Learn From The Past

Volume 3 Letter 2

Pity poor Home Depot. Recent articles have been written about the declining state of this market darling. The big box store with all the items you’ll ever need to build or renovate a house is suffering. It seems that a few years ago the company brought in a new CEO who promised to increase the stock price – trouble is he forgot that in order to do that one still needs to serve the customer.

In order to boost profits Home Depot decided to replace full time staff with part time staff and save buckets of money. Part timers are not only paid less but one can bring them in just when it gets busy. Additionally, there are big savings to not having to pay benefits like medical and additional holiday pay that part-timers don’t qualify for. Approximately 50% of Home Depot’s staff are part timers compared with less than 20% at their major competition. With dollar signs blurring their vision management stumbled headlong into a disaster.

One of the appealing things about going into Home Depot used to be the excellent assistance one received. For the North Americans reading this newsletter you’ll remember the advertisements in the 90’s of someone from the Home Depot telling you how they’ve worked in painting (carpets electrical etc.) for 30 years and they’ll help you do the job right – and they did!

Unfortunately the part timers they hired didn’t come with 30 years experience (or any at all for that matter) and are of little help when it comes to assisting one with a project. Home Depot is discovering, to their financial pain, that when it comes to “Do it Yourself” home projects, advice is an integral part of their product. Purchasing an electrical box for a few pennies cheaper is not going to drive too many decisions. Getting advice on how to hook it up without electrocuting oneself (as the MasterCard people would say) is priceless.

Equally disturbing is that the CEO of Home Depot could have saved himself much anguish (and his stockholders a lot of money) if he had only studied the past. Sears attempted the exact same strategy with exactly the same dismal results back in the 1980’s. Determined to boost earnings Sears fired many of their full time staff members. Sears also learned the hard way that when a customer is trying to make an informed decision, a sales person needs to have some in-depth knowledge about their product. (Reading the instructions attached to the product to the customer doesn’t count as in-depth knowledge). The reason most of us go to Sears, Home Depot etc. is to not only find a product but to find sales people who will help us make an informed choice – that is part of the product.

As business people we all must understand the whole product. One must understand the reason a customer purchases one product or service over another (it is rarely price). It is marketing’s job to go find the answer to this most important question and it is everyone’s job to assist them in doing this. Failure to understand “why a customer purchases one product over another” reduces management to guesswork and gut feel. Tougher yet is that these answers can be different for different customer segments.

For each segment your company serves ask:
1. What is the whole product? What are the product characteristics and set of circumstances that will get the customer to fulfill their reason to purchase?
2. What is preventing us from delivering the whole product today?
3. What steps can we take to close this gap?
4. Have we communicated this information to Sales, R&D, Production etc.?

As a manager, one needs to fully understand one’s market (segment by segment) and the real reason a product or service is purchased. Too often we tend to forget that the value of any product or service is what it does for the consumer. Given that most of Home Depot’s products are available in many different outlets, Home Depot should reconsider what constitutes value to their customers. In many cases it’s the advice that makes their products more valuable!

Look to the past for clues to discover why new innovative strategies worked or didn’t work & learn from the experiences of others. Remember if one wishes to be wise, one must learn from the mistakes of the past, not repeat them.

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