A Wicked business model

Driving mundane hirecars around the South-Western US over the past month, sharing the roads with behemoth Winnebagos, and staying in equally uninspired motels all reminded me of an enterprise and business model I’ve been meaning to write up on this Blog for a good six months at least.

Strategy is the search for competitive advantage – offering a product that attracts and retains customers in a cost-effective fashion. The folks at Wicked Campers appear to do a great job on all fronts.

For those unfamiliar with this product, just head anywhere touristy and remote in Australia/New Zealand (and increasingly beyond) and you will find them. This mob hire out (and also sell) very basic campervans to the backpacker crowd. The campervans are converted work vans that have been fitted with a very efficiently laid out set of beds, seating, cooker, sink etc. The most noticeable aspect of them is the spraypainted (graffiti-style) exterior and a (typically tasteless) individualised joke/catchphrase on the rear.

We drove one around far-north Queensland last year and it was great fun and extremely practical.

So let’s look at the business model:

Target market: young travellers who aren’t overly endowed with money, are looking to sleep cheaply and explore a country with few constraints. They also like something different to include in their happy snaps and some form of differentiation from the retirees and families they’re sharing the roads and campgrounds with.

Competitors: fairly staid caravan and car-hire forms on one side. Sole operators with no reputation or service/dropoff network on the other.

Substitutes: public transport (land, sea and air), tour groups, and unreliable and transaction-cost-heavy used-vehicle markets.

Value chain: a steady supply of used vans that can be converted at pretty low cost (it’s basically a bit of carpentry, plumbing and supplies from a $2 shop). Standardised repair and maintenance (their pretty much all the same sort of vans). Online booking. Sheds and carparks as distribution points (with most customers prepared to go to dodgy neighbourhoods for the bargain).

Marketing: cheeky as all hell (see this discussion for the mixed opinions of their ad campaigns), with the vans as billboards, and loads of word of mouth.

Synergies: I can’t help but think a big chunk of this was accidentally strategic. Why are the van’s spraypainted with individual designs? Because the old work vans had decals and details from previous uses and the artwork is cheaper (and more distinctive) than a more professional respray.

Market positioning: definitely low cost, and perhaps focussed low cost (they aren’t targetting the broadest possible market). But they’ve managed to build in sufficient differentiation to make sheer imitation a little more difficult (and also opening up new entrants to “copy cat” derision).

Blue ocean-ness: they have stretched the market such that new consumers (backpackers) are considering the previously slightly geriatric and daggy campervan option, and also pared back the bells and whistles that incumbents competed around (comfort/reliability/newness).

Expansion: what brought this back to my attention was firstly lamenting our lack of Wicked Van in the US, and then hours later, spotting one of them. The firm has expanded from its roots in Australia to tackle other backpacker havens. The ordering seems comparable to another Aussie backpacker-related internationaliser, Flight Centre, in that they started with the most similar countries (NZ, Canada, South Africa), and are then broader options (US and Europe (with Italy first I think). Excitingly, the firm could well be considered global now, with Bangkok and Chile about to open.

All in all, this is a viable and well-structured approach. It’ll be intriguing to see if the international expansion can work. Will the humour (if you can call it that) translate?

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Is advertising enough?

The power of marketing is a hotly debated topic among strategic management scholars (and, of course, out there in the real world). It remains highly contentious whether efforts to persuade consumers of the newness and uniqueness of your offerings can overpower the reality of the underlying offering.

An interesting case in point is the current US campaign by Nissan for their Cube vehicle. As the New York Times article explores, the firm is going out on a limb and trying to present the car as a “mobile device”. They have built a campaign around a range of familiar jargon from the online world – “search engine, storage capacity” etc – in the hope that this will appeal to a different audience and differentiate this product in what might well be the harshest buying climate for cars in a century.

Here’s some of the promo material.

It strikes me that in the end this is just a slightly quirky and boxy car with no particularly innovative features. Surely consumers want more than an oh-so-cool tagline?

Justifying your jeans

I am not an expert in the area of consumer behaviour, but occasionally I stumble across a paper with currency.  

A recent paper Harvard Business School addressed quite directly a question I asked back in October: how do consumers reconcile information about the likely poor working conditions under which their jeans are produced?

The paper, snappily titled “Sweatshop Labor is Wrong Unless the Jeans are Cute: Motivated Moral Disengagement“, by Neeru Paharia and Rohit Deshpandé, argues quite convincingly that consumers shift their moral compasses considerably in the face of desire. 

Put simply, we are willing to shift our views on the merits (or acceptability) of sweatshops if we desire an item sufficiently. This shift may include citing economic (or other) justifications for such work.

The implications of such work vary depending on the audience I guess.  Campaigners against such working conditions need to make their arguments more sticky, while marketers of such products can perhaps maintain their strategies of pretending the issues isn’t there (or even offering more justifications for such labour usage).

It ain’t pretty, but it is the real world!!

Another entry barrier gone?

My post about the music business argued that technological change has reduced barriers to entry considerably. In that instance, it was a raft of new technologies that made making and distributing music so much easier. These changes rendered the previously important music labels somewhat redundant.

One further aspect of this was the scope for musicians to market themselves, as they could build their image and communicate their message through extremely low cost means (such as Myspace and Youtube).

Such gains can be seen beyond the music world. Firms can now also bypass the dominant mass-media (and its associated businesses such as ad agencies and media buyers), and attempt to communicate their message directly to consumers via the same sort of sites as the musos.

Here’s an example from web-rental business Rentoid (yes, the one run by my cousin):

It’s low budget but has a chance to go viral and build greater brand awareness than a boring print ad or a billboard (both of which would be much more expensive).

What do you think? Does it communicate an effective message?

And is this a viable strategy for many firms?

Disruptive technology amplified

I’ve posted on here before about the changing dynamics of the music industry. This interview with marketing guru and bigtime blogger Seth Godin highlights a raft of substantial and probably irreversible shifts that continue to bewilder the big record labels (See also his rearticulation of these ideas on his blog).

Godin has a neat take on the changes too:

This is the greatest moment in the history of music if your dream is to distribute as much music as possible to as many people as possible, or if your goal is to make it as easy as possible to become heard as a musician. There’s never been a time like this before. So if your focus is on music, it’s great. If your focus is on the industry part and the limos, the advances, the lawyers, polycarbonate and vinyl, it’s horrible.

Let’s put this into the language of strategic management ..

Disruptive technologies (internet, low-cost recording and dissemination of audio and increasingly video, filesharing) have diminished considerably (if not almost absolutely) the power of previously dominant players in the field. This includes not only the record labels but also radio, MTV and their cohort channels, bricks and mortar retailers, and producers of CD players and CDs.

Massive shifts in distribution channels away from many of the aforementioned mechanisms. Indeed we have seen almost a polarisation whereby there a few huge-scale outlets for buying digital recordings (i.e. iTunes, Amazon) and small ranges available in large scale retailers (WalMart, Target etc), and then an enormously lengthy tail for buying digital, CD or even vinyl, often directly from the artists, from indie labels or well-conceived aggregators (like CD Baby). And, of course, a huge proportion of the product is exchanged for free through filesharing.

These two phenomena have indeed changed the world of music as we know it. This is a fascinating case of disruptive technology, as it remains very unclear which businesses have gained from this huge shift in the nature of the value chain. You could argue that Apple has through its i-empire, but I’d hazard a guess that their revenue gain does not outweigh the losses of income to the record labels etc. Similarly, it does not look like the innovators (i.e. those responsible for MP3s, file-sharing protocols etc) have reaped much in return.

As Godin indicates, it would seem it is the musicians who hold much of the power now. The major barrier to entry of olden days – a major label recording deal – has fallen.

The marketing requirements have shifted considerably, with much less uniformity in the approach taken. Mainstream music has faded from our culture as smaller and smaller niches open up as viable and vibrant communities of interest.

It is unclear that major record labels have any competitive advantage at all in such domains. Indeed their credibility is highly questionable, and, with integrity and uniqueness so highly valued, their patronage may well be a burden for new acts. Indeed it appears possible to build a substantial following without a label or indeed much pay-to-listen product (as exemplified by the case of Aussie outfit Short Stack or US singer Corey Smith).

Musicians face considerable diversity of possible revenue streams, many of which are not subject to extreme bargaining power (merchandise, live performances, personal CD sales (i.e. at performances/appearances)), or offer considerable returns for limited effort (licensing of songs to video games, movies, advertisements). Increasingly there is little need to utilise the record label to tap these streams. I’ll finish with another quote from Godin which should remind artists where the gold may lie:

The idea that you could have a micro-market of 250, 500, 1,000 copies of a CD every night is a totally different way of thinking about what you do for a living, rather than making one album a year marketed with payola and promotion that reaches a certain group of people and ignores everybody else.