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Motorola’s Current Turbulent Situation
Motorola is in trouble – the cell phone business posted a 33% decline in the first quarter of 2008 at $18.99 billion according to The New York Times. In 2007, this business lost $1.2 billion while Motorola’s two other smaller units were and are profitable. CEO Greg Brown hoped that turning mobile devices into its own unit would lead to a turn-around and revive the Motorola brand. By the end of 2008, this division will have posted three straight years of financial and market share losses. The problem centers around the inability of Motorola to even come close to following up the popularity and sales of its RAZR phone which it introduced in 2003. It was an enormous success, and sold more units than any other handset in history. However, the subsequent designs have been unable to keep pace from a sales perspective, and as a result competitors have taken back market share in the handset market. The company’s market share was at 23% during year-end 2006, and has fallen to 8% worldwide currently.
Lacking Pipeline – No Good Successor To The RAZR
This slide seems to indicate a problem with Motorola’s innovation processes and pipeline. There were no new “good” products to replace the RAZR. To follow up the RAZR’s success, Motorola would have been wise to dimensionize the utility for RAZR customers, and figure out the key features and benefits which were highly valued by them. This knowledge, and more importantly, its application to the following new designs, would have clearly led them to breakthroughs to match or at least approach the RAZR’s success.
The Four Factors Needed To Dimensionize Utility
In dimensionizing utility, Motorola should not do so for a generic singular customer profile – but they should divide the market into key buyer groups. This should be based on any combination of demographics, geography, lifestyle, and usage. Put these four factors into separate two-by-two grids and have each factor occupy a quadrangle of the grid. Next, list the key characteristics of important buyer groups according to each of these factors. Pay particular attention to usage in terms of two aspects: type and occasion. To develop a set of composites, link the key demographic, geographical, and lifestyle factors to a particular usage type or occasion. This is a key step in developing a feel for what is valued by composites of different types of major buyer groups. The next step is absolutely vital: connect the usage types and occasions to product features to develop.
Translating What Buyers Value Using “Utility-Usage” Chain
By making this “utility-usage” value chain, an executive can directly translate what key buy or potential buyer groups highly value, into features which mirror their expectations and desires. This will allow Motorola compete strongly in various profiled marketspaces. If done right, it will allow them to own marketspace – just like they did with the success of the RAZR. They can replicate this success using this strategy. It should be at the heart of their innovation strategy going forward – and it’s certainly not too late to save their business.
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At The Intersection Of Several Types Of Retailers
From a strategic perspective, Walgreens has a unique position in the marketplace, sitting at the intersection of Wal-Mart, small discounters, Target, and grocery store chains. The medium size and neighborhood-centric locations of typical Walgreens make them akin to small discounters. Walgreens’ scale allows it to offer low prices à la Wal-Mart. The uniqueness of some of Walgreens’ merchandise is similar in ways to Target’s offerings. And Walgreens’ offering of some staple groceries put it in line with grocery stores. The “trick” for Walgreens is to leverage some of these aspects of its offerings into targeting buyer groups which value a significant combination of many or all of them. If they can locate large pockets of these profiled consumers within given geographic locations, they will be hugely successful in this recession and in any economic climate, no matter how terrible.
How To Use Its Position To Gain Buyers
In sitting at this strategic intersection, Walgreens can gain buyers by:
1. Keeping Low Prices For Many Merchandised Items
2. Maintain and Develop Relevant Signature Brands (Non-Staples)
3. Stock Need-To-Have Grocery Items (Staples & Certain Non-Staples)
Prescription Savings Card Is A Winner
A bright spot for Walgreens is its prescription savings card which is increasing in usage and members. This offers people savings on the purchase of prescription drugs, which can be a substantial expense especially for people on a fixed income. Walgreens has a recession-proof winner here and should put more resources behind increased marketing to targeted groups. Here, they can utilize the advantage of their scale to move returns beyond other investment of resources.
Match Position With Informed Strategy And Right Tactics
Walgreens’ positioning and strategy must be “in-synch” especially during this economic downturn. They need to build solid links to key buyer groups through understanding their demographics and lifestyle preferences. This needs to be turned into pinpointing geographical locations where groups with desired demographics and lifestyles are located. Bets need to be placed in these areas – whether with a new store or upgrading an existing store. Simple line extensions of “stripped-out” non- or less value-added features will yield ultra-value private label product lines – which can counter-intuitively be branded boldly by wrapping these items into a special designated section or store-within-a-store. This is a marketer’s dream: being able to brand generic low cost items! At the intersection where Walgreens sits, what would you do?
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Narrowing Margins – Lower Profits
Walgreens is a drug store chain which has traditionally opened at hundreds of stores per year. However, due to this troubled economy, it has retracted that plan, and has opted to opening a lot fewer new stores. Walgreens executive said they would reduce store openings to a 5% growth rate by 2011, below its original plan of 8%. This change is fueled by the economic downturn – and as a result Walgreens will focus on updating older locations. According to the Wall Street Journal’s December 22nd, 2008 addition, net income declined $408 million in the most recent quarter versus $459 million for the same quarter last year. Margins shrank for Walgreen as sales increased 6.6% to $14.95 billion from $14.03 billion for the same period last year. They responded to the shift in consumer spending by stocking more staple products and pushing their private label brands. On Monday, December 21, 2008, Walgreen Co. executives said they plan to focus on remodeling stores because some of their units have become cluttered and outdated. Along these same lines, they also plan to increase scrutinization of their merchandise purchases.
Strategic Growth To Weather Down Economy
Walgreens must focus on strategic growth – by only opening new stores in high potential areas and remodeling stores where they get the highest jump in incremental revenue. They must first profile and target likely buyer groups according their demographics and lifestyle – and, critically, link them to geographical locations. In this down economic climate, it vital for Walgreen to lock-in above average growth for its capital expenditures on stores. They must allocate their resources on above average growth relative to their current network of stores. In order to do this, Walgreens must focus on the following factors:
1. Area Demographics of Key Buyer Groups
2. Geo-Area Micro-Trends
3. Competitor Presence Within A Geo-Location
4. Maxed -or Unmaxed-Out Store Sales Revenue
5. Overall Buyer Geo-Subpopulation Growth
Buyer Trends
The other side of the retailing coin for Walgreens which needs to be developed is its merchandising. Walgreens has commented on how well its private label items are selling. They believe that this success relative to brand name items is due to the lower price points. In fact, according to the Wall Street Journal, other drugstore chains have reported a similar trend. As a result of consumer buying trends around staple goods, Walgreens is focusing on stocking groceries and paper goods.
Ultra-Value Private Label Line – With Branding!
Walgreens can further exploit this trend by developing an ultra-value line of private label products. This line can strip out all non-value-added features, and focus on obtaining a “rock bottom” price point. They should center this line around the staples which are selling well for them during this recession: groceries and paper goods. They can take it a step further by wrapping this line around a store-within-a store concept. They can call it something like “The Save Green Value” section. In essence, Walgreens could achieve a major coup by branding low price items – which is counter-intuitive, and that’s why this is an extremely potent idea and opportunity.
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