This week saw greeting card store Clinton Cards become the latest high-street retailer to go bust, putting 8,000 jobs at risk. This follows losses last year of £10.6m on sales of £364m.
What went wrong, and what can we learn?
The UK recession has not helped for sure, with less people out shopping, and so less traffic to stores. But I think the company's problems were much deeper rooted. Clinton suffered from what I call "marketing intertia": persisting with an out-moded business model, even when you see the market changing.
Marketing intertia happens when a business can see change happening, but they are fatally slow to respond. In Clinton's case change was hitting them from two directions.
First, like many retailers, Clinton has been losing business to the supermarkets sell the same product at a lower price.
Second, and more fundamentally, there has been a rapid growth in eCards, with Moonpig.com leading the way. These cards started out as animated cards sent by email. But increasingly these are cards you design online, to be then printed and posted. Why go to a shop to buy a card when you can design your own one from your PC? Or even from your smartphone, thanks to apps from the like of Apple.
Now, did this threat from online cards suddenly hit Clinton Cards like a mugger? Not really. Moonpig.com started back in 2001, eleven long years before Clinton went bust. And how long did it take Clinton to launch their own online service? Two years? Five years? Nope, it took till 2011, a decade after Moonpig.com's creation, for Clinton to offer the same service. And by then Moonpig.com had become the dominant leader brand in the online card business, with a reported 90% share.
Instead of investing a new, future-proofed business model Clinton bought rival high street chain Birthdays for a reported £46.4m in 2004, adding an extra 322 stores. At the time the company said the move: "represents a significant step in [our] strategy of increasing high street presence and delivering profitable growth". But in 2009 the Birthdays chain was put into administration, a sign of what was to come.
What causes marketing inertia?
The first cause of marketing inertia is the amount of money, expertise and energy tied up in the "legacy" business model. The first instinct is to defend and protect this existing business.
Secondly, companies can be arrogant about new start-ups, failing to treat them with the respect they deserve. Moonpig.com was unprofitable for several years, and even now its turnover of c.£35 million is only 10% that of Clinton Cards. The same thing happened with Blockbuster Video and Netflix, as I posted on here.
Third, change is slow to happen and for many years, the existing business model will continue to work. As recently as 2009, Clinton was still profitable.
How to avoid marketing inertia?
So, what can brand leaders do to avoid coming a cropper like Clinton?
1. Define the market in terms of consumer benefits (sending greetings), not products (greeting cards)
2. Review the competitors in this market space, and treat new start-ups with respect, especially when they have a new and disruptive business model.
3. Act quickly and boldly, with a couple of options:
- Create a "spin-in" business unit: a separate group within the company enter and grow the new market. I call this "keeping the cannibals in the family". The challenge here is that often company leaders favour the dominant current business and starve the new business of resources, like a father favouring his eldest child.
- Invest in the start-up: this borrow the options model from financial markets and involves investing in start-ups operating in the new market space early. Back in the early days, perhaps Clinton could have bought part of Moonpig.com. If the new market grows you are well placed for growth. If the new market stays small your loss is limited as you invested early.
In conclusion, leaders need to not only have a vision of how the market is moving. They need to the courage and conviction to turn their vision into action by competing in the new market space sooner rather than later.