Monday, March 4, 2013

McBurgernald's And The Problem of Infinite Selection But No Choice

Much like a fighting game, all the characters are mostly
the same. From Lysol Jones.
There's a short and sweet article over at Pacific Standard Magazine about Hotelling's Law. This is something I should have addressed a long time ago since it is something not only of importance for branding, advertising, and business, but also for grander ideas of social justice and the problems of companies like Wal-Mart.

First, an anecdote. I live in Rhode Island, and along with a stunning crush of frozen yogurt places, we have burrito joints spreading like a very delicious infection over the landscape. Long before Chipotle set up its first shop, we had a local copycat. This copycat started expanding throughout the state and now has quite a few restaurants. Then they started opening locations near Chipotles. Then Chipotle started opening locations near the copycat. And now, right across the street from a Chipotle, and down the street from an On of the Border, a Qdoba is opening. WTF?

This is Hotelling's Law in action. It states, in simple terms, that competitors will gravitate toward one another in every way: location, product, branding, price, and even hours. This is the underlying principle behind a intersection with a different gas station on every corner, or a plaza with a TGI Fridays, Applebees, Chili's, and Ruby Tuesdays in it.

What could ever cause such madness? Greed combined with a lack of vision, primarily, but there is also a degree of good business sense hidden within the apparent stupidity. To wit, every company wants to appeal to the largest demographic, and that means competing with other companies where they already are. This becomes even more important if your competitor is successful, meaning that people like their product. If people already like it, copy it!

While this may have some acceptably solid foundation in good business, it has a palpably depressing side; it is one of the -- if not the primary -- drivers underlying America's consumerist march to mediocrity. When every company is chasing the same demographic, products skew toward the bland, because anything of interest is bound to alienate at least a few people.

I can think of no better example that modern Hollywood. With production budgets in orbit somewhere around Neptune, studios are loathe to do anything that may repel broad demographics. And thus, we get movies like Battleship. Perhaps even worse than Hollywood is the modern video game industry, which seems to have turned into an industry predicated entirely on video games where men shoot, stab, or crush other men.

Entertainment is one thing, though, and the stuff of every day life is entirely another. Hotelling's Law has rampaged across the shelves of the big-box retailers that dominate our retail lives: Wal-Mart, Target, and increasingly Macy's, J.C. Penny, and wholesale clubs. This isn't immediately apparent, though, since these same stores also operate on the principle of "more is better," in both selection and plenty. For example, look at the towel displays at Bed Bath & Beyond in the image to the left.

Americans like plenty. We don't just want towels, we want the Berlin Wall of towels. We don't just want a shirt, we want 3,000 different shirts.

But how, as a saavy business, is one supposed to provide plenty and immense selection while simultaneously not driving away too many people from any and all of the products? Blandness and minor differentiation, of course! It is the bread and butter of Target, J.C. Penny, and Wal-Mart: limitless selection with no choice.

This is undoubtedly a moral issue, since these massive stores work hard to keep competitors down, which thus deprives the populace of actual choice in everything from food to medical supplies. It is also a business opportunity.

It cannot be understated, this is dangerous territory in which to be. This is what it means to be a leader. You are purposely trying to move away from your competitors, not toward them, and for all you know, you might be moving away to lower sales. If you don't do this, though, you can never be a great company. You will forever be OfficeMax to OfficeDepot; Zales to Kay. Your only hope to grow is to hope that your competitor is stupid and thus goes under (as with Bed Bath & Beyond when Linens 'n Things crumbled), or you simply buy your competitor (as with Macy's and Filenes).

To truly succeed, your business must move somewhere new.

Don't do this willy-nilly or anything. If you sell clothing, don't up and try to sell Miracle Fruit or anything like that. Also of importance, don't sell "easy money" additions. To explain what I mean, an example. Linens 'n Things was a company that sold what was in the name, but unfortunately they took the things part of the name a bit too far. It got to the point where one-fifth of the store included things like margarita machines, Donald Trump dolls, and candy. Lots and lots of candy.

These easy money grabs were usually crowded on shelves as a customer approached the register. This is awful business. Yes, these products are able to squeeze a little bit more money from the customer before they leave (and thus satisfy executives who only care about the bottom line), but the experience has been damaged. The brand is no longer associated with something positive. It is associated with a hodgepodge of crap.

The correct course of action was for Linens 'n Things to draw back their square footage. If you are taking up space with crap that doesn't mix with your brand, then you don't need that space. Get rid of it. Save on utility charges, rent, and the people necessary to manage that space.

Oooorrrrrr, they could have expanded their offerings into something new, something that wasn't a tacky money-grab. This was the even more correct answer. Move someplace new.

Where this new place is is beyond my knowledge. I don't know what business you're in. Plumber? Expand into bathroom cleaning services. Printing company? Start doing one-stop marriage invitation and mailing. As long as your sales don't collapse, it means that people want your product. If you are making something wildly different then your competitors, then congratulations! You are capturing an entirely new market!

I make this sound so easy and it absolutely isn't. It requires patience, artistry, insight, and knowledge. But once you make that first big move into the unknown, and assuming that it is a success, you can then work to understand why your new business is working and then apply the basic mechanisms to increase value. Once competitors move in to your new business, move on to another one. Always lead, and never be left behind.

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