• Running

    You can learn a lot about how people approach their careers by looking at how they approach their hobbies. Running is such an important part of my life that I have created a separate blog for it, Predawn Runner. Whether you are recreational or competitive, I welcome you to join me there in discussing how we fit running into an already-full life.

Nike and the Minimalist Running Movement

Note:  For a runner’s perspective on the changes to the running shoe market, please visit my post on Predawn Runner.

The needle is moving quickly on footwear preferences for runners, from "full support" towards "barefoot"

One of the things I love best about running is that it is, at its essence, a simple sport, requiring very little gear.  However, there is one piece of gear that I, and most runners, will spend good time and money pursuing, and that is the perfect running shoe.

There is a plethora of advice on running shoe selection, and most runners are told that they need to match their shoe choice to their running mechanics.  We are taught about techniques ranging from the simple wet-foot test, to slightly more advanced tread-wear analysis, and on up to full-scale gait analysis, perhaps even involving videotaping on the treadmill.  This then slates us into our shoe type by degree of “pronation,” or the manner in which the foot rolls when we contact the ground.  There are “motion control shoes” for the severe overpronators, “stability” shoes for the (typical) slight overpronator, “neutral” shoes for the under- or non-pronator, and even “cushioned” shoes for certain underpronators with high arches. As many as 50% of runners have been stated as needing “motion control” shoes, and generally less than 30% are expected to find “neutral” shoes satisfactory.

The vast array of shoe companies serving the running segment of the market has been more than happy to feed customers a broad (some would say bewildering) range of offerings, with most companies offering several products at differing price points in each of the categories.  While they attempt to differentiate in the manner in which they provide the cushioning or support called for by the stability and motion control categories (with elements like Gel from Asics, Air from Nike, and Wave from Mizuno), and there are minor differentiators like fit, cushioning, tread, weight, or lace design, there is often little to choose between shoe manufacturers.  Most runners, while developing a preference, can switch pretty freely should a model or price change provide the impetus to do so.  I am no different – while I have run seven marathons to date in Nike shoes, I have recently cycled through Asics, Mizuno, and Brooks offerings as well, and am considering some models from Saucony).

This has all started to change over the past decade.  A seminal moment was the success of Christopher McDougall’s Born to Run: A Hidden Tribe, Superathletes, and the Greatest Race the World Has Never Seen in which the author, through scientific argument and anecdotes from a remote tribe, makes the case that humans are designed to run barefoot.  Therefore, in his view, the shoe industry has done everyone a disservice by putting more and more padding between foot and trail.  And thus the barefoot or, owing to the realities of colder climes and harsh road surfaces, minimalist movement was born.

Obviously, barefoot running holds little appeal for shoe companies.  Minimalist, at first glance, isn’t much better, as it runs against all engineering, marketing, sales, and production competencies in which the shoe companies have invested for years.  In a classic case of innovative disruption, it has been a relative outsider to the industry, an Italian company named Vibrams who, by responded to an idea of another outsider and launching the revolutionary Vibrams Five Fingers glove-like shoe, has established themselves as the ones to follow (or, too frequently, counterfeit) in the expanding minimalist shoe market.  The other shoe companies have been forced to respond to the surging interest in Vibrams’ shoes with “minimalist” offerings of their own, designed with a reduced heel-to-toe drop and lighter overall weight (Dr. Peter Larson offers a good summary of minimalist running shoes on Runblogger, if you are interested).

In addition to popular perception, science has started turning against the “more shoe” paradigm.  It turns out the rules governing allocation of runners into shoe types by foot strike and stride mechanics was never backed by much thorough science in the first place.  Now, a series of studies, also well summarized by Dr. Larson in a post on  the crumbling of the motion control paradigm, has provided some evidence that stability shoes do more harm than good, even for the most severe overpronators.  These studies have gained so much attention that the shoe companies have been forced to attention.  With running shoes making up 25% of the athletic shoe market, and being the fastest-growing category, those that compete in the space can’t afford to ignore it.

The leader in the running shoe industry is, not too surprisingly, Nike.  With over 55% of the running shoe market as recently as 2007, they win through a combination of “fashion” (where non-runners are often wearing running shoes) and “technology” (their shoes do, in general have good reputation for performance, though also a reputation for changing their model designs too frequently and radically).  It is also interesting to note in the article cited how rapidly they gained share through the introduction of the Nike+ sensor for the iPod nano – this market is subject to wide share swings if a company wins (or loses) on either fashion or technology.

Facing the music on the science of running shoe design, Nike has reacted aggressively and not in all cases, as you might expect, defensively.  If you review the Runblogger list, you will see several Nike minimalist options listed.  In fact, the Nike Free line has been quite successful, and is now a top-10 selling shoe (I presume there are quite a few “fashion” buyers in that audience).  And now, as Pete points out in another post, Nike is sponsoring research that is refuting the shoe stability technology they have spent years developing.

So what will Nike do next?  As Pete comments, with greater resources available to them than any other company in the industry (with Adidas, the nearest in scale, not as significant of a player in the running shoe market), this may provide an opportunity to out-invest nagging competitors such as Brooks, Asics, New Balance, and Saucony.  Or perhaps someone such as Nike will acquire Vibrams – though the position they have as a supplier of soles to many shoe companies may make this more challenging.  There is the risk that Nike spreads its brand too thin, trying to be all things to all runners.  But this has never been an issue for them in the past.

I suspect that, somehow, the company that introduced the Shox – the extreme of the padded / oversupported / turbocharged running shoe – will somehow end up doing well in the minimalist space too.  Their history and culture of adopting quickly bodes well for their reaction speed as further research is made public.  They have outpaced, to date, competitors you would expect to be more nimble and focused such as Brooks and New Balance who do not yet have true “minimalist” offerings.  Granted, this is a marathon not a sprint (sorry, couldn’t resist) – so it will be fun to watch.

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Successfully Selling Through a Price Increase

With the economy on the mend (maybe), the potential for raw material price inflation due to increasing demand is rearing its ugly head.  In fact, with metals, energy, and agricultural inputs well above their lows from early 2009, inflation may already be a fact for many manufacturers.  Therefore, it is time to consider recouping some of this lost margin through price increase actions.  I’m not talking about the “wink-wind, nod-nod” type of price increase where your major customers know that a greater discount off of “list” will offset the list price increase.  I’m talking about increases where you expect to see rising margins (or, at least margins that fall less quickly), and thus you have to implement the price change at a vast majority of your accounts.

Having had the experience of selling through price increases, there are several tips I’d offer as to how to be effective at getting your customers to understand the need and accept the realities of the situation.  As in all business dealings, the right degree of openness and communication is key to successful negotiations.

  1. Try to avoid the appearance of a “regular” price increase schedule. If you pursue price increases at the same time every year, for example, you lose any credibility on efforts to tie the increase to specific inflationary pressures.  Also, your customers become immune to the increases as such a procedure is typically associated with the practice of increasing list prices while maintaining prices for existing accounts.
  2. Provide the appropriate amount of notice. You should consult with legal counsel on what is appropriate for your business, as too much notice could be construed as “signaling”.  However, providing some notice (typically 30 or 60 days) provides a window in which to negotiate with customers before the increases take effect, so that renewed contracts and agreements are set in time for the increase.
  3. Prepare a good defense of the rationale for the increase. While you are certainly entitled to price your products in whichever manner you choose (ideally, what the market will bear), it can be useful to help customers understand why you need to take the price actions you are implementing.  This can take the form of a presentation showing (in a generic, indexed form) the impact of material cost inflation on your business, or the cost trends in critical raw materials.  You need to be careful not to reveal confidential information of course, and to show data that supplements your decision without either contradicting it or exaggerating the point.  Therefore, careful thought and preparation is required in preparing such a tool, but the impact can be significant.
  4. Consider in advance what tradeoffs are acceptable in negotiations. I don’t want to get into a significant discussion on negotiation best practices in this post, but suffice it to say that you should work out acceptable alternative scenarios (extending an existing contract with a guaranteed minimum volume, or delay an existing increase in return for more significant future ones, for example) prior to your discussions with customers.  In this way, you are able to use the price increase as leverage for achieving other objectives in relationships with key customers.

The price increase process is tedious, but proper execution is absolutely critical to ensuring the ongoing profitability of your business – can you imagine a world in which you never increase prices?  Therefore, taking the time to invest in tools to support the increase and identifying negotiation approaches is well spent, and can help to improve the effectiveness of your pricing strategies.

Does anyone else have best practices they have used or experienced in regards to price increases?

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From the Archives:
Are Starbucks’ Big Gambles Paying Off? Too Early to Tell, but Reasons to be Encouraged

Howard Schultz, CEO of Starbucks (from BNET/The Corner Office)

Howard Schultz, CEO of Starbucks (from BNET/The Corner Office)

It is without debate that Starbucks began to struggle a few years ago, suffering from issues typical of growth companies that reach a plateau and can no longer boost returns by, in their case, opening additional stores.  As The Onion made clear over ten years ago, the US market (at least) was saturated.  Starbucks needed a new growth model. Businesses can only be in two states – growth or decline – so if you can’t find the first, you are doomed to the latter.

The first step they made was in bringing back Howard Schulz, their original CEO.  Howard had been critical of the company from outside, saying that they had lost their focus on quality in a hunt for efficiency, and vowed to return them to their roots. While the steps he took may have been helpful, they at best provided incremental gains, and Starbucks was beginning to face increased competition from the likes of Caribou, Dunkin Donuts, and, as the economy slowed an consumers became more price sensitive, McDonalds.

Over the past year, Howard stepped up the pace of innovation at Starbucks in an effort to find new avenues for growth.  One step was to open an experimental new store model in Seattle called 15th Ave. Coffee and Tea.  The stated goal was to recreate the neighborhood coffeehouse feel, which is obviously difficult to do for a large corporation accustomed to rigid processes, design guidelines, and policies.  Starbucks could not resist putting notice on the shop that it was “inspired by Starbucks,” an idea that on its surface seems as corporate-ego driven as GM’s push to put the GM logo on Saab cars.  I am sure this strategy consultant was not alone in predicting failure of the experiment and urging that Starbucks continue to “focus on their core”.

However, The Economist reported a few months back, without much quantification, that the experiment appeared to be a success.  Combined with other ongoing initiatives like training of associates, introduction of value-priced food and drink combos, and increased use of drive-thru facilities, which generate far higher revenue than traditional stores, Starbucks was building momentum.  The stock climbed from a low of $8 to $20 through the first half of 2009, far outpacing the S&P 500, and it has remained at that level for several months.

A bigger gamble was the introduction of the Via™ line of instant coffee.  This flew in the face of conventional wisdom about consumer marketing in many ways:

  • At a lower price point, there was high risk of cannibalization (of both in-store and home-use sales) and reduced overall revenues and margins
  • Instant coffee is perceived to be of lower quality than traditional brewed styles.
  • The effort would distract resources at the company and take away from the “experience” brand image that Starbucks is known for.

While not an expert consumer marketer, I had these same concerns. In fact, Starbucks seemed to be bucking even the most obvious of marketing-101-type advice by positioning their product against their own store brews. Again, the blogosphere and consultant-world shivered.

However, if you step back and consider this more objectively, there is a lot of upside for Starbucks in this strategy:

  • It is unlikely that instant coffee would cannibalize coffee-house sales as they are completely different markets (the former is driven more by experience, where the latter is driven by convenience).
  • Being confident enough to compare Via to their own store-brewed coffee (and emphasizing the story of its painstaking development) did bring some potential credibility to the brand
  • Starbucks position for home consumption had to be minimal; there are a wide range of competitors, and even I, coffee snob that I am, opt for Gevalia® coffee for our Tassimo® because it is “good enough” and far less costly.
  • The margins on instant coffee per cup of consumption, at $0.99 / serving, have to be far better than the margins on cups made from ground beans; think of how long a bag of beans, even costing $12, lasts.

Starbucks-logo.articleMy market research on this (which basically consisted of asking the barista at the drive-thru this morning how the Via sales were going) indicates that consumers seem to like it, and it did see significant sales, at least initially. Obviously there will be surge out of the gates, and only time will tell the ultimate impact. But I am eager to see the results and hopeful that this will restore some momentum to a great American institution (and I do not own any SBUX stock).

A final thought: bringing back a CEO is always risky, particularly when it is a “growth” CEO brought back to manage a “mature” company.  While Steve Jobs is an obvious exception at Apple, such approaches do not often end well; more typical is the experience of Michael Dell at Dell. What gives it a chance to work in this case is that Starbucks needed to reestablish its growth mentality and take some risks.  The 15th Avenue effort was just the kind of low-risk high-reward effort to start with (and, it should be pointed out, the prices are actually higher than at Starbucks). Via is a bigger swing, but it won’t sink the company if it fails. Worst case is they lose some time on better ideas, but I am glad to see the company taking chances instead of just making simple tweaks to the business model.

Required (I think) disclosure – I wrote this post while drinking a Venti Americano. But I did pay for it myself. But it was with a Starbucks Card. Which is auto-reloaded by my own credit card. So I think I’m OK, FCC.

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Innovation in Aftermarket Offerings for Industrial Marketers

Often the most profitable, yet most neglected, portion of an industrial equipment company’s portfolio is its range of aftermarket solutions, such as replacement parts and repair services.  Typically a captive market, aftermarket parts and services offer significant profit margin potential, yet the attitude most often in place at industrial equipment firms is that such sales “just happen” and there is not much that can be done to influence them.  This attitude overlooks the great improvement that even a small increase in aftermarket sales can provide to the bottom line.

You may wish to make your spare part kit a little better organized than this. Photo used under Creative Commons License: http://www.flickr.com/photos/coweater/ / CC BY-SA 2.0

Opportunities exist in both parts and services, but the challenges faced in recognizing these opportunities do differ.  Parts offer the potential for higher margins, but pressure on costs and inventories at manufacturers often limits their desire to hold spare parts.  The margins on services (like repair, inspection, installation, etc.) are often capped, as it is easier for a customer to understand and thus negotiate rates on labor, travel, and the per diem allowance.  Thus, the approaches to realize this untapped potential differ for parts and services.

There are a couple of generalizations about industrial customers that should be understood before plotting an aftermarket strategy.  First, it is generally easier to add a small amount of funding to an existing project or appropriations request than to start a new one.  Second, many industrial companies believe they can do their own maintenance, yet have cut such staffing to the bone.  Finally, unplanned downtime creates urgency, recognition of what production time is really worth, and a temporary willingness to spend to get production re-started and avoid future issues.

The goal in driving aftermarket success is to accelerate the rate at which purchases are made (for example, by having the customer purchase parts before they are needed) or gain revenue through value-added services where the cost can be controlled.  There are numerous familiar examples that can be drawn from the consumer-marketing world, some of which apply directly to industrial products.  Such examples include:

  • Extended warranties – these play to the fact that it is easier to gain additional funding for existing projects, and are particularly appealing where the customer has limited experience with the type of equipment being provided (much as consumers are more willing to buy an extended warranty with their first plasma television).
  • Spare part kits – again, when provided as an option on the initial purchase, it is much easier to get funding for such kits approved.
  • Expediting fees – when a customer is down, it is reasonable and maybe even expected that you would offer rapid delivery at a higher (but not outrageous) fee.

Some of the examples are less obvious, but still value, and largely revolve around being able to plan and control your labor costs in providing services.  Some of these ideas include:

  • Service contracts – when you have a sufficient number of contracts in a given region, you can spread the often-overwhelming travel costs over a number of contracts, thus making the price and your margins reasonable.  The key is to be able to control the service or inspection schedule such that the travel costs can, in fact, be predicted and controlled, and to convince the customer that your “expert” staff can provide better results than their stretched in-house maintenance team.
  • Inspections – while you may only be able to charge a nominal amount for inspections, you can often make recommendations on repairs or spare parts that can make up for the slim margins on the inspection itself.  At a minimum, any service call should include an inspection with recommendations on spare part purchases or repairs.
  • Exchange programs – for standardized and portable equipment, offering an exchange program, whereby you replace a unit being repaired with a “like new” substitute, can provide both the urgent response the customer needs and good margins.  The exchanged units can be repaired at your leisure, and held for future exchanges.
  • Overhauls – often, if a unit is being repaired in the field or has been shipped to your facility, you can offer the customer a more thorough overhaul of the equipment (replacing wear components, tightening adjustments, etc.) at a reasonable incremental price.

Does anyone have experience with having developed better aftermarket approaches for industrial equipment or similar sectors?  Have you seen challenges applying the above approaches?

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Book Review – Beating the Commodity Trap

Shortly after posting my recent write-up on the use of value equivalence lines (VELs) for strategic pricing, a new book by Richard D’Aveni called Beating the Commodity Trap: How to Maximize Your Competitive Position and Increase Your Pricing Power came to my attention via a review on strategy + business.  I eagerly purchased the book, and managed to read it over the course of a trip to San Diego.  This post highlights a few key points to the book, but suffice it to say that I highly recommend it to anyone involved in strategic pricing decisions, especially if you work in an industry facing commoditization pressures (which, at some point, is nearly every industry).

D’Aveni defines three types of commoditization situations that are most typically faced:

  • Deterioration – the rise of low cost / low benefit options that appeal to a significant segment of the market (in other words, the lower left of the VEL or price-benefit line).
  • Proliferation – the segmentation of the market into ever-finer niches through rapid new product introduction around your established price/benefit position.
  • Escalation – the introduction of breakthrough innovations simultaneously offering ever-higher benefits at lower costs (in other words, shifting the VEL or price-benefit line downwards and to the right)

D’Aveni also defines three types of responses to these pressures:

  • Escape the trap – by moving your position along the price-benefit line or shifting channels, focusing on the most immediate threats, or re-seizing the momentum (through innovative new business models, for example), you can avoid the most threatening competitor.
  • Destroy the trap – through redefining price or benefits in the industry, overwhelming the competitor by out-proliferating them, or taking blocking actions (such as locking up long-term supply agreements), you can nullify the advantages that the competitor has gained.
  • Turn the trap to your advantage – by proliferating around your competitor to trap them in the low end, finding white space in the price-benefit line, or building your own innovation momentum, you can in essence confine your competition to a limited portion of the market.

D’Aveni presents a several tactics appropriate to each threat / response combination (though, in some cases, only one possible tactic is discussed). The book is full of examples of companies facing and responding to these threats, many of which will be familiar (such as the proliferation of hotel brands in the 90’s, and responses to the entry of Zara as the low-end fashion retailer in Europe).  There are one or two examples that may not be as familiar and this does rob them of some of their educational value.

At times, the fit of the “tactics” to the “threat / response” schema seems a bit forced, and as always it is clear that implementing such tactics in your own business can be a challenge.  And the author clearly emphasizes that even recognizing you are facing a commoditization trap early enough to take action can often be difficult.  The greatest strength of the book is the use of the VEL (price-benefit lines) to illustrate the examples.  Just becoming more familiar with this powerful pricing and product planning tool makes the book worth the price and, at just 224 pages, it is a fast read and valuable reference source.

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Seven Leadership Lessons from the Marathon

One’s approach to their personal hobbies says a lot about their approach to professional pursuits (so long as they are passionate about what they do).  Successfully reaching a personal goal provides lessons that apply to professional endeavors.  Having recently reached my own goal of qualifying for the Boston Marathon, this is a good opportunity to reflect on the approach that got me there, and what lessons apply to one of my professional passions – leadership development.

Set Specific Goals

It may seem intuitive, but to reach a goal, you first have to set one.  All too often, actions are taken without a specific goal in mind because they seem like “the right thing to do.”  I spent much of 2009 just running with the general goal of losing weight, but not committing to a specific target.  While exercise is certainly noble, without combining it with a better diet and monitoring calories, there may be little weight loss.  When I got specific on my goal to qualify for Boston, I determined losing 20 pounds by May would be a key objective along the path, and it became easier to control my diet in addition to increasing my calorie burn.

Commit Yourself Publicly

If you don’t make your goal clear and visible, you lose a valuable source of incentive to reach it – your pride and the encouragement of friends, colleagues, or employees.  How can anyone offer you support if they don’t know what you are working towards?  In the case of qualifying for Boston, I first committed to my wife that I would get there (and she developed an enthusiasm about going to Boston next year), and then to my friends on Dailymile, who offered further support and encouragement for reaching the goal. The fear of failing to reach a publicly-committed goal can be a powerful motivator; this is why CEOs of companies like P&G and GE publicly state goals such as achieving a certain amount of organic growth.

Get Buy-in from Other Stakeholders

If you need the support of others to reach your goal, they must not only be “informed” of it, but actively understand and agree with it.  If your goal doesn’t inspire others, support will be lacking. If my wife viewed my goal of reaching Boston as purely selfish or perhaps even unachievable, then she would resent my early morning or late evening runs that interrupt her sleep or take away our time together.  Of course, the fact that I also recognized the other commitments I have as a father and professional makes it easier to gain support for my goals, by making it clear that the family and work roles come first. In business, if your customers, suppliers, partners, and, most importantly, employees don’t accept your goals, they will not have the motivation to provide the support needed to achieve them.

Plan the Work, but Know When to Be Flexible

Training for a marathon, just like executing a business initiative, requires establishing and following a plan.  You can’t simply go out and run a random distance at a random pace and expect to achieve your goal. Each day has a purpose, be it working on your pace, improving your stamina, or resting and recovering.  However, circumstances like weather, work conflicts, injury, or family commitments will interfere with the plan, in which case you need to have an open mind to making adjustments within the context of still achieving the training you need (such as running at a different time, shifting days in the schedule around, or lengthening or shortening a workout).  It’s even better if you can have coping mechanisms identified in advance, so you can react quickly, with minimal stress, to these disturbances. The same is true for business – you have to start with a plan, but have the right processes in place to identify when changes are needed and make the changes as necessary.

Establish Appropriate Metrics and Use the Right Technology

In running, there are two or three metrics that matter – time, distance, and (if you follow this method) heart rate.  If you cannot accurately measure these, then you will be unable to track your progress.  Investing in the right technology, such as a GPS-enabled watch, is important, if not essential.  In addition, it is helpful to test your progress towards your goal occasionally; in running this is done through specific workouts designed to test your ability o hold a desired pace over a specified distance.  In business, of course, similar principals apply – you can’t control what you can’t measure, and you can’t wait until the end to begin measuring – you need milestones to track your progress towards a goal.

Stay Focused on the Goal and Ignore Distractions

Working towards a goal means that you have to forego other opportunities.  In running, it might be a very tempting race, or it might be a night out with friends before a big run.  In business, it may be a request for a new product, or a project offered by a customer.  While you may occasionally have the capacity to take advantage of such an opportunity, this must be weighed against the risk of losing progress towards your ultimate goal. In many cases, it is better to pass on the short-term gains to keep the focus on the big picture priorities.

Proceed with Confidence

If you doubt your ability to reach a goal, your probability of doing so drops dramatically.  You can find countless references to the benefits if “acting as if” you have already achieved your goal.  While this can certainly bleed over into overconfidence, there is a lot of value in pursuing your training aggressively, with the belief that you are already at the level you need to be to succeed.  In my case, I certainly didn’t go so far as to book a trip to Boston, but I did explore the timing of the race next year and the process for registering.  And, I confess, I wrote this blog post two weeks before the race.  In business, if you act as a non-serious participant in a new market, you will be taken exactly as you act – not seriously.

The above steps are essential in establishing yourself as a leader, whether it is as a runner or a business manager.  If you don’t set and communicate goals, energize others towards achieving them, set a plan with appropriate metrics, stay focused, and act with confidence, the probabilities of success in any endeavor suffer grievously.

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