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Business Services Industry

Most valuable players

Entrepreneur, June, 2003 by Joshua Kurlantzick

SLASHING PRICES TO KEEP UP WITH THE BIG CHAINS CAN SPELL DISASTER FOR THE AVERAGE ENTREPRENEUR. IT'S BETTER TO STICK WITH WHAT YOUR BUSINESS DOES BEST: OFFERING CUSTOMERS VALUE-ADDED SERVICES.

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John Reid should be worried. The owner of SPC Office Products, a chain of office supply stores, Reid has watched as self-service giants like Staples and Office Depot have come to dominate his industry. The closest self-service behemoth is only 45 miles from one of his SPC locations in western Oklahoma--a distance that, Reid says, "in our area is like nothing, since people drive that far for dinner." But Reid, 47, is not concerned. Over the past decade, SPC has expanded from one to six stores, kept sales up--revenues were $7.2 million last year--and expanded its roster of large clients. How has Reid competed against the two office behemoths, which have more than 2,000 stores combined and enormous catalog and Web-based supply systems? Reid has convinced residents of western Oklahoma that, even if Staples or Office Depot offer products for slightly less, SPC can provide crucial value-added services--services that, in Reid's view, "are just enough to convince people they should come to us rather than drive 45 mil es away."

SEARCHING FOR NEW VALUE

Reid's situation is hardly unique. Over the past 10 years, consumers have been presented with many new avenues for buying products and services. Industries from office supplies to health food to books have become dominated by huge chains--chains that can offer lower prices on high-value products in predictable retailing environments, and that can blanket areas with mass-market advertising. Target is a prime example: Once known as a low-end chain, Target now sells designer clothing on the cheap and has poached thousands of customers from small fashion shops. Meanwhile, the Internet has made it easier for consumers to seek high-value products online and comparison shop among many stores.

Entrepreneurs have scrambled to survive. The number of independent bookstores has fallen by nearly half over the past 10 years, says the American Booksellers Association, a trend repeated in many other industries. In western Oklahoma, Reid says, nearly every other local chain of office supply stores has gone out of business.

According to business and marketing strategist, Arnold Sanow, many entrepreneurs have tried to compete with the larger chains on price--almost surely a losing move. "Small businesses cannot win price wars since they do not have the bulk purchasing and margins," Sanow says. "They have to use a different tack."

THE REAL THING

Increasingly, this tack means not competing on price, but convincing customers that small businesses offer more value. To do so, successful entrepreneurs adopt several strategies. Like Reid, many emphasize value-added services. These services can cement customers' trust and foster the belief that entrepreneurial businesses provide more homespun authenticity. According to branding experts like Paco Underhill, author of the bestselling book Why We Buy: The Science of Shopping (Touchstone Books), authenticity is a value highly sought after these days--hence the popularity of Saranac, Sierra Nevada and other micro-brewed beers that project an image of locally made authenticity.

Services that make consumers think they're receiving more value can take on several forms. For many companies, service means regularly traveling around the country to meet with large customers and gauge their needs. Judy George, founder of Norwood, Massachusetts-based Domain Home Fashions, a small chain of home furnishing shops in the Northeast, says she spends as much time as possible on the road chatting with her clients. Candy Nichols, owner of a chain of children's clothing stores in New York City's suburbs, uses a similar tack: She sends personal shoppers to some customers' homes with racks of clothes so clients don't have to leave their houses to shop.

In other cases, value-added service simply means always having a knowledgeable employee available to handle customers' needs, something very few large corporations can do. (Large companies like Dell Computer and Southwest Airlines that do offer a high level of service and a human touch have prospered enormously.) For Reid, this level of service requires spending the money to have more employees on the floor than his giant competitors.

John Moretti, owner of Fountain of Youth, a health-food store in Westport, Connecticut, provides this level of service by personally greeting every customer who comes through his door and asking each one what he or she is looking for. "We actually have benefited from having [health-food chain] Wild Oats open near us," says Moretti, 54. "People see some things at Wild Oats, don't understand what they are and come into my store. I greet them, they get advice about these products they saw, and they wind up buying many things." (Moretti answered Entrepreneur's questions via cellphone, and he occasionally broke off the interview to welcome each customer who came in.)

Business Services Industry

Most valuable players

Entrepreneur, June, 2003 by Joshua Kurlantzick

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