Saturday, September 12, 2009

80/20 can the ratio change now

Pareto's principle or the 80/20 thumb rule has undoubtedly been the driving factor for most of the business and personal decisions of one's life, and there's no doubt that adopting this principle people and corporates have achieved a lot.

I have learnt, seen, read and experienced this myself and feel that the rule has somehow gained such a lot of substance over years that businesses today without any confrontations have adopted this for their growth. But what sometimes bothers me is that why is this globally recognized model not being challenged, not because it has to be challenged but because I feel that there is a lot of business sense to really find means of increasing the 20% component of this principle. Look at it like this - it's said that 20% of the customers get 80% of your business that means these 20 % of the people have enough purchasing capital and need to being able to consume 80% of your business, but does that mean that it's only these 20% who have the capacity to give you that business? Similarly it's said that 20% of the workforce does 80% of the work and do organizations blindly believe this fact and let only these 20% people be the real productive ones of the lot.

Although the later example here is more of a phenomena which I see companies tackling through some or the other means, as it might very well be so that these 20% of the people turn into leaders and with their leadership and charisma they aid others to achieve the 80% of the tasks. I would just stick to these two examples so that the blog remains a blog and not a story, and build my viewpoint! So considering the first example of 20% customers getting 80% business - imagine with each and every percent of the 20% that increases how much more business potential increases, with even a 10% increase in the 20% one can really increase the sales itself by close to 20% automatically shooting the revenue figures higher. I doubt if this hasn't been tried or discussed before, but when I went to doing some research on this I could see that there's not a single soul who contradicts this or is really trying to get a shift on this movement. I would say that this shift can really be a paradigm shift; and though it would need an economist to prove it as to how it can be achieved, I would say some basic considerations are important and a company need to constantly strive to take this ration higher. It can be either by means of appropriate profiling, or perhaps doing a lot of analytics around their current customers so as to gauge as to where is the potential to harness more. In a B2C environment it would be making sure that marketers and strategist of the company understand the Segmentation, Targeting and Positioning (STP) even better. Whereas from a B2B standpoint while it's as important to gauge the macroeconomic factors because that impacts the decision making of your customers (this is where PESTEL plays a role) and understanding each and every component of the PESTEL framework are important, but it's equally important to do a very strong research on understanding your customer. While I have seen a lot of companies spending a lot of time and money for doing research and carrying out Analytics around areas like employee satisfaction, competition, technological road map and puts in detailed plans to grow the business or expand the geographies or new logos. But not too many companies really do a research to understand the existing customer!

This might not be the only approach to increase that % percent share and certainly there arequestionable components in the framework I am proposing, but I would want to know and understand these areas better in the near future and would want to discuss these areas with others who might or might not be in favor of this incremental increase in the framework!

Friday, September 11, 2009

Companies that defi"e"d the online sales model

While "Apple" the big computer and i-tune giant has never really shunned away from innovation and coming up with some of the most coveted products in last few years, it's becoming more and more difficult to call it's name as just one product wonder. Starting from Mac they have come a long way where the i-phones and i-tunes are doing wonder in the cellular phone market. They lead and the rest of the world follow in any new technology they decide to incorporate into their products.

I would have loved to write more about the range of apple products and how each and every of those products in their own way have really changed the market outlook towards that product segment altogether, but to do justice to the Title I would rather shift to the core. While Apple has never really entered into price wars and most of their home and business laptops and PCs are sold at the same price in the retail market or online, but the innovation that they have really brought is by not relying entirely on the online channel and also by not relying on retailers to sell there products along with those of several other competitors. And this innovation was that of the "Apple store" which they decided to launch in 2001. Though slowly but gradually "Apple Stores" have become the talk of most of the tinsel towns - where people if they don't go for shopping at these stores they at least are told to pay a visit to these stores for the sheer craftsmanship that has been put to create these stores. But the financial figures really have a much more positive story to tell. From reporting losses in 2002 and 03 the store profits have grown exponentially YOY, startling from a profit of $39 m in 2004 to $1.33 b in 2008 - four years has been a great turnaround. Although this number is still just 1/4th of the total profits through all the channels (pls note that these are profits figures and not sales or revenue), but it's a lot higher than any other player in this market. Also it's certainly worthy to note here that this also is accentuated by the fact that over last 8 years Apple has built assets worth $1.69b because of these stores, which plays a big role always in improvising their equity stance to the investors always.

Now what led to this success - Forward thinking, Innovation, Solving the complexities approach or just being different to keep your brand identity. I would sum them all and give it one word "Adaptability". While Apple always wanted to be positioned different because their product was a lot different than any of the nearest competitors viz. IBM or Dell, but their products were certainly complex too, because of a unique blend of combo offer of hardware and the OS together. And that was the reason online channels or normal retailers were not able to tackle the questions by the consumers and this was leading to a lot of dissatisfaction. And though the product itself was it's strength the simple complexities were being a bane and that brought the need of the self managed stores - a need to adapt to several situations.

Today's Apple stores have come a long way, starting a new roadmap in the journey of computer manufacturers and marketers- the stores have become a lab, a training centre and people are willing to go there and talk to the learned salesman come trainers and learn about several new products, solutions that they all want to incorporate into their lives! Kudos to Apple for being where they are and it's leadership in the form of the founder and CEO Steve jobs, their marketing leader Phillip Schiller and the Retail channel expert Ron Johnson and many others who have really changed the outlook of the retail industry by formulating this idea.

To mark an end to this conversation I would say Microsoft's hiring of Apple's Ex VP of Retail is a testament of what Apple has done and how others are vying to emulate the same model!

The intention of this blog was certainly not to get one company centric but there was so much to talk about Apple that I could not get into some other examples at all. I would want to expand this further in some of the subsequent blogs, where I would be talking about the Restaurant and Catering business and the Entertainment business which are 2 biggest industries which though having tried several gimmicks have still not gone "e"way and probability of that happening in the near future still lays low, because of the nature of industry and the basic human nature!