re-sponsible citizens. Rel-ative to other Fortune 500 companies, Wal-Mart's reputation is not solid in that regard.

Wal-Mart's second mistake was a knee-jerk reaction to competitive losses. Losing sight of its offensive strategy, Wal-Mart tried to play catch-up. It hired a marketing guru known for spicing up auto ads, axed the ad agency that helped it become the world's largest company, quickly introduced supposedly style-oriented clothing lines, and redesigned stores, all in an effort to lure shoppers from Target and J.C. Penny's, a style-oriented discount department store. Wal-Mart's public relations agency placed National Public Radio ads touting Wal-Mart's philanthropy, reminiscent of Phillip Morris' ads for the arts.

Too little, too late. Effective product development and corporate citizenship emerge from slow, steady changes in corporate culture and skills - not superficial, last-ditch initiatives. Loyal Wal-Mart customers expressed anger over racy ads; Vogue ads failed to attract new buyers. Wal-Mart fired the new marketing guru and the agency she selected. It also slashed prices dramatically (in electronics in particular) in a valiant effort to save Christmas revenue. But Wal-Mart should have known never to attack a strong niche player head-on - Best Buy, the niche electronics leaders, was not going to let Wal-Mart win at its expense.

The numbers are in. Best Buy, Target and Penny's performed well in a slow Christmas season. Wal-Mart's 1.6 percent increase in same-store revenue was its worst ever, continuing a slide that started in 2001.

We can't fault Wal-Mart for trying to attract new customers and new purchases from the millions of existing customers. But were these Wal-Mart's best moves?

Wal-Mart could have better leveraged its strengths and increased revenue per customer by expanding its scope from products to offering more services of value to its core customer base - for example, becoming a hub for English-as-a-second-language lessons, evening childcare, haircuts, job-searches, affordable healthy restaurant dinners, and housing location services. More services, with "good-enough" style improvements, are more likely to raise revenues than trying to beat Target at style. Additionally, Wal-Mart might leverage its supply-chain competencies into a B2B business that serves small companies and governments, in need of, but unable to afford, supply chain excellence.

Your strategic thinking is far less public than Wal-Mart's. But wrong answers will be just as devastating. What is your company's Achilles' heel?


Kay Plantes is a Madison economist, strategy consultant and executive educator. 
plantes@execpc.com

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