To say 2011 was an interesting year for business would be an understatement. Unless you were unplugged from every source of news and information, it was impossible to have missed the unprecedented global changes that are impacting every industry and the worldwide markets. Specifically to the promotional products industry, we’ve been hit hard by raw material cost increases, changing demographics in China, public budget cuts for swag, and continuous building of pressure on our supply chains through supply and demand as well as evolving product safety and compliance regulations.
Our industry is going to be hard-pressed to continue to thrive during the next decade if we do not take a hard look at our business models and best practices. Perhaps these outside influences are telling us that it is time for some (or all) of us to evolve.
Thus, there has never been a better time to get serious about your strategic plan for success. Companies that can best identify where and how to compete and then quickly implement a strategy to address these opportunities will have the tools to thrive throughout the next five to 10 years. And differentiation is a key component. A strong, specific strategy for differentiation in our crowded marketplace may be what determines if your organization can weather the ongoing storm of forces bearing down on our industry. To see what I mean, check out the previous post “Are You Meaningfully Different.”
Why is your strategic strategy so critical this year? In addition to the unprecedented outside influences mentioned above, there are few industries that face more internal competitive forces than the promotional products industry—and all of these forces are getting stronger.
An article in the Harvard Business Review, “The Five Competitive Forces That Shape Strategy,” by Michael E. Porter illustrates this point. Porter’s excellent commentary addresses some of the critical underlying issues our industry faces, issues that place pressure on profitability and make developing a competitive advantage to combat these forces at a premium for long-term success.
Porter’s article identifies five competitive forces, to which I’ve added my comments on why they accurately describe our industry:
1. Threat of New Entrants
Unlike most markets, the promotional products industry has virtually no qualifications or barriers to entry on either the supplier or distributor side of the equation. This competitive force is unusually strong for us.
2. Rivalry Among Existing Competitors
With most companies offering much of the same thing and little, if any, differentiation, there is intense rivalry between both supplier and distributor competitors for the same market share. In spite of any industry reports that state otherwise, I find it hard to believe that our market is actually growing in this economy.
3. Threats of Substitute Products or Services
It seems as if there isn’t any industry supplier that doesn’t sell travel mugs, bags or writing instruments. The absence of core competencies within our industry and the myriad of advertising options outside of our industry render this force strong as well.
4. Bargaining Power of Buyers
With virtually the same product being available from thousands of suppliers or distributors, someone will ultimately drop their drawers in order to win the order. End-buyers know this and use it successfully to their advantage. This force is also unusually strong.
5. Bargaining Power of Suppliers
This is where the squeeze really hits our industry. In addition to raw material cost increases, the mounting product safety and compliance regulations mean there are fewer factories that can actually deliver the quality we require. If you do not have a strong core competency and long-term relationships with key factories, your buying power is less than that of your customers. This places your margins under constant pressure.
There are too many industry firms that are unable to compete on anything other than cost, and these companies put our entire industry at risk. Those that can identify core competencies, differentiate themselves and break out of the old industry mold are the companies that have the most potential to thrive.
Suppliers, I hope you have not only developed your core competency and competitive differentiation but also are including it on your 2012 strategic plan. Distributors, I hope your to-do list is topped with qualifying suppliers and developing product solutions that also protect your customers’ brand equity. It’s time to reward suppliers that can do this, and the best way to cast your vote is with purchase orders. Either way, best wishes for developing and executing your 2012 strategic plan and having continued success throughout the new year.
Brent Stone is executive director – operations for Quality Certification Alliance (QCA), the promotional products industry’s only independent, not-for-profit organization dedicated to helping companies provide safe products. A Six Sigma Black Belt, Stone has more than 25 years of in-depth supply chain management experience with extensive expertise in process design, development, improvement and management. He can be reached at [email protected] or visit www.qcalliance.org for more information.
