Lessons To Share With Your Advertisers

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Nov 11, 2003 by Sean Luce

Over and over, Kmart made decisions that flew in the face of common retailing sense. In most cases, the company made the same mistake more than once [some mistakes are discussed in Part I in the 10/13/03 issue]. Instead of learning from its mistakes as most companies do, Kmart seemed to repeat its failed history, and it filed for bankruptcy in January 2002.We can all learn from some of these mistakes, and you can share them with your advertisers so they can also avoid the Kmart dilemma.

IGNORING RESEARCH: Many of the strategies and tactics that built Wal-Mart were accomplished, in large part, because of the research that Sam Walton conducted on Kmart when he was building his company.Walton continuously searched for ideas, and his competitors were targets for his research. At the time, Kmart store managers thought nothing of Walton's study of their stores and, as a result, many of its secrets were given away to Wal-Mart.

Sam Walton lived and died by the law of competitive intelligence (CI). Even today, Wal- Mart managers are expected to regularly shop local competitors and monitor prices to ensure that Wal-Mart remains the lowest-price retailer. Are your retailers this diehard in their search of competitive knowledge?

INCONSISTENCY: One of Kmart's biggest mistakes was that it was never able to stick with a business strategy more than a year or two. Upon the arrival of each CEO, Kmart routinely changed its marketing strategy. Kmart never seemed to recognize the value of consistency and the persistence that Wal-Mart has demonstrated. How many companies do you know that should have kept their brand identity, instead of changing it? Coca- Cola comes to mind with "It's the Real Thing."

NOT CARING FOR CURRENT CUSTOMERS: In most cases, there are three ways to grow a business: Garner and sell to new customers, sell a larger quantity to existing customers, and/or sell higher-value products and services to existing customers. Obviously, it's much easier and more economical to sell additional product to an existing client base than to try to attract and retain new customers. Robert Passikoff documented research that says it takes seven to 10 times more cost and effort to gain a new customer than it
does to keep an old one. Additionally, an increase in customer loyalty of just 5 percent can result in an increase in customer profitability as much as 95 percent. If only Kmart had understood these numbers, which were available to them. Kmart seemed fixated on customers it didn't have (or that it lost to Target and Wal-Mart) and the ones it hadn't won with its "BlueLight" program.

QUICK FIXES: Instead of working a thorough, long-term growth strategy based on a proven business model, Kmart management was pressured to show immediate sales improvements. Once it filed for bankruptcy, Kmart management was more focused on getting out of bankruptcy than on developing a long-term strategic plan.

IGNORING EMPLOYEES: Kmart has never done anything to root out its problem of poor customer service, which shows lack of employee involvement. Many retail experts have agreed that if Kmart had just taken 10 percent of its advertising or renovation budgets and used that money to train its employees in the art of customer service, Kmart might have eventually realized profits comparable to Wal-Mart.

Earlier this year, Kmart reported that sales at stores open at least a year had fallen 10 percent, which seems mostly due to the company's bankrupt status. But the good news was that the company had positive cash flow through April 2003.This up-tick bodes well for the Kmart of the future - if there will be one. Kmart must deal with low morale, build a long-term strategy, and deal with employee issues. For instance, rather than run weekly specials, which puts an enormous strain on employees, the company should run monthly specials as Wal-Mart does.

Even though the Kmart of yesterday should be buried, it doesn't mean that a new Kmart can't be created for the future. One thing Kmart does have is a loyal client base - but they will remain loyal only if Kmart decides to take care of them.

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