Saturday, May 06, 2006

If you're not selling to consumers, you're selling dog food. / By industry / Consumer industries - P&G upbeat over Wal-Mart strategy

Sorry but the FT only lets you read the first graph for free

The dog food business is a catch phrase for business that have revenue streams that are not connected to the value of their product to the consumer.

Some dog food businesses are very profitable, and have been very stable. But in an era of rapid change, they have a special problem. Like any well run business, dog food businesses (most of the B to B market) will be pushed to innovate primarily to better serve their customers. If their customers are not consumers, they are locked into the level of innovation demanded by their organizational customers.

The problem is that they are then dependent on sometimes a very slow moving intermediary. A good example in the automative space might be Delphi. Locked into GM, they are now being penalized for that symbiotic relationship. Perhaps they would have been better off if they were part of the Toyota value chain.

The printing industry has a similar problem. Some publishers get it, many don't. But if you're customer is a publisher, the only responsible thing to do is to produce what the publisher is asking for. The problem arises when the publishing business model changes.

Wal-Mart and P&G are more exposed to the consumer market than most businesses. They both are driven towards ever imporving efficiencies, by competing in an open, transparent marketplace.

In The GME, business models that make their money from consumers are most incented to sustainable innovation..

No comments: