How to Say NO to Wal-Mart and Win

By Ken Westray, PE, NPDP

In an article on the best-managed companies as selected by Forbes Magazine (January 9, 2006) the top retailer company was Lowe's. In fact the top 10 retailers based on 5 years of annualized total return, in retail were specialty companies with returns ranging from 69.0% to 35.6%. Wal-Mart was not even on the list.

In another article in Fast Company (January/February 2006) the story is told about Snapper, Inc. when a Vice-President of Merchandizing at Wal-Mart said we want to go LARGE with you. And the response from Snapper’s CEO, Jim Wier, was, “Let me tell you why it does not work.” Understand that this conversation was worth billions of dollars to Snapper.

Recently, the price of nickel had a large drop on the world market when Wal-Mart directed its suppliers of metal products to stop using nickel in stainless steel for products sold through them. Why does Wal-Mart care about the metallurgical formula of metal in products sold through them?

The science lesson is that nickel is included in the metallurgical formulation to prevent corrosion and stainless steel made without it is a lower quality with a shorter use life. It appears that the days of everyday low prices have gone from eliminating supply chain inefficiencies to deliberate lower quality. Today Wal-Mart represents, according to one report, 8.9% of every retail dollar spent in North America. Their business not only affects retail segments but also extends to vendors up and down the supply chain. The old metal robber barons could only dream of such power!

What does the WMD (Wal-Mart Darwinism) have to do with new product development (NPD)? How is your company really going to survive? Here are five takeaways for Product Managers or VPs who oversee Innovation or NPD efforts.

1. Reexamine your market segments. Make sure you understand in detail who your customer is. Snapper’s core customer is the individual who enjoys cutting grass and sees it as an expression of pride in ownership and not a chore. He/she has pride in the machine of choice to perform the grass-cutting task.
    
2. Real customer value is the defining difference between the mowers. The Snapper mower has higher quality, reliability and durability. The value is not its price, but rather its performance and longevity. A one season throwaway machine costs $99.00 and Snapper owners want one that can last for years and will pay several hundred dollars more.
    
3. Excess features raise costs. This works out either to higher prices or lower margins for the supplier. Wal-Mart is the leader in cutting waste starting first with supply chain consolidations, such as eliminating the distributor or other middlemen, to now reducing quality and features. What is funny, or sad depending on your point of view, is that Wal-Mart wanted the Snapper brand for the same reasons its Yardman model does not work. The Snapper mower brand represents quality, which would counter the lowering quality image Wal-Mart is gaining. In Snapper’s case, they understand which features create true benefits to their customer base. Without this clarity of feature and benefit the new product will be built based on the lowest common feature denominator - cutting grass is a chore.
    
4. Copycat new product development is merely a fast track to lower profitability. The only thing you have for potential retail success is price and availability. When you are a copycat you become a reactor in the Miles & Snow new product development strategy context. It means that you will always be fighting for business survival. Your new products will never have any innovation breakthrough opportunity. From the very beginning in the design, the theme is cost cutting/saving. The future holds the potential for you to become brand irrelevant, at some point competing against a house brand.
    
5. It is the distributional channel, dummy! The key to the decision is Snapper’s confidence that they had alternatives for reaching their core customer base - an independent dealer network. The Snapper mower dealer network did more than sell the product. They provided training, advice, and knowledge in selecting the right model for a given application. Finally, and maybe more importantly, the dealer distribution channel could service and maintain the products of Snapper.

The best part is that this approach, although applied differently, works in a range of sectors from manufacturing to service industries, from B2B (business to business) to B2C (business to consumer). NP Learning can help you develop market winning new products in a WMD world. The process may not be easy but what is certain is that your business success will depend on you having the courage and wisdom to look past the next financial quarter.