James Surowiecki (he of The Wisdom of Crowds) writes an interesting piece in the New Yorker looking at the good fortunes of Nintendo, even before the launch of Wii. He contrasts the robust profits of the market's no.3, with those of Sony and Microsoft. Where the big 2 are losing money hand over fist as they battle for share, Nintendo seems content with its position and is making it work for them.
Surowiecki draws some interesting conclusions from this. Once business theory said you had to be no.1 or possibly no.2 to succeed (as Alec Baldwin said in Glengarry Glen Ross: "first prize is a Cadillac Eldorado. Second prize is a set of steak knives. Third prize is you're fired"). Now everything has changed.
The growth of macro-markets, together with the simultaneous fragmentation of those markets into ever bigger niches, alongside the rise of e-commerce, has made 'small' (relatively speaking) an increasingly lucrative thing to be. Whilst maintaining reasonable volumes, you can now be more distinctive and more customer-focused, boosting loyalty and margins.
At the same time, the old school big boys remain (more often than not) fixated on size, slugging it out for share with increasingly unsustainable marketing investments and discounting, and increasingly indistinguishable products; products which, though theoretically great, aren't necessarily what people are looking. And that's because they (can) fall into the trap of just watching, and mirroring, each other rather than really giving people what they want. The result: profits head south.
So the moral is, don't fear small. Case in point: we're in discussions with a small but successful (on their terms) brand in a market with a dominant no.1. They lack the budgets to attract new people into the category. But that's not an issue as, to reach their targets, they need to capture less the 5% of the market leaders sales. Which definitely frees up your thinking to try something interesting and different, rather than play by the rules.
Everyone is happy, including the consumer, and we all have much more fun!
