[Business Planning] – Great New Ways of Doing Old Business

I talk a lot about publishing on this blog, but my research isn’t restricted to the publishing world alone — as a business student, I’ve had the chance to study a lot of companies in a large number of industries. In fact, one thing we get to do in business school is what are called “case studies” — we’re given a historical crossroads in a company’s life, filled in on the information leading up to a decision that needs to be made, and asked what we’d recommend using the tools we’ve learned in class. For someone like myself, who enjoys strategic planning and evaluation, it’s tremendous fun. But what often frustrates me is that my classmates are so eager to figure out the answer that the instructor is looking for that they don’t approach the problem creatively.

Sadly, this happens a lot in the business world. Managers find themselves in the unenviable role of having to appease stock owners, and they focus on the mantra of, “maximize profits, minimize costs.” This has led to a lot of bad decision-making, and it’s also led to a lot of good companies taking a plunge once they reach a point of maturity where they can no longer sustain rapid growth.

What I find most interesting, however, are companies that are able to look at old industries and find new ways to compete in them. I’m going to give three examples today of companies that have done a great job of thriving in mature markets by redefinig the way they do business. I’m also going to discuss some of the ways that an enterprising young publisher might redefine the publishing industry.

But let’s start with an example from another industry first: Build-A-Bear Workshop.

I doubt I need to explain to anyone that the stuffed animal market is extremely saturated; they’re a common gift item, especially for families with newborns, and they’re popular toys for children under the age of 10. Teddy bears are probably the most prevalent stuffed animal, and they range in quality from the well-made Gund and Vermont Teddy Bear brands to the inexpensive private-label bears one can find in a toy store or gift shop. There are also collectible bears, like the Ty Beanie Babies, and there are the specialty bears that one might find in a zoo gift shop. Bears are mass produced using a “push” model of distribution — there’s little motivation to get the end customer involved in the process.

And yet these bears are often quite personal items to their owners, generally because they’re given as gifts, or purchased in memory of a special day, or owned and loved since childhood. My wife has a bear named “Franklin” she got from a Hallmark store a few years back that she often clutches while she sleeps. He’s more than just a stuffed toy; he’s a personal item, a signifier of security to her.

That’s why Build-A-Bear Workshop is such a neat idea. Founder Maxine Clark opened the first store in the St. Louis Galleria in 1997 with a vision of making the process of buying a bear a personal experience. (There’s some controversy involving the fact that she probably stole the idea from a previously existing chain, but we’ll ignore that for now.) She reasoned that the bears couldn’t be that difficult to make on site, and that it would be easy to do. Customers simply had to choose a skin, add stuffing and a “heart,” and stitch their bears up. The store would announce that the bear was “born,” and the customer could walk away with a brand new bear, complete with a cardboard house, and a fun memory that gave them a personal connection to the item. Customers could even come back to purchase clothes and accessories for their bears, and to make additional animals.

What’s interesting about this process is that Build-A-Bear is focused not on the product, but the customer experience. It wouldn’t take much for Build-A-Bear to stitch up the bears and sell them as completed items, but if they did, they’d just be another bear store. It’s the personal connection that makes the product special to the buyer, and it’s the personal attention that sales associates give that make people want to come back for future purchases. Maxine Clark looked at a mature industry, thought outside the box, and figured out a way to develop a major retail chain by simply changing the design process.

The second company I’ll cite is a company that arose out of a desire to create a new kind of ice cream. When they launched their product in 1988, they touted it as the “ice cream of the future.” 20 years later, the future is here, and the successful company goes by the name Dippin’ Dots.

I became interested in this company just a few weeks ago when I picked up some part-time work at Busch Stadium in St. Louis and found myself working at a Dippin’ Dots stand. I’d had the product before, but never thought much of it; it seemed fairly overpriced, to me, and I’m not much of a fan of ice cream since my stomach seems to have issues with large amounts of lactose. And yet every time I visit a mall, a theme park, a stadium, or airport, I see Dippin’ Dots. People really seem to enjoy the novelty of the product (especially since it isn’t sold in stores), and I must admit that it’s a very unique way to present an age-old product.

Dippin’ Dots were invented by a man named Cut Jones in the late 80s, who used a flash-freezing process involving liquid nitrogen to create little dots of ice cream that were capable of delivering a high-quality taste with a unique tingling sensation on the tongue as they melted in a person’s mouth. The dots weren’t something that could be sold in grocery stores, since they needed to be stored at -20°F or below. But they were something that could be sold as a novelty item at malls, theme parks and other high-traffic areas. The company used a franchise strategy to rapidly expand, and even today, Dippin’ Dots are a popular item to splurge on.

What interests me about the product is that it seems, to me, to be of a fairly ordinary quality that is inferior to frozen custard, superpremium brands (Haagen-Dazs, Edy’s, Ben & Jerry’s), or even soft-serve restaurants like Dairy Queen. The portions also seem to be on the small side, while the prices are very high. If I wanted ice cream, Dippin’ Dots would not be one of my top choices. And yet the brand has significant power in the minds of consumers, and though the beads of ice cream are somewhat of a novelty item, they are quite popular. In fact, the company’s website claims that Dippin’ Dots stands outsell other ice cream stands by 2:1. That’s amazing.

Once again, here’s a product that is successful not because it’s brand new, but because it’s well marketed. Let Dippin’ Dots melt, and you’ll have ordinary ice cream. But give that ice cream a fresh look, a clever name, and a tagline that promises that this is the “Ice Cream of the Future” and you’ve got a brand new way of serving an established product.

The third company I’ll cite as an example is a store I’ve never actually stepped foot inside: Club Libby Lu.

I don’t have any children, but I frequently do writing programs (and have been a part of an after-school science program) with grade school children. And over the last few years, I’ve noticed that all of the young girls are talking about Libby Lu. It’s their favorite store in the mall by far. Some of them even have birthday parties there. Having walked by the store in the mall, my impression had always been that it was a “Claire’s” for tween girls, with Hannah Montana music blaring and posters of Miley Cyrus in a wig and two pounds of makeup hanging in the windows. But hearing so many young girls talk about this chain, I did some research, and I was surprised to see how hard this company is working to earn these girls’ money.

Once again, good marketing is the centerpiece of this chain. Mary Drolet opened her first store in 2000 in Schaumburg, IL, naming it after her childhood imaginary friend. The store was designed to provide the sorts of things that tween girls might want, like ear-piercings, makeovers and costume jewelry. Later on, the chain added on a “pooch palace” where girls could create their own stuffed designer dogs. The chain smartly signed Hannah Montana as a spokesperson and has been very successful since being bought by Saks, Inc in 2003. In just 8 years, it’s produced close to 100 stores.

What’s interesting about Libby Lu is that it is unapologetic about how silly it is. Parents likely roll their eyes when they see their 10-year-old daughters walk out of the store with a bunch of silly makeup, hair extensions, and costume jewelry on. It’s far too tacky to make the girls look like makeup-savvy teenagers, but it makes them feel older and more sophisticated all the same. The retailer works hard to help these tween girls enjoy being girls, and it offers them a lot in the way of products to pick up — products that could be available at any other store, but which are uniquely positioned here. Selling cosmetics, posters, and junk jewelry is an old part of the business of retail; selling them this way is a brand new concept.

Now that I’ve covered these three examples, I’m sure that you’ve noticed in all three cases that it was not products, but marketing, that made these companies successful. In the case of Build-a-Bear and Club Libby Lu, the emphasis was on building a one-to-one relationship with customers; in the case of Dippin’ Dots, the emphasis was on creating a unique experience for customers to have as they tried the “Ice Cream of the Future.” In all three cases, the focus was not on selling a product; it was on the end user.

And that leads to the question that I’m sure most people will ask. “That’s all good and well for retailing,” they might say. “But what good does it do for people who are involved in producing the products, like publishers?”

It’s a very interesting question, because publishing itself is nearing a crossroads, a time when there may be a divergence between traditional books, print-on-demand books, and electronic books. We haven’t reached that position yet; POD and eBooks are still in their infancy, and both are still ineffective at serving the needs of individual consumers. But five or ten years down the road, when POD techniques can produce high-quality reprints of backlist titles, and when eBooks finally have a format and reader that looks and feels like a real book, the traditional business of publishing is going to be disrupted by emerging companies who can take advantage of the new ways of doing things and carve themselves a niche. The companies who succeed the most will be those who can develop smart relationships with customers.

In the eyes of today’s trade publishers, customers don’t care about the content; they care about the product. That’s why trade publishers don’t spend a lot of time searching for high-quality material. Instead, they search for material suitable for a mass market — writing by people like Nora Roberts, Janet Evanovich, Dean Koontz, Danielle Steele, Stephen King, Sue Grafton and John Grisham. It’s not that these writers are especially skilled; it’s that they’re able to consistently deliver the kinds of books that appeal to large numbers of readers. Anyone who’s been in the publishing industry for any amount of time knows that the bestseller lists are fixed and phony, but it’s hard to deny that the bestseller lists do turn some writers into household names.

The idea of the mass market, however, is not the future of publishing. There will always be a place for mass market writing, of course… consumers are not very skilled at thinking for themselves, and unless they are familiar with the book industry and the literary sector, they rely on reference criteria such as bestseller lists to help them make decisions. But as we move away from the bestseller racks and move into an era where traditional publishing strategies just aren’t cost effective anymore, it’s going to take some savvy and forward-thinking publishers to grab ahold of the customers who are ready to navigate the waters of POD and eBooks… but who need new reference criteria to guide them through.

I’ll offer three suggestions as to how a publisher might do this:

1) Build stronger marketing relationships with end users. Ask most trade publishers who their customers are, and they’ll resort to market research findings to tell you. That’s because, generally speaking, they don’t know who reads their books; they just know sales figures and demographics. Smaller publishers are generally a little bit more in touch, because they can’t afford not to be. The companies who are most successful in the future are going to be the ones who know their customers, who listen to them, and who keep detailed information on as many of them as possible to guide direct sales.

2) Think up new ways to present old products. Audiobooks used to be cumbersome box sets of multiple CDs; now, more and more are being offered on small, self-contained digital devices. Flash memory is getting cheaper all the time. An enterprising publisher might try to offer “enhanced” books that are available on flash drives, allowing readers to take eBooks to any USB-capable computer and resume reading where they left off. The software on these drives could link up to a web-based account that stored preferences and other information. The upshot of this is that publishers would know EXACTLY how, when, and where their books were being read. This information could prove invaluable!

3) Focus less on retail and more on direct sales. This is a tough boat to rock, since publishers need retailers to get their books to the public. Some customers won’t buy online, and will always check for a book through their favorite retailer first. But publishers can take advantage of the web to offer their entire backlist, and they can also offer frontlist books at slightly higher prices than retail by selling signed (and perhaps even personalized!) copies. Direct sales are far more profitable than retail sales, and can lead to stronger relationships with customers, as well as provide basic demographic information that can be used for market research. It’s never a bad idea to know where your customers are coming from, or how they’re using your product (as a gift, personal copy, or textbook).

I have other ideas, but it’s probably wise to keep them to myself. After all, I hope to be one of the publishers at the forefront of the changes the next decade will pose. But feel free to post your own ideas below… I’d love to hear them!

-SJJ

2 Comments

• 

  By Nathan Ives, July 5, 2008 @ 9:44 am

  Hi Sean,

  Great to meet someone who shares my passion for strategic planning! We at StrategyDriven also believe in the power of effective planning coupled with execution. Our website is dedicated to providing executives and managers with the strategic planning and tactical execution best practice tools and techniques needed to create organizational alignment and accountability to acheive superior results.

  I hope you and your readers will visit the StrategyDriven website at http://www.StrategyDriven.com and share your thoughts with us as well.

  All the Best,
  Nathan Ives
  Principal Contributor and
  co-Host, StrategyDriven Podcast
  StrategyDriven

  http://www.StrategyDriven.com

• 

  By PLR, July 24, 2009 @ 11:31 pm

  This is a very informative post! Keep up the good work.

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