It
is important to avoid the trap of defining
what kind of company you are, without reference
to what kind of company the marketplace wants
you to be.
In
1995, Nordic Track was a $500 million fitness
equipment company that made cross country
ski machines. Their image was at the top of
the reputation charts. When you said “Nordic
Track” in focus groups, the focus groups
said, “Quality.”
Eventually, however, most people who wanted
one of their ski machines had one, and their
revenue started to stall and decline. Nordic
had two options: 1) Do whatever was necessary
to remain a big, prestigious $500 million
company, or 2) Leverage their brand reputation
in the quality end of other exercise equipment
categories, which would mean becoming a smaller,
less prestigious, but more profitable company.
They
chose the $500 million route.
To
get there, they had to enter the lower
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ends
of categories where price competition was
more prevalent. To meet the lower price points,
they had to cut quality. Suddenly, a high
percentage of theirproducts that went out
the door came back from disgruntled purchasers.
After a few years, when you said “Nordic
Track” in focus groups, the focus groups
said, “Junk.”
In 1997, Nordic Track closed its doors. (There
was no bailout money back then).
The moral of the story goes without saying.
Don’t define your business in a way
that fits a preconceived self image that might
make you feel good for now. Define your business
in a way that represents value to the marketplace
available nowhere else. The profits you enjoy
can be plowed into expanding that quality
image in flanker categories, or into starting
whole new companies in categories where a
reverence for quality leverages higher pricing,
margins, and profit.
Who’s your Daddy? The marketplace.
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