Businesses often look to sports teams for management inspiration. Especially when underdogs punch above their weight.
In 2002 the Oakland A’s finished in first place in their division. They did so in spite of their $41M payroll, a fraction of the $100M plus spent by the New York Yankees and Boston Red Sox. The secret to their success? Rigorous statistical analysis that overturned a century of ‘prevailing wisdom’ regarding baseball success. For example, they determined that‘on base percentage’ is a much better predictor of run scoring than ‘batting average’. Accordingly, the A’s management changed the way they selected players, focusing on those undervalued by other clubs. These new strategies not only enabled the A’s to meet their players’ salary budget, but win against their ‘cashed up’ rivals in the process.
Similar inspiration is found with the makers of the hit series ‘Mad Men’, who shoot an episode in just seven days, within a $2.8M budget. “I think people having unlimited amounts of money makes you really lazy”, says Matthew Weiner, the creator/writer/producer of the series (the show’s period costumes, interiors and props, and obsession with detail belie its modest budgets). This stands in contrast to the budgets for production and promotion of new Hollywood movies, which have bloated since the 1970’s for no corresponding increase in success.
What does this have to do with mid sized companies down under?
It is possible to compete with established players, but one must do so carefully and in novel ways.
Redefine the market: Riverina producer Casella Wines created [yellowtail], a wine whose strategic profile differed radically from its competitors. Within two years after conception, it became the fastest growing brand in history in both the Australian market and in the United States (and did so in a global market characterized by a wine glut). It didn’t simply ‘steal’ sales from competitors-it grew the overall market. By analyzing the ‘drinks’ market (including beer and ‘ready to drink’ cocktails) Casella created three new differentiators in the US wine industry: ‘easy drinking’, ‘easy to select’ and ‘fun’ – and reduced or eliminated everything else.
The result was that [yellowtail] appealed to a cross section of alcoholic beverage consumers. Casella priced its offer above the budget market price point, more than 200% above that of jug wine. Sales exploded upon its release.
Eliminate/shed costs:
Casella simultaneously sought differentiation and low costs. It shed ‘above the line’ marketing, oak maturation and complex enological character and distinctions. In so doing, it avoided the traps which drove the cost profiles of its’ competitors.
‘Reduce marketing costs’: The US market consists of thousands of wineries, all competing on history, quality of the vineyards/estate and awards won in competitions. Tens of millions of dollars in brand advertising annually reinforce these attributes. Casella eschewed this approach, relying on word of mouth and its simplicity in labeling to drive sales. Even the cartons the wine was shipped in reflected the label design, allowing them to serve a dual purpose as an eye catching display. And the red and the white were the first to be sold in the same shaped bottle, further reducing costs whilst simultaneously enabling dramatic merchandising in-store.
‘Avoid enological terminology and distinctions’: By producing a simple, upfront, fruity wine, Casella obviated the need for both expensive oak barrels and the working capital for carrying greater inventory for aging purposes. It could also source fruit from a variety of locations/vineyards for blending, providing flexibility in future years when growing conditions may not favour output from a particular vineyard/site.
This example shows the opportunities for mid sized enterprises to take on established players by recasting the market, and focusing on new areas for differentiation whilst reducing or avoiding completely legacy costs.