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?

Find New Channels of Potential Business – Blue Ocean Spaces
Small retailers are going to have to look for Blue Ocean Spaces, and find new channels of potential business. While these businesses are too small to own a marketspace, they can certainly carve out profitable niches. There are three areas which small retailers can focus on to develop new business: geographic, demographic, and usage (both occasion and type). They can carry merchandise and services centered around a locale – and have offerings which are highly relevant to a given community. This is a Blue Ocean which large national chains will find very difficult to follow because many are very centralized in structure. As a smaller craft in the Blue Ocean Seas, local businesses can more adeptly cater merchandising, marketing, and operations to uniquely fit communities, towns, cities, and regions.

Look Beyond Current Buyers Demographics
Small businesses can also look outside of the demographic profile of current buyers to target additional customer groups. This can be done effectively by evaluating alternative or complementary industry buyer groups. Small retailers can look for synergic “hooks” to fulfill the needs for either of these groups. A business mentioned in the WSJ article, Charles Mayer & Company, is an up-scale boutique seller of china, crystal, and decorative accessories in Indianapolis. An example of them targeting a complementary buyer group would be to develop an interior design service which shows home- and condo-owning customers the appropriate matches of various pieces to rooms and homes being re-modeled or built. This look across industries would also yield very synergistic opportunities to bundle with partner companies. To further extend our previous example, Charles Mayer & Company could join with an interior design firm outright to provide pieces for a price discount or items which are exclusive to the given designer.

Blue Ocean Spaces Through Alternative Usage For Product Or Services
The third way a small retailer can discover or create a Blue Ocean Space is through alternative usage for their goods or service offerings. This can take the form of different types of usage for their offerings, or different or varied occasion usages for their goods and services. Possible variations on usage fit well with the previously mentioned opportunities to bundle with other goods and services. Alternative uses for a small retailer’s goods or services can be uncovered by looking at a buyer’s experience with related products or services. These retailers should observe and evaluate these buyer’s experiences before, during, and after a given product or service is used. This will yield rich insight into how to extend, alter, or retract their offerings in terms of recommended uses for their given products and the services they offer around them. For example, small auto repair shops have observed the success of “oil change only” shops such as Jiffy Lube, and now include even more discounted oil change services of their own as a front-end bundled offering when repairing other parts of a customer’s car. In this case, the usage occasion was changed from a scheduled maintenance item to an upfront service and opportunistic sale for a small retailer.

Use A Functional Orientation Shift To Differentiate Your Product
A great way to differentiate a product when lowering costs is to use the Blue Ocean Strategy of more functional orientation in less important features of the product or brand. Do not reduce the features and benefits for which customers have strong emotional ties or reactions. This a slight variation of Mike Bolden’s “selective feature reduction” strategy in which less important items are chosen to take costs out along with the elimination of unimportant extras. Although the lower-priced item is differentiated, it’s still associated with the brand, so it is key to determine the right price point “prestige threshold” level. To gauge this point, observe and access:
1. Competitors in the same marketspace
2. Competitors above and below your product/brand’s marketspace
3. Range of spending for like items by your customer base

Downward Shift To A Different Marketspace
In lowering the price point for a luxury-goods item, it is critical for a manufacturer to avoid shifting its market position in the price-performance vertically “straight south” without differentiating the product, and moving laterally “left” or “right.” By shifting downward to the left by reducing or changing product features or to the right by adding or altering features, a goods-maker is entering a different marketspace, and the Blue Ocean strategy means the water’s fine!

Nordstrom’s: Subtract, Then Maintain and Add Features
Well – what can Nordstrom do to combat this flight and return to higher profitability? On the F3Q08 Earning Conference Call, Blake Nordstrom, President of Nordstrom, said, “Even affluent customers, typically more resistant to economic malaise, are shopping less and are making more deliberate purchases.” Macro factors are hurting Nordstrom’s core value proposition and business model. Nordstrom can directly combat the shift to buying based on value along with seeking lower price points on various purchases. They should implement the specialized Blue Ocean Strategy which was outlined in my previous two articles of “Blue Ocean Strategy in a Recession Series.” Examine what current Nordstrom shoppers perceive as less important in their shopping experience. Then, reduce or eliminate that factor. The object is to lower costs across a set of items with low utility features. To maintain or even raise perceived value to customers, Nordstrom must select elements of its high quality services practice which customers especially like or can’t do without and maintain the resource investment in them. They can even use the newly available resources from the “selective resource reduction” to add to valued features and benefits. This practice of subtraction, then addition, will encourage the perception of Nordstrom as a place with a value orientation, while maintaining the loyalty of its “regular” or core customers.

How To Differentiate
Now, here’s how to differentiate using Blue Ocean Strategy, while maintaining or minimizing costs. It’s all about the key benefits of your product and/or the key customer touch points for service-oriented businesses – these have the greatest effect on perceived satisfaction or quality. It is vital to understand the perception of key benefits of your product or service – and the features which relate directly to them. Look to maintain these features during any economic climate, especially a recession. But, use the strategies of cost reduction previously discussed, to drop costs for certain “over-supplied” features.

Combat Recession – Eliminate Low Utility Features
During this recession, an interesting but predictable shift in spending habits has occurred with U.S. consumers. They are rapidly trading down in the retail categorization, out of mid-range or up-scale stores or food providers. McDonald’s sales were up last quarter, as consumers are spending less at mid-range and premium restaurants. So, what can the mid-range and premium product and service providers do? Again, use the lower costs strategy. Offer products or services which eliminate – not just lower — cost, and eliminate low utility features and/or benefits. Look at dimensions which can be gotten rid of altogether. This will lead to developing lower cost products which focus on “low cost” or “value” consumers. This will expand the reach of your consumer base, and should offer increased sales and revenue.

Innovation With Lower Costs Products
This optimized “dipping” will lead to either new products or services, or line extensions – both options have solid benefits. The key for either new product development or line extensions is to retain the important features and benefits of the mid-range or premium product and brand. It allows your products and services to remain branded which is key because your products will likely be competing against private label goods. If your company can innovate a new product while maintaining key benefits with lowered costs – that is optimal. Avoid “me too” line extensions if you can, and extend products consistent with the brand but with some differentiable qualities. This will raise your product or service’s utility above private label products and other lower-cost brands.

Innovating With A Reduced Budget
An important aspect of this strategy is that it allows a business to innovate with a reduced budget and lower revenues. The key differentiating features of your product or service must be maintained – and even enhanced and further developed. The costs that are taken out of production, distribution, and/or customer provision and service delivery, balances the up-keep or selective addition of expenses in critical customer high-utility areas. Executives and managers – focus on the key elements of the customer experience for your product or service. This allows your product or service to stay true to the brand, and more importantly affirms customer expectations and perception. Remember, it comes down to this for your product or service’s feature dimensions: prioritize, select, and augment (by developing or enhancing).

Main Street, Wall Street: Both In Recession
It’s no secret to anyone on Main Street and especially on Wall Street that we are in a recession. Long-established financial institutions are failing and disappearing before our very eyes. For the people on the streets of America, the economic slow-down has featured massive job losses and falling home values. Given this double “whammy,” consumers have substantially cut spending since the government stimulus checks were issued in the Spring. Equally telling, manufacturer’s orders have dried up in the most recent months even with an export-favorable weak dollar. Most importantly, the incomes of the majority of Americans have flatlined and wealth has declined with home values and investments plummeting. This has affected every aspect of the economy and businesses in all major vertical sectors.

Select Product Features To Lower
Business people are asking, “What can my business do to weather this perfect storm?” You are probably wondering, “How can Blue Ocean Strategy help me in this environment?” Well, Blue Ocean Strategy still works in this environment, and can be optimized with some modification to its front-end diagnostics – let me show you! Let’s focus our initial attention on non-luxury goods and services sectors. This is where most of the economy lives for the majority of Americans most affected by the recession. For the Blue Ocean Value Canvas, we must look to focus the features and benefits on the dimensions which can be lowered or eliminated. In other words, look at where customer utility or industry norms are lower than your product or service’s offering along that dimension. Then, reduce or lower your offering along that feature. Your business needs to focus judiciously on eliminating features which offer relatively non-valued benefits to customers. Through this lowering and eliminating process, your business will reduce costs for you and, simultaneously, for your customers without substantially changing their perceived benefits and utility.

How To Become A Lower Costs Provider
This reduction in features which offer “minimize-able” perceived benefits is particularly critical to industrial products manufacturers and sellers along with any other commodity-like product or service providers. It’s all about utility optimization and costs minimization – and in a recession where price sensitivity is heightened, lowering costs is paramount. Essentially, the previously outlined practice focuses on taking costs out without reducing perceived or actual value. While this obviously is the essence of Blue Ocean Strategy in any economic climate, the focus on “lowering” dimensionality in a recession is critical – this can not be emphasized enough! Through this selective cost reduction and the “cherry-picking” of lowering features without impacting overall, aggregate benefit, an executive or manager can become a low-cost provider relative to their marketplace or industry.

This Specialized Blue Ocean Strategy’s Benefits
Through this strategy a company or organization can realize the following benefits:
1. Increase Volume and Market Share
2. Widen Margins
3. Maintain Margins in spite of High Raw Material and Transportation Expenses
4. Maintain Real and Perceived Overall Product Benefits

“Selective Feature Reduction”
During a recession or downturn in business, it is important for executives and managers to resist the temptation to shave costs on key utility benefit features. Don’t do it! Do not touch your key features connected to the benefits that customers value. Keep up these features and pay the expenses associated with them – they are critical to the brand, and are your source of revenue. These features differentiate your product, and they are why people buy what you offer. This specialized Blue Ocean Strategy of “selective feature reduction” takes costs out, while maintaining overall perceived utility. Our strategy of selective feature reduction actually increases the relative value of your product or service. You win by subtraction.