Redline the Strategy

Volume 15 Letter 7

As marketing strategists we’re often looking for major breakthrough ideas that will revolutionize the market but the reality is value can be created in many ways. Often there is high value in looking at the industry differently and discovering new ways to deliver value. The advantage of having a strategic planning process is it can lead you to uncover potential new opportunities. The strategic element comes in setting an overall goal and then inventing ways to reach it. This forces your team to think of winning the market not just winning battles with other competitors. It also means you must know your strengths and weaknesses and those of your competitors so you can calibrate your strikes and not bite off more than you can chew. The more detailed your plan the more confident you’ll be when it comes to execution and the easier it will be to stay the course when the inevitable bumps show up in the road. Take the case of Redbox – the video rental company that developed out of a venture started by McDonalds.

McDonalds set a goal of developing more non-food products to drive additional traffic to its restaurants. From this challenge one idea that surfaced was DVD rentals. The idea evolved to renting the DVD’s from a vending machines located outside McDonald’s restaurants. There was no membership required and the DVD rentals were priced at $1.00 per title – far below the $5.00 – $7.00 rate at outlets like Blockbuster.

How could Redbox possibly make any money at $1.00 per DVD rental when other competitors were struggling at making money at $5.00 per title? The answer for Redbox was easy – because the DVD’s were dispensed from a Kiosk there were no staff salaries to support and almost no location rental fees as the DVDs sat in a red vending machine outside McDonalds restaurants. Also at $1.00 per rental Redbox appealed to the cost conscious customers that frequented their restaurants.

So how does this work?

  1. It always starts with a challenge. For McDonalds they challenged their marketing / strategy team to develop new ways to drive traffic that wasn’t a food item.
  2. Next do the market research – (most don’t!) It’s imperative to understand your internal strengths and weaknesses and the external opportunities and threats. McDonalds had a huge installed base of store locations and a high volume of potential customers for DVD’s walking into their restaurants each day. They also had a monster competitor in Blockbuster video.
  3. Develop your strategy: What customer segments will you attract? What products / services will you offer? What price will you charge? How will you promote the new product or service? For Redbox their target was the same customer segments that visited their restaurants and thus the titles had to match their needs. At $1.00 a DVD the price point would also attract the same value conscious customers that frequent McDonalds outlets.
  4. Attack the market: In the execution phase you must attack the market with boldness putting your competitors on their heels. Getting your competitor to react to your strategy is a good sign you’re doing a good job. McDonalds initially did a small test market and then rolled out the DVD kiosks aggressively causing Blockbuster endless headaches.

Comb through the value chain of your industry hunting for bottlenecks – areas where you can eliminate cost, reduce risk or deliver a better product experience. Develop a strategy and execute it aggressively! Vending machines weren’t new – renting videos from them was. By the end of 2007 Redbox was the fifth largest movie rental company and by 2013 it was estimated that nearly 70% of the USA population lived within a five minute drive of a Redbox kiosk.

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