Steve Jobs – The Real Lesson of Managing Growth

Much has been written about Steve Jobs; certainly, the release of his biography will have people talking for a long time about the person. Readers will want to catch a glimpse into Jobs’ inner qualities, looking for those transferable and teachable lessons of how he successfully led the world into a more modern digital age.

One aspect of the Apple success story and Steve Jobs is rooted in the category life cycle approach to product management. It is a simple lesson that can be followed by any company competing in the growth phase of a category lifecycle. Steve Jobs happened to be a master at the simple approach.

The category life cycle is a Boston Consulting Group model that divides categories into stages (intro, growth, maturity, decline). The model gives guidance to how a business should build a participation strategy that can win in each stage. Apple competes in categories that are in the growth phase, of course, with the exception of its PC business which is in a mature phase.

Lessons of Winning in the Growth Phase

1. Continuous innovation to replace existing products. Competing in the growth phase of the category lifecycle demands distinct, ownable differentiation that makes its own or other products obsolete.

2. The leaders realize they do not continuously stay leaders. Competitors can be bigger and more innovative at times. Over time, leaders worry most about continued differentiation to gain share.

3. Price for long term profitability. Price to recover costs and make healthy profits  from the beginning. If the product does not warrant higher prices and strong margin, it does not get released.

4. Building a strong brand in the growth phase should focus on a single emotional tie to the consumer. Without emotional attachment, technology (or any type of physical differentiation) is quickly replaced.

Steve Jobs will be remembered as a founder of a great company, but his true business fame is illustrated on the accompanying chart. When Jobs reentered the Apple Company in 1997 after several years of “executive managers” at the helm, the stock was underperforming and the product pipeline was stuffed with weak offerings. Between 1997 and 2011, Apple’s stock rose 1400% and beat major stock indices.

Managing in the growth cycle isn’t easy.  It is a very tough game to play and win, long term. While the rules are simple and time tested, very few companies survive. Winning in the growth phase of the product life cycle is, in fact Steve Jobs’ greatest achievement.

Netflix - Managing in that Nasty Growth Cycle

Netflix pulled another surprise move on its loyal customer base.  After only recently hiking the price of its service by almost 60% (charging equally as much for having DVDs mailed to your home versus on-line streaming of video - when it used to be all one price), Netflix has announced that it is spinning off its DVD business.  The new company (really a division of the original) will be called Qwikster.  Netflix will retain the video streaming business while the DVD consumer will soon go to Qwikster for DVDs mailed to your home. 

There are more than a few people upset about all this.  It is reported that Netflix has lost close to 1 million users of its 22 million base.  The stock price has taken a massive hit and people are swearing to cancel their subscriptions.  The company CEO, Reed Hastings, apologized for his handling of the price increase and all the trouble he has caused by not communicating effectively and getting all his customers rather upset.  This apology, by the way is also where he announced the company split.  Netflix, of 3 months ago, seemed a way cooler entity with which to do business.  Everyone was just starting to fumble around to see if their TV had a computer hookup on the back of it, so we too, could enter the magical new world of streaming video in our home. The streaming picture is also really sharp in HD.

Growth Category Strategy

Lets take a strategic look at this move.   Netflix competes in a market that is defined as a Growth market in a classic category lifecycle model.  You remember the category lifecycle curve of Introductory, Growth, Maturity and Decline.   In a category that is in the growth section of the lifecycle, players can rely on three things to happen.  First, competitors are not only out to displace you, they are out to reinvent the category with new technology.   Second, market share leadership is a fleeting thing and you cannot get used to it even for a moment.  Lastly, if you stay still for more than a day, you are toast.  Think of brands like Tivo, Atari, and even Atkins diet. They are all gone because they did not evolve once they became market leaders and inevitably, competitors came in and made them irrelevant with newer and more exciting technology.  There are currently several viable video streaming alternatives waiting in the wings to sign you up for some type of streaming service.  For example, Google just bought Hulu – a company that streams video.  Netflix does not want to be seen as a DVD rental company; allowing competititors to position them as “old news”.

 

Strategically Sound Move

Strategically, the Netflix move makes sense.  There are over 100 million households in the USA, and the average home has more than 2 televisions, multiple computers, smart phones and soon tablets.  So while 22 million Netflix subscribers sounds like a lot, it isn’t anywhere near where the video streaming market will be soon.  Netflix doesn’t see itself as owning a market yet. In another year, Netflix will have moved to yet another technology wedded to the last handheld gadgets and new operating systems.

What about the Consumer?

So the question is how do you manage to reinvent your company with super speed without taking your loyal users on a roller coaster ride?  Netflix certainly didn’t get the communications right, and its consumers may penalize them more than just a little.  Netflix has cashed in a chip of consumer trust they may one day need.  While all this may be soon forgotten and dwarfed by the market potential they are positioning themselves to capture, they cashed in the “cool” chip and are now just another arrogant company out to make a buck.  Consumers don’t care about growth curves and strategy, they just want to be loved and delighted.  Does anyone know a good PR firm? 

Category Lifecycle – Finding The Right Brand Strategy

I am presenting at a marketing conference in San Francisco on Monday, September 12th and am really excited to speak on the topic of “Managing Brands Across the Category Lifecycle”.  My goal is to show that there are winning strategies in every part of the category life cycle (Intro, Growth, Maturity and Decline).  

One example of a brand that is managing well while it is in a category in the decline stage its life cycle is Kingsford Charcoal.  The charcoal briquette category has been declining for years as consumers turn to gas grills.  As is often the case in this stage of the lifecycle, there has been a shakeout of competitors and one branded player remains (usually along with a Private label counterpoint).  Kingsford is now the share leader. They can make unhindered strategic moves to keep the brand fresh and the category relevant for the retailer without the constant competitive pricing battles that occur in the maturity stage.  

Here’s an overview of what I think would be the Kingsford Charcoal marketing strategy. 

Consumer Insight  “I am proud to know authentic charcoal grilling, and I want to get together with my closest friends and cook up some fun.”

Theme - The only name in charcoal

Communication   - Kingsford will stay true to the lifestyle of heavy users and be authentic in all communication. Communication will be light on advertising, heavy on PR, blogging, events, music, contests, and tailgate sponsorships.  Very seasonally focused.

Innovation  - Stay close to the core with the best performance charcoal in the category  – close-in innovation only with wood flavors (Mesquite, Hickory, etc.). 

Product Range - Reduce, rationalize, and trade up to higher price points.  Look to license and find a new market to grow.  They probably should have launched a barbeque sauce under the Kingsford name, but parent, Clorox, has chosen to get behind the successful KC Masterpiece brand instead.

Pricing - Consistent increases to keep the charcoal category relevant to the retailer and growing.  Pricing is the single most important factor in leveraging share dominance - it funds all the marketing strategy activities.

There you have it -- a case study of leader in a declining category with the right strategy to win, grow, and maintain leadership share.  Happy tailgating!

HP – Saying No To An Unprofitable PC Business

Does anyone believe, like me, that the reason that HP is getting out of PC manufacturing is really that there is little profitable growth left in the industry?  And that this is really a good move?  Many of the blogs and comments I have read seem to display a sharp, emotional, mocking tone about HP’s decision. I think it is a good decision. 

Prices and profit margins, in the laptop market, are going down together.  Every consumer that wants a PC has one.  Growth will come from overseas markets at super low, stripped down prices.  Tablets will soon replace laptops.  While this is a growth market, Apple has locked in the high end market and 4- 5 players will compete for the remaining market, which will soon be based upon price.  For tablets, the whole game on increased household penetration breaks open when the tablet comes in under $300 or so (oh yeah, no profits again).  Consumer fascination for tablets is strong now, but in the near future, the hardware makers may not be the ones making the profits, while the software and cloud services will be profitable.   

PCs are a Mature Category

In most markets that are in a growth phase, competitors each try to establish their rightful market share through product differentiation and consumer awareness.  Some will win and some will lose based on their skills and proprietary technology.  Those fascinated with computers want to believe that the industry should act like a growth industry, but that is not the case.  In a mature market, a consolidation is the correct strategy; one or two players must emerge winners to regain profitability to the category.  If you don’t see that you will be number one and make profits, it is time to exit.  

Lets take a quick summary of Porter’s 5 Forces for the global laptop industry  Thanks to Aditya Shah, Abhinav Dalal’s report on the global state of the laptop industry (2009)

1. Competitive Rivalry From within the industry – very high as major players fight on price differentiation -- HP, Dell, Toshiba, Acer, Lenovo, Apple
2. Bargaining Power of suppliers – Technology (Intel and AMD processors) lack the consumer brand power in term of consumer excitement so not much power from them.  Windows operating system is ubiquitous (unless it is Apple) so Microsoft has lots of power.
3. Bargaining Power of Customers – High – in both businesses that buy PCs for employees and large retail formats.  Growth in this PC market will be overseas in less developed countries where price will be even more of an issues.
4. Threat of New Entrants – The barriers to entry in hardware are actually high due to high R&D investment needed to get enter the market, high costs, low prices and low margins.  It is difficult to gain a foothold if you are not yet in the business.
5. Threat of Substitutes – High – due to the move to cloud computing, tablets, mobile phones, etc.  The PC is will soon be giving way to these new formats.

I totally agree that HP has not been an innovator and that innovation could have been a game changer after it bought Compaq. Its company history is based on top scientific quality and high prices - think scientific calculators, and top-end personal printers that virtually are synonymous with their respective markets.  HP should have entered PCs and tablets at the top end of the quality/price game, but it made the mistake of having me-too technology.  My last post regarding the key to success in innovation, pointed out that innovation must be at least as profitable as the product it replaces.  This is a serious concern if HP were to invest in the needed innovation to win, only to find that the consumer buys on price alone.

Yes, it is easy to laugh at at the supposed blunder of HP’s decision and announcement to get out of this business, believing that they never should have bought Compaq (true), but now saying they are crazy to sell it off.   I think there is something more basic about this executive decision – there is no money left in this business.  Business is about making money, not wearing badges and looking good.  Sometimes the right decision isn’t welcomed by the pundits who don’t have to pay the shareholders.  It wasn’t smart for HP to go all in to get a me-too player in Compaq – but maybe it is very smart to get out.  Today’s decision is the smart one.

I’d love to know what you think.