All Strategy is Local

I have been re-reading The Curse of the Mogul.  It is a “must read” for media professionals.  One of the footnotes references an article that I found really interesting; All Strategy is Local by Bruce Greenwald and Judd Kahn from HBR in September of 2005.

The premise of both the book and the article is the same; strategy = finding and maintaining competitive advantage and the lack of competitive advantage requires achieving superior efficiency to retain profitability.  The HBR article goes on to show how smaller, better defined markets are easier places to find competitive advantage.  A theme that I have seen over and over again in my career.

One of the first points that Greenwald makes is that barriers to entry are easier to maintain in tightly defined markets.  This was certainly true at NCI, where great performance both for NCI and for our advertisers was almost always a function of local market competition.  A great example is the magazine, “At Home in Arkansas”.  It is a terrific producer of leads and client satisfaction for our advertisers.  It gets great reader ratings as it truly speaks to the local market and local design vernacular.  It also generates outstanding profit.  Being a tightly defined market, there can not be outsized expectations for growth, but so long as the team keeps barriers to entry high by maintaining a high quality product with exceptional advertiser returns, it can sustain that profit for the foreseeable future.

Another example comes from the Apartment Finder brand.  The Apartment Finder print product exists in markets where there are anywhere from zero to three competitors.  Almost universally, fewer competitors leads to better results – again for both our advertisers as measured in cost per lead and for NCI as measured in profitability.  NCI recognized that raising price in lightly competed local markets would invite competition entry and ultimately destroy profitability for us and destroy efficiency for our customers.

The inverse can be found on the national real estate listing sites (Realtor.com, Zillow, Trulia, etc.).  As Zillow and Trulia have demonstrated, barriers to entry are relatively low.  They have both been able to gain share of visitors over a short period of time with relatively small investments (when compared to the inception to date investment from Move.com and its “high-ground” position being the only national site with all MLS data).  There is very little differentiation among the offerings, very little differentiation among the pricing strategies and every innovation is matched tit-for-tat.  In this space, I would expect efficiency to ultimately define the winner (a pseudo-regulatory advantage granted to Realtor.com did not create enough of an advantage for sustained profits).  In this case I would look at revenue and visitors per employee or per capital dollar as the key measure to identify the future profit winners.

The biggest question that remains to be battled in this space is the impact of the national web businesses on the local media markets.  I believe that the question boils down competitive advantage.  If the goal of marketing is to stand out in your well defined local market so that you can have more than your ratable share of the profits, can locally distributed, local media be more efficient in creating marketing differentiation in that well defined geography than a national media product?  It is the same question for local radio, newspapers, magazines, direct mail, local TV buys and billboards.  So, while record stores are mostly a memory (almost all music can be purchased digitally, what competitive advantage can a local retailer provide?), no one has replaced my local dry-cleaner, my local restaurant or my local doctor (yet).