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Let’s Waste Money

Underlying most assumptions in competitive theory is the tie that cost and value correlate, that the most something costs the more valuable it is.

Under this logic businesses often spend a lot to deliver a little and consumers regularly overpay.

I work a lot with Blue Ocean Strategy. Let’s explore this from an example in the book. Cirque du Soleil eliminated animals from their circuses. Why? If we answer that question honestly it was probably that they were flat broke and couldn’t afford animals. In the early days the original troupe was living hand-to-mouth and often struggled to put food into their own mouths, much less that of an elephant.

Maybe out of kindness but, judging by the French circus acts they were copying that still use animals, Cirque du Soleil eliminated animals from their shows to save money. This lack of animals forced the troupe to focus their energy into taking the place of animals.

Let’s get real about why people like tigers in circus shows: half the fun of a traditional tiger show is to see if the bejeweled handler turns into a meal. It’s a modern version of the Roman Colosseum. To recreate this feeling of adventure Cirque du Soleil had people perform risky acrobatics rather than, say, bunker down with a half dozen hungry great cats.

Animal rights lovers were ecstatic, but no doubt so were the troupe’s accountants. Eliminating animals saved money – a lot of money – and substituting risky acts for animal acts wasn’t substantially more expensive than hiring ordinary circus performers. While they’re saving money they’re not making the show less risky: a 2012 Vanity Fair article reports there were 53 performers injured, causing 918 missed work days. Vanity Fair: Life & Death at Cirque du Soleil. In any event, it is still cheaper to pay workers compensation claims than to haul around elephants and, because the Cirque shows were so different, they tended to remain in one place rather than tour like most circuses.

We see this pattern repeatedly. Apple rarely has the newest technology and nobody cares. Nintendo’s Wii was well behind the technology of the then state-of-the-art PS3 and XBox 360 but Nintendo outsold the others for years.

Many companies are unwilling to substantively eliminate and reduce key factors of competition when creating a new strategy. Marketers are certain those factors will pull in one niche or another. But, in their zeal to appeal to customers, they do not consider the costs, either in raw capital outlay, lost focus, or confusion on the part of noncustomers.

When creating a new strategy consider first focusing on what factors you will eliminate or reduce. Don’t hedge the factors in nonsense: “reducing” customer frustration by adding a feature is not reducing anything at all: it is raising customer support, for existing customers. Make bold moves. Or do like GM in the 1970’s and stand still; watch your customer base erode, your share price stagnate, and finding that the only talent attracted to your company are bankruptcy lawyers.

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