Dancing with a gorilla

Several years ago, I was asked to give a presentation at the Michigan Grower Expo to provide greenhouse growers with some strategies for working in a business environment with Wal-Mart. The basis for my talk was a book by Don Taylor and Jeanne Smalling Archer called “Up Against the Wal-Marts: How Your Business Can Prosper in the Shadow of the Retail Giants.”

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The 500-pound gorilla, which Wal-Mart is often referred to as, is still around. Is being a low-cost leader a sustainable business strategy? For Wal-Mart, the answer is probably yes. Bankruptcy isn’t in its near future, although the company has helped more than one business take that route.

Advantages, be it technological or sheer size, will enable some businesses to effectively be the low-cost leader. But what should be your strategy with these companies? And what businesses in our industry who partner with them?

Supplying box stores

For wholesale producers who work with some of the box stores, pay-by-scan has certainly changed the tempo of the dance music. Some growers decided that pay-by-scan wasn’t for them. They knew that sales and profits can’t come without good merchandising, starting with a quality product and efficient turnover. Many growers asked why should they take the risk of growing a quality product and not get paid?

Weather and sales staff still play a major role, but now more of the staff or merchandisers, as some are called, are on the growers’ payroll. This is a difficult choice for wholesale growers to make -- dance to the new tune or leave the gorilla for someone else to dance with.

Some creative wholesale growers are working together to merchandise product or are finding people who can effectively merchandise product during the short eight- to 12-week spring season. Some growers recruit merchandisers, including recently retired customers or stay-at-home moms with school-age children (because school is in session when bedding plants are primarily marketed). These people need to be trained, but their interest in the product offers an advantage over a big-box’s hourly employees because most customers care about good-looking product. If growers choose to go with merchandisers, it is critical to track all costs to determine if the merchandising and training still make working with box stores profitable.

Competing with box stores

For retail greenhouses, there are three alternatives for dealing with local box stores:

1. Engage in a price war.

2. Differentiate your products.

3. Become a low-cost leader and take on the gorilla head-to-head.

Nirmalya Kumar’s article “Strategies to Fight Low-cost Rivals” in December 2006 Harvard Business Review outlined these three strategies.

If a box store locates in your market, ask yourself: Is the box store taking customers away? It may actually be introducing new customers to your products.

Most good sit-down restaurants don’t panic and cut prices when a McDonald’s opens nearby. The restaurant owners know their clientele is different.

You should be tracking customer count and average sale per customer. I would also strongly recommend adding their ZIP codes to that list. This will enable you to look back after changes occur to determine their impact, at least partly.

To this question list add, “How likely are your customers to recommend your business to a friend?” That is a powerful measure of customer satisfaction.

Weekly or, at a minimum, monthly measurements can provide a good indication of the direction of customer changes and help answer questions concerning customer attrition.

If the boxes are not taking customers away, don’t jump into a price war. Most retailers know they have to offer value with their products to charge higher prices. If your customers can’t identify reasons to buy your products (and not the boxes), you have some challenges in product differentiation.

Add value to your products

The easiest way to add value to your products is to increase their size or add some bells and whistles through customization.

Some plant retailers have had great success inviting customers in to create their own large mixed containers early in spring. Customers may “visit” their creations and buy some additional products during the visit. Seminars, pamphlets and consulting services are other ways retailers can make their products different, more valuable and -- from the consumer’s perspective -- worth a higher price.

Signpost products

If you are a retail grower or plant retailer looking to jump into a price war with the boxes, you should lower prices by starting with some key signpost items. Signpost items are products that customers have past experience with, are highly recognizable and are probably those items customers ask prices on. Four-inch geraniums, 10- inch hanging baskets and flats of petunias are common signpost items.

This spring, you may want to keep track of the products which customers call and request prices on. It will give you a good idea of the signpost items you sell. If you do lower the price of signpost items, don’t jump the gun and lower a lot of other prices. Customers will make inferences about other product prices by your signpost items. If they are competitively priced, customers should perceive that other products are a value, too.

If you have sufficient numbers of customers who are still willing to patronize your business, either because they realize the value you add to the products or they perceive they’re getting a good deal in the signpost items, consider holding the prices of other products stable. This strategy should help preserve your margins of profitability for the short and intermediate terms. The key to the long term is continued provision of value in all the products and services you offer.

Transforming your company

Should you decide to go head-to-head with the boxes and become the low-cost leader, you will need to transform your company in more ways than simply pricing. The supermarket Aldi is one of the best modern-day examples of how a low-cost leader can work in a mature industry. The no-frills shopping experience Aldi offers consumers doesn’t include bags or nice displays. The company also offers a very limited number of products, nearly one-fourth that of traditional supermarkets. The company’s stores appear where real estate rental is relatively low, and it uses a small footprint store. Aldi has good control of many costs and has been quite effective in using this strategy in Europe and the United States. If you haven’t been in an Aldi, add that to your list of visits this spring.

As you get ready for the spring rush and are looking down the street at the local box store, consider your alternatives and give some thought to each. The gorilla may be in the same room, but you don’t have to dance with it or even dance to the same tune.

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- Bridget K. Behe