Competitive Strategies for Smaller Companies
by Nancy Rathbun Scott
Many small- to medium-size companies are facing fierce competition from "big box" stores like Home Depot and Best Buy. With the big boxers now splitting a sizeable part of market share in many industries, most are looking for expansion possibilities into ancillary endeavors (Home Depot, for example, is eying home decorating).
But Greg Hauca, vice president of marketing and information services at 2.5 billion-dollar Distribution America, sees a change in consumer buying habits that holds key competitive strategies for smaller, independent competitors. A sizeable share of business still rests in the hands of independent stores, says Hauca. Moreover, a good portion of big-box shoppers are "detachable," meaning that they would like a shopping alternative to the big-box store, if they felt they had one. Why? "They want more information, better activities, more services."
Key Competitive Strategies Are Evolving
During the 1970s, promotions created business opportunities. In the 1980s, low price led the growth strategies. In the 1990s-and the trend is likely to continue-customer retention is the key business strategy-and that, says Hauca, means moving from a seller's viewpoint to a marketer's. What's the difference?
· Selling focuses on products inventoried today. Marketing asks 'What are the customers buying?'
· Selling focuses on attracting business. Marketing focuses on retaining business and boosting the dollars-sold-per-transaction.
· Selling focuses on moving products. Marketing solves problems and adds value.
· Selling is an event. Marketing is a process.
Competitive Opportunities for Independents
Hauca sees seven areas of opportunity for smaller, independent businesses.
1. Transaction size and Profitability. To increase the size of each sale, and thus profitability, Hauca suggests revising the common wisdom about performance management. "Don't manage by overall margin; manage by gross profit dollars."
To do this, a store needs to examine strengths and weaknesses, improve assortment planning, refine space allocation/productivity, fine tune pricing, focus on the product offering, and improve service. "Some customers will come to us to get information and then buy from the Big Box. This is the detachable group that really would prefer an alternative."
One useful pricing strategy is to price head-on competing products one penny higher than the Big Box ("It doesn't make sense to try and price lower."), while pricing products not sold at the Big Box with a wide margin.
2. Merchandising. Assortment management is critical in a competitive environment, says Hauca, who points to Sears as an example. "Sears out-spaces Home Depot in both tools and paint sundries. That's their market."
To make sure your store is devoting the right space to key product categories, do research. Compare average square footage devoted in your marketplace to given product categories. Make sure your store devotes between 60 and 130 percent of that space to those given products. "There's a strong correlation of profitably in these margins. This is the space you need to devote so the consumer sees you as competitive."
Also pay attention to product adjacency, considering, for example, improving transaction size by displaying trade-up products at the eye-to-belt level. Try cross-merchandising. Use foot strips as a promotional tool and for related item selling.
3. Pricing Strategies. Price to the marketplace, says Hauca, rather than with an outdated high-low strategy. "You must close the gap between the market leaders and yourself."
4. Target Marketing. "Mass circulars are giving way to specific retail goals. Moreover, mass circulars may attract the price-driven segment, which you may not really want in your store."
5. Management Information Systems. "Automation systems like electronic ordering and bin pricing will give you the ability to cut operation costs 8 to 10 points. At the same time, it will enable you to bring external information into the store for better management."
6. Strategic Business Planning. "It's important to develop not only a business plan, but a business continuity plan."
7. Employee Retention. "You have an opportunity in the expanding role of employee retention and competency. The falling unemployment rate means we'll need to retain, educate and motivate employees through comprehensive training programs and by developing a winning strategy in the marketplace that will attract and keep good employees."
8. Target Market. Focus your attention and your environment on the time constrained, service, and value focused customers segments, in particular the female shoppers. This is over 50% of the market.
Nancy Rathbun Scott is a business writer living in the Washington, D.C. area. She can be reached at Visit for more information.

@2004 Nancy Scott