U.S. Steel Beaming Current Income Boom; Needs Tempering Blue Oceans To Maintain In Hard Environment

Currently Highly Profitable
U.S. Steel just reported its most profitable quarter ever, tripling its net income from last year’s third quarter! USS reported a net income of $919 million compared to $269 million in the third quarter of 2007. According to the Wall Street Journal’s October 29th issue, this jump was due to strong demand and pricing. Revenue soared 68% to $7.31 billion up from $4.36 billion a year-ago quarter. In particular, oil and gas industry customers fueled this growth with their strong demand for flat-rolled products and tubular goods. This growth seems to be led more by macro-factors, than as a result of a specially constructed strategy. Steel continues to be a commodity. Given this factor, the profitability and fate of its manufacturers are tied directly to the ebb and flow of macro-economic factors and the global market environment.

Slowed Growth Expected
Given the current environment, steel manufacturers are estimating a slow 4th quarter due to:
1. a volatile economy
2. a softening auto market
3. a drop in demand and sales prices
4. nervous buyers limiting their metal purchases
The biggest factor for this drag is the dramatic slowing of demand in the number of cars made in North America. Car sales for all major U.S. manufacturers were down 30% to 45% in the month of October – GM was the worst with a 45% drop in sales from October of 2007. No one is expecting car sales to dramatically increase anytime soon. To maintain profitability, U.S. Steel is going to have to shift its bets.

Go Into Blue Ocean Waves of Niche Spaces
U.S. Steel should begin to shift way from a holistic-type market presence into occupying space in a variety of niches. They should seek dominant shares in niches dictated by customer usage type and the type of steel product. USS should place bets in diversified targeted industries and product groups. Supplying these markets should be done by shifting production units to smaller dominations such as mini-mills. This more “micro-ized” production unit is greatly aided by the fact that only 65% of the total production capacity is needed to break even. Industry and product group niches that should be targeted include:
1. Electronics
2. Domestic Infrastructure
3. Alternative Energy Industry
4. Foreign Infrastructure
5. Foreign Buildings
U.S. Steel needs to take its dedicated capacity centered around the auto industry, and shift it into a combination of these areas.

Vosges Brands: Fill Two Marketspaces

Hybrid Strategy
As for Vosges chocolates sold in other retail stores, the demographics and lifestyle of the store’s patrons are key factors in the movement and sales of the product. Given the broad range of its product line and the holes in the chocolate market, Vosges can use a hybrid strategy and “pick off” the very high-end “niche” space with its truffles and $300 Bamboo Boxes by continuing to sell in retailers like Bergdorf Goodman. But their most substantial opportunities lie in the huge marketspace gap between Godiva and drug store chocolates. This mid-range affordable luxury area is already evidenced by the success of their top-selling $7.50 milk chocolate bar infused with Applewood-Smoked Bacon. Vosges needs to continue to develop similar types of products to capture the affordable luxury mid-range chocolate, and partner with appropriate channels like Whole Foods. This will dramatically raise the brand awareness, and more importantly, make the brand more accessible to a large variety of consumers. This is where Vosges’ greatest growth opportunity lies, and less so than with ultra high-end products.

Be A Wider Ranging Affordable Luxury
Katrina Markoff’s goal for Vosges Haut-Chocolat to be an affordable luxury like Marc Jacob’s apparel brand is appropriate, smart, and obtainable. Wisely, she initially based her product line on out-flanking high-end chocolates like Godiva. This strategy raises awareness in this marketspace, but not with mainstream consumers. To become a more widely-known brand and to grow substantially beyond its $12 million in revenue for 2007, Vosges should develop a wider ranging product line for the gap between high-end chocolates and drug store chocolates. This will not dilute its brand, but enhance its equity and reach. Vosges should leverage the wide reach of appropriate retailers like Whole Foods to dramatically increase volume, sales, and profitability. There are very few players with high brand awareness in this space now – can you even name one? And, are they national? Vosges can own two spaces simultaneously, and use both to enhance and leverage the other. By pursuing this hybrid strategy, Vosges would become even more well-known than Marc Jacob’s in clothing – and possibly develop a loyal customer base like Starbucks. This space owning strategy is an excellent fit for Vosges to build its niche and broaden its appeal. And for a chocolatier – how sweet it is!