Let Someone Else Pay the Freight

Some lucky companies have discovered ways to get other people to carry costs on their behalf. (See “Video #62: How to Improve a Cost Structure” on StrategyStreet.com.)

Twitter is a recent example. Twitter watches what its visitors do with its product and then has its engineers turn these ideas into new features. Twitter is about to release two new features, Lists and ReTweets, that began with users. With Lists, users can create lists of all the tweets written by celebrities or politicians. This innovation helps users save time in deciding whom to follow on Twitter. ReTweet allows a Twitter user to send a posting from another Twitter user to the user’s own set of followers. With these examples, Twitter has off-loaded some of the cost of R&D to its customers.

The shift of a company’s cost to others with no payment is not a new phenomenon. For example, as long ago as 1986, Walgreens decided to reduce its inventory levels by a third. It gave its suppliers the choice to participate in a just-in-time delivery program, or to stop supplying the company. Walgreens shifted the cost of inventory to its suppliers.

Customers can often do more than design new products. The Hilton Hotel chain installed computerized check-in kiosks in lobbies of its larger hotels in 2004. This allowed Hilton to reduce its check-in staffing. (See “Video #55: The Value of Customer Sensitive Cost Structures” on StrategyStreet.com.)

In the right situation, even the general public can help a company reduce its costs. One famous example is NetFlix. It offered a $1 million prize for new software that would predict more accurately whether a NetFlix customer would enjoy a movie based on the ratings of previous movies. A team of software developers won that prize in 2009.

We have found more than 50 examples of companies who shift costs to third parties for little or no payment. You can find them in the Improve/Costs section of StrategyStreet.

A Fast-Growing Market Under Attack from Below

There are a hundred thousand job sites in the U.S. and abroad. These sites charge employers to post jobs on their web sites in order to attract qualified employees. The big three in the market include Monster, CareerBuilder and Yahoo!HotJobs. With unemployment rising world-wide, these job sites are still growing. However, they are losing market share to emerging alternatives.

These alternatives are considerably less expensive than the big three. One of these alternatives, LinkedIn, has a professional orientation. This site offers a suite of services, called Talent Advantage, that has gained more than a thousand customers, double the number it had in 2008. This company is particularly good at finding, and offering up, what’s known as “passive” candidates. These are potential hires who are currently employed and not looking for a new job. The LinkedIn network has the capability of “pushing” candidates to employers who meet preset criteria. And LinkedIn is cheap in comparison with the big three.

Another inexpensive alternative is Twitter. Recruiters using Twitter can send messages to their followers who, in turn, copy the messages to blogs covering professional areas where potential candidates might be reading.

Monster, the largest and best known of the job sites, is responding by improving its services:

* It moved its call center from India to South Carolina
* It developed “contextual search” technology that improves the quality of the candidates developed on a search
* It reduced the number of steps required to upload a resume
* It created a feature that shows job-hunters how they can move from one field to another

We have studied several hundred low-end competitors (see Audio Tip #87: Potential Low-end Competitors in a Marketplace on StrategyStreet.com). There are four distinct types of low-end competitor. Most industries see at least one of these four types. To respond to them, an industry Standard Leader (see Audio Tip #81: Standard Leader Products and Companies on StrategyStreet.com) has the following choices:

* Ignore the low-end competitor, if it is unlikely to expand
* Block the competitor using one of the Standard Leader’s exploitable advantages
* Acquire the competitor, if it is available for a reasonable price
* Add a new price point to flank the low-end competitor
* Increase the company’s level of benefits at the Standard Leader price point
* Drop prices, where all else fails

In many cases, a good Standard Leader can respond to a low-end competitor in ways that maintain its growth and protect most, if not all, of its margins. (See Audio Tip #142: Defensive Pricing Guidelines on StrategyStreet.com.)