HMV failed to re-invent the core
We're only in the 2nd week of 2013, and high street music store chain HMV has announced that it has gone bust. This follows hot on the heels of Jessops, a chain of photography stores, that closed down last week. A total of almost 6,000 employees risk losing their jobs.
What can we learn from this sorry start to the new year?
1. Re-inventing the core
The most successful companies have leadership in a core business they focus on. An ongoing stream of renovation keeps this core healthy. However, sometimes renovation is not enough, and the need is to re-invent the core. This is a topic I touch on in the Grow the Core book, that comes out on Feb 4th. This invloves bottling the magic of the brand and then delivering this via new business model. For example, IBM took their expertise in computing and IT, and transformed themselves into a consulting business, selling their PC business.
Companies like HMV and Jessops fail because they were to slow to re-invent the core in the face of disruptive change from shopping moving online. This was probably caused by "marketing intertia": carrying on with what you know works, and avoiding launching new services for the fear of "cannibalising" the existing business. This is well illustrated by some cartoon genius from Tom Fishburne below. However, if your core business really is undergoing disruptive change, "keeping the cannibals in the family" is a better approach, pro-actively launching a new version of the core before someone else does.
2. Think business model, not just marketing
The demise of HMV, along with other famous brands like Blockbuster and Kodak, was not caused by mediocre marketing. It was caused by more fundamental problems with the business model. As one analyst commented: "HMV's demise is a structural failure. In the digital era where 73.4% of music and film are downloaded or bought online, the business model has simply become increasingly irrelevant and unsustainable." The store chain tried to re-vamp the product offer, by selling iPods and other electronic devices in addition to DVDs and CDs. But this wasn't enough to save it owing to the growth of online shopping, and their lack of buying power to compete with Amazon.
Now if you're working in consumer goods, you might think that business model thinking is not for you. Wrong. All companies need to think about business models, not just the marketing side of things, such as communication, design and promotion. Take brand stretching for example. Lynx/Axe shavers had one of the brand's best ever marketing campaigns, but Unilever didn't have a viable business model to compete with Gillette. It had to out-source production to an Asian 3rd party, in addition to a lack of shelf presence in the shaving aisle.
3. Add value, not just cost
A common response to brand problems is to re-vamp the product or service, which adds cost. The problem in today's cash-strapped society is that in many cases consumers aren't prepared to pay more for these upgrades. In the case of Jessops, the camera shop tried to differentiate by offering advice and technical help. But consumers could take this advice, walk out the door and buy the camera somewhere cheaper, probably online.
The same goes in consumer goods. New features sometimes add cost, but not enough value to justify a higher price. The result is either a big hit in sales, or being forced to maintain price and suffer a lower profit margin.
In conclusion, HMV have shown the heavy price to pay for companies who fail to pro-actively renovate or even re-invent their core business.