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Outsmarting the B2B Goliaths

 

When a single company has revenue greater than its next five competitors combined (and when it would be the 30th largest economy in the world if it were a country), then that company becomes a target – not to hit, but to avoid, imitate, or win against. That’s why outsmarting Wal-Mart has become a speculative pastime for business journalists and a serious mission of survival for retailers.

An article in Business 2.0 magazine1 focused on four companies that had examined Wal-Mart and found chinks in its armor they could exploit successfully. But whether it’s these four retailers or others such as Target, PetsMart, Walgreens, Best Buy, or Central Market (HEB), all these companies have employed shrewd business strategies that focus on their own strengths while exploiting the weaknesses of Wal-Mart.

Can the strategies these B2C retailers employed be used by up-and-coming B2B companies that want to succeed against their own Goliaths? We think so. Here are three strategies used by retail companies that are winning against Wal-Mart — and how B2B ventures can apply them to their own businesses.

Customer Specialization

Costco targets the small business owner. So does Sam’s Club. But Costco understands that SBOs want more than office supplies and volume packages of paper towels. Frugal but knowledgeable, SBOs enjoy quality items on the cheap. That’s why Costco supplies high-end items like Dom Perignon, Godiva chocolate, expensive watches, and Waterford crystal at bargain prices. Customers are buying and Costco is thriving.

B2B business can employ customer specialization as well. While it’s easy to say “everyone can use our IT outsourcing services,” targeting too many segments can mean that no segment is deeply understood or penetrated, and that the value the organization delivers is often communicated in a shallow or unimaginative manner.

Customer specialization for B2B companies involves careful market segmentation and selection (based on the company's resources and differentiation) coupled with continual customer research to fine-tune the business strategy, products, and messaging that most effectively meet customer needs.

Product Specialization

Wal-Mart’s merchandising strategy is “an inch deep and a mile wide.” The company offers an extensive range of product categories such as automotive and pet supplies, but the variety within each category is limited. That’s why category killers such as Best Buy, PetsMart, and Dick’s Sporting Goods (240 stores in the eastern U.S.) are holding their own. These retailers attract enthusiasts to their categories, building a loyal following through inventory depth and greater product knowledge.

B2B businesses tend to do the opposite by expanding their product portfolio to offer a better “solution.” A solution, however, is more than a suite or bundle of products – it’s a combination of products and services designed around a customer’s need that then creates value that exceeds the sum of its parts.2

Is offering a solution always necessary? No. While many B2B businesses are able to add exceptional value through integration services, consulting, and more, other businesses are successful selling individual products or product bundles. Therefore, B2B businesses should take steps to understand clearly what products and services they are capable of delivering and what offering set is most distinctive and differentiating. They can increase business success by “going deep” in their area of expertise and creating an offering line up that capitalizes on their expertise and core value deliverables.

Quality and Service

Wal-Mart’s low-price strategy is legendary as are their pricing tactics to penetrate a new market. But low-price shoppers are loyal only to low prices. According to Harvard Business Review, two-thirds of shoppers find Wal-Mart’s narrow product mix, mediocre quality, and limited services not worth the savings – all which means that a lot of customers are primed and ready for shopping alternatives.3 The retail choices are there, and customers are responding to the quality and service offered by companies like these:

Target offers trendy, stylish products at affordable prices. Their well-designed locations enhance the buying experience and make Wal-Mart stores appear cluttered, junky, and disorganized.

Dick’s Sporting Goods employs people who know the products – from fitness trainers and golf pros, to fishing enthusiasts and tennis experts – and can give the customer the attention and information they demand.

Best Buy carries a deeper assortment of quality products, offers a well-trained and knowledgeable sales staff, and provides better repair and warranty services through its in-house “Geek Squad.”

PetsMart caters to pet owners, carries a huge variety of products, and encourages pets to come along with their owners as part of the overall experience.

B2B companies also can win on quality and service – if they identify the quality and services their customers value. While quality is often mandated in terms of defects, the customer defines other aspects of quality and service they value — not the selling company! B2B businesses can find out what the general market and individual customers consider both normal and exceptional quality and service standards, and ensure they meet those standards that are most meaningful to their customer and within their capabilities.

Where Wal-Mart Wins – Most of the Time

While it seems that no one can beat Wal-Mart’s “everyday low prices,” the reality is a bit different. Sav-a-Lot grocery store has been successful competing again Wal-Mart on price. They rely heavily on private-label brands (75% of their inventory) and have implemented a narrowly focused purchasing strategy and inventory model. The company has carefully recreated the small-store concept in demographically specific neighborhoods – small stores with a small inventory for one-truck delivery efficiencies.

Dollar Tree also is winning against Wal-Mart on price. A single-price vendor, Dollar Tree has an aggressive purchasing department that finds remainders and odd lots across the country that can then be sold profitably. Additionally, the company’s win-win style of helping manufacturers out on inventory overages (coupled with its growth success in spite of Wal-Mart) makes manufacturers want to work with them on specially packaged items that hit the one dollar price point.

Wal-Mart is put on a pedestal when it comes to supply chain management, and rightly so. But in truth, all of these retailers are exceptionally cost efficient. In fact, successful competitors meticulously examine their supply chains and question every expenditure to eliminate unnecessary spending.

B2B businesses will compete less on price when they differentiate themselves in their customer focus, product specialization, quality, and service. In fact these competitive advantages can help companies actually justify higher prices.

Retailers who compete against Wal-Mart and are winning know the importance of staying alert and informed. Sometimes the wins seem incrementally small, but they are in it for
the long haul. And as B2B businesses claim these smart marketing principles and apply them effectively, they stand a very good chance of outmaneuvering their own industry's Goliaths.

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1 Matthew Maier, “How to Beat Wal-Mart ,” Business 2.0, May 1, 2005.
2 Juliet E. Johansson, Chandru Krishnamurthy, and Henry E. Schlissberg, “Solving the solutions problem,” The McKinsey Quarterly, 2003 Number 3.
3 Darrell K. Rigby and Dan Hass, “Outsmarting Wal-Mart,” Harvard Business Review, Dec 2004, Vol. 82,
Issue 12.

 

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