Strategic Marketing – “The disruptors are eating your lunch”

TMF Tutor, Annie Dawson writes….

Disruption/change/strategic drift – are affecting many industries right now…and “casual” dining seems to encapsulate this…

The recent demise of Ed’s Easy Diner is a reminder that industries are not created equal. Some have inbuilt structural disadvantages that make them a more precarious vessel for investor capital.

The casual-dining industry may have many good things going for it – steady growth in disposable incomes and the rise of generations who can’t boil an egg – but it has more than its fair share of headwinds too. Barriers to entry aren’t high, which means others can incubate and launch more fashionable formats. It’s a nightmare to recruit and keep good staff, thanks to the long, unsocial hours (and Brexit is also going to have a huge impact). Customers, meanwhile, are both promiscuous and value-conscious – an unhealthy combination that sees a high proportion of spend linked to money-off vouchers.

Even the relatively successful Restaurant Group (Deep Pan Pizza/Garfunkels/Chiquito/Frankie & Benny’s) must have wished it traded in more benign waters when its attempt to improve margins led to wholesale customer defection. With its share price down 40% on the year, the owner of Chiquito and Frankie & Benny’s announced in August that falling sales would result in the closure of 33 of its 500 outlets.

The idea that structural influences make for an un-level commercial playing field across different industries was first advanced in 1979 by US academic Michael Porter. His now famous framework identified the “five forces” that govern profit potential: existing rivalry between companies within the industry; the threat of new entrants; the threat of substitution; the bargaining power of suppliers; and the bargaining power of buyers. The higher each one is, the less promising that industry’s financial prospects.

The framework might have predicted that casual dining – with its unfair share of rivalry, threats and consumer bargaining power – would be a bumpy ride. Porter identified airlines as a sector that traditionally struggled to repay the cost of capital – and the on/off bankruptcy of UK low-cost carrier Monarch this month suggests little has changed.

Although the framework was devised long before the digital revolution, it is still applicable, with one of those forces – “the threat of substitution” – being the driver of the accelerating crises in a host of previously sturdy industries. “Disruption” wasn’t such a fashionable word in Porter’s days, but that is what it amounts to now.

Which industries wouldn’t you rush to be in today, with that particular force in your face?

Hotels: bogged down by high sunk costs and strangled by regulatory demands that, unfairly, do not apply to its disruptor, Airbnb.

Newspapers: an endless task to persuade people to pay for high-quality journalism rather than expect it for free just because it shares a delivery channel with the mindless, unedited and uncorroborated thoughts/rants posted by 99.9% of the world’s 170 million bloggers (personal view!)

Retail banks: huge burden of regulatory practices, weighed down by old IT systems that came along with various mergers, now finding themselves bitten by tech-savvy players (crowd funding/peer-to-peer lending) who can focus on doing one thing well.

And restaurants such as Ed’s Easy Diner (now rescued by Giraffe): as if they didn’t have enough issues to wrestle with, along comes Deliveroo to make it easier for everyone to stay at home and not pay all that mark-up on drinks.

For marketers caught up in disrupted industries, it’s an experience (!). On the positive, there’s the CV written for you, living through something unusually challenging and coming out intact the other end with a story to tell; Negative (?) it’s turmoil on steroids and you could be affected…

Certainly, resourcefulness will be required of any marketer who finds themselves on the wrong end of all five of Porter’s forces. Communications can’t save you now – always assuming there’s a budget for it. This is where marketers need to reach with all their intelligence and imagination for the levers of pricing, channel strategy and, especially, innovation.

We all used to worry about competitors eating our lunch. These days, there are predators out there that can devour entire industries.

Professor Michael Porter

Porter, 69, is university professor at Harvard Business School. A lifetime of academic output, which includes 18 books and numerous articles, has earned him the distinction of being the most cited author in business and economics.

Already a rising star when his “five forces” framework was published as part of an article in Harvard Business Review in 1979, he went on to become a six-time winner of the McKinsey Award for the best HBR article of the year.

In recent years, Porter has devoted his energies to addressing the problems in healthcare provision in both advanced and developing nations.

 

 

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About the Author

Morag Foudy

Morag Foudy

Morag, who has worked for TMF in a number of roles since 2004, is our Head of Professional Courses. Her focus is on new product development, such as the course design for the new CIM qualifications, as well as communications for all our different audiences.

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