Friday, September 10, 2010

Don't Lose Focus

As someone living in China, I am in the middle of a market that many American companies see as a strategic pillar of growth. With CitiGroup announcing that they will hire 7500 new employees in the region, no doubt there is plenty of capital being invested here. At the same time, economists cannot agree on the state of the US economy: is the US headed for a double dip, are we growing again, or will we face Japan 2.0 with stagnation for the next 10 years. So it is natural for companies to create a growth strategy related to Asia. Regardless, I see companies ignoring underserved markets in their own backyards. As companies enter into their annual capital budgeting processes, the savvy finance executive will utilize their strategy dollars to move into existing markets in new ways.


To this point, I recently received an email describing a service from Wal-Mart (http://www.netbanker.com/2010/09/wal-mart_sells_paper-check_fraud_protection_for_195_per_box.html). For certain, selling checks and fraud protection is not a core competency of Wal-Mart. In fact, I didn’t even know this was a service that Wal-Mart offered at all. However, that hasn’t stopped them from applying their business values (e.g. Every Day Low Price) to new areas. As an example of how a company like Wal-Mart could further exploit other markets, let us consider the utility markets.


Wal-Mart could sell gas/electricity/water in deregulated markets, using buying power to provide lowest cost per therm/khw/gallon/etc. Electricity is probably the easiest since it is highly transportable followed by gas followed by water. Wal-Mart already knows the grocery space, hard and soft-goods retail space, and recently the fuel space. So extending further into the consumer’s wallet would be a natural play and would be too far from their current corporate mission.


But suppose that Wal-Mart doesn’t see that bringing utilities into their portfolio aligns with their corporate mission. There are alternative strategies such as licensing the Wal-Mart name to product and services companies. Subject to the product/service company meeting standards, Wal-Mart gets a revenue stream and they don’t have to worry about inventory, fulfillment or shipping. Wal-Mart just provides the brand.


So returning to our earlier idea, Wal-Mart might marrying the two ideas: find a utility marketer who is a smaller player looking to grow; partner with them by licensing the Wal-Mart brand on top of their billing engine and customer care services, and license on a per therm/khw/gallon/etc. basis.
Consider why Wal-Mart would even want to push beyond being a retailer and develop other service lines: http://www.visualeconomics.com/how-the-average-us-consumer-spends-their-paycheck/
The % of utilities is the same share of the wallet as groceries. Other than housing, the #2 and #3 biggest expenses are utilities and groceries. Utilities spend is a large share of the wallet going to someone else.


For certain the Asia market and China in particular is booming. While China recently has taken the second spot in the largest global economy rankings, their GDP per capita trails significantly. This tells me there is still money being spent in developed economies and firms would be wise not to ignore opportunities there.

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