Posted by Greg Thomas, Pricing Research Director at Pricing Solutions.
I am currently reading the book “HARDBALL: are you playing to play or playing to win” by consulting heavy weights George Stalk and Rob Lachenauer. It is an interesting business strategy book with great case studies.
The authors outline why companies today and tomorrow must more zealously execute their business strategies by focusing on turning their competitive advantage into clear decisive advantages.
One of the strategies the authors discuss is referred to as unleashing massive and overwhelming force. “Sounds cool”, I thought. As I was reading through their detailed Frito-Lay case study (circa 1991), one phrase jumped off the page to me “…first he cut prices”.
What? Why? That is not a strategy. Any business can cut prices. Unleashing massive and overwhelming force sounded to me more like; start a price war and see who is left standing. My respect for the book and the authors began to diminish.
Once I calmed down and continued to read the case I realized cutting prices was only the first noticeable external action the new CEO Roger Enrico took. Preceding the across the brand massive price cut, Enrico spent a significant amount of time preparing the ground internally. The price cut was really one variable in the overall strategy to unleash Frito’s massive and overwhelming marketing force.
Enrico defined four “big things” that needed “big changes” prior to executing their field attack.
- Make quality a reality
- Take back the streets
- Find a better way
- Win together
Make quality a reality. Over the years, Frito’s quality improvements had leveled off and new competitors where beating them with tastier, superior and more innovative products. Enrico found significant improvements could be made in their processing plants with respect to quality control, product development and testing. This resulted in Frito delivering a better and more consistent taste experience for their consumers.
Take back the streets. Frito had a massive sales force that delivered directly to retailers. Again over the years Frito had diversified into other snacks such as cookies. This took the sales focus off their salty snacks where they were now feeling competitive pressure and margin erosion. Enrico reduced the number of non-salty snack SKUs by 30%. Now the sales force could focus entirely on the fast moving salty snacks ensuring less stock outs and more in-store servicing.
Find a better way. This is one of my favorite adjustments Enrico made as it addressed an over bloated management structure in the area of marketing, customer and consumer insight and pricing. To initiate change, he replaced the process of collecting 12 senior managers’ signatures on Frito’s 2227 product management process form. This process was a bureaucracy unto itself and was managed by several full time employees. Infinite meetings were a side effect of the process. It created a culture where ‘no’ was the least risky and least time consuming response. Enrico blew up the whole thing and established a new planning process that embraced innovation and creativity.
These internal moves were a significant overhaul of the company. But now Frito was in fighting shape. Frito was delivering better quality, servicing customers directly with a better focus and marketing was freed from a time-consuming and creativity killing bureaucratic environment.
The end result was Frito’s cost structure had been significantly reduced and it was in a position where it could close the pricing umbrella it had created for all its competitors to hide under. Altogether these internal changes and external actions stopped Frito’s market share decline and their brands began to grow in sales again.
A happy ending after all, for Frito and not their competitors, many small regional players went out of business. This was a “HARDBALL” move.