June 2003 

Think growth is impossible during the current market downturn? It’s not. But you’ll have to look beyond booth sales. A new business book, How to Grow When Markets Don’t, explores an innovative business model for growth in a no-growth environment. Here are strategies to grow your organization, drawn from case studies of companies outside our
industry posting double-digit growth despite the slow economy.

Has the trade show industry peaked? Is the decline perma- nent? Is it simply the current state of the global economy, or are we looking at a fundamental shift in our industry? How will we grow our business this year? Where will we be in five years?

Show organizers aren’t the only ones asking these questions. Organizations across all industries are facing these difficult challenges. By looking outside our industry at other companies that are finding solutions, we may be able to glean valuable insight into how we can position our shows and our organizations for long-term growth, despite economic slowdowns.

“Creating sustained growth is hard under the best of circumstances. From 1990 to 2000, just 7 percent of publicly trade companies in the United States enjoyed eight or more years of double-digit growth in revenues and operating profits,” according to How to Grow When Markets Don’t (Warner Business Books, 2003), written by Adrian Slywotzky and Richard Wise, with Karl Weber. “As the growth crisis worsens in the coming decade, you can expect this percentage to shrink significantly — unless companies rethink their approach to growth.”

For many highly successful companies, the traditional product-focused growth model has been simple: “Invent a great product. Launch it. Sell it like hell. Go international. Acquire and consolidate. Cut costs. Raise prices if you can. Repeat ad infinitum,” according to the authors. Sound familiar?

These strategies are still important. “But for most companies, these moves will merely replace revenues and profits lost to commoditization and increased competition. They won’t represent a platform for driving significant, sustained new growth.” Though ours is not a product-driven industry, the same principles apply to show business.

The good news? There’s a new business model emerging, and there are already a handful of companies having success with the strategy. “These companies are focused on creating new growth and new value by addressing the issues that surround the product rather than by improving the product itself. ‘Demand innovation’ is about creating new growth by expanding the market’s boundaries. It focuses on using one’s product position as a starting point from which to do new things for customers that solve their biggest problems and improve their overall performance.”

Can demand innovation work for exhibitions? A number of the strategies outlined in the book suggest this new business model offers tactics that shows can apply to rethink our approach to growth.

Leveraging your position
For Cardinal Health, a pharmaceutical distributor, demand is not a problem, profitability is. While sales of prescription drugs rose 10 to 15 percent a year in the ’90s, the average gross margin for distributors dropped from 10 percent 10 years ago to 4 percent today. But in the past five years, the company “has managed to uncover and capitalize on one new opportunity after another, turning its apparently tough market position into a remarkable platform for growth. Cardinal’s position as a leading pharmaceutical distributor has given it unique access to customers, the systems and the know-how to help them manage their problems.

“As a pharmaceutical middleman, Cardinal could see, touch, talk to and connect with every player in healthcare — hospitals, pharmacies, drug manufacturers, HMOs and others. It had the opportunity to study firsthand the pressure that each of these groups confronted daily. It knew how their economics were changing and how their priorities were shifting as a result. When the company surveyed the industry in the mid-’90s, it identified three major customer problems — and discovered opportunities for growth. The problems included controlling costs, talent shortages and antiquated information management.”

Given its expertise in handling, managing and tracking drugs at the wholesale level, Cardinal recognized that it was uniquely positioned to do the same for hospitals, addressing each of these major problems. “Cardinal could leverage its existing information systems and distribution management expertise to address these issues more cheaply and effectively than hospitals could on their own. In effect, Cardinal began pushing the boundary of its own operations into territory traditionally controlled by its customers.” The company began offering logistics management to hospital pharmacies and later offered complete pharmacy management services.

In addition, the company distributes medical-surgical supplies.

“If any business would seem vulnerable to death by commoditization, this is it. But Cardinal has made it into a fountain of value, profit and growth by leveraging its insights into healthcare’s costs and efficiency challenges. How can a company that sells plastic gloves help solve these problems? By providing procedure-based delivery systems — surgical supply kits customized for specific physicians and specific operations.” The company has increased its revenue by expanding its customer relationships both upstream and downstream.

Cardinal recognized that “while the product sale may be the culmination of the manufacturers’ efforts, it usually marks the beginning of the customer’s.” How does this apply to shows? Exhibitors have to build a booth, store it, ship it, promote it, staff it, manage it, maintain it and eventually dispose of it. Attendees register for the show, book their airline, find a hotel room, rent a car, plan their show schedule, gather product information, disseminate that information to their companies, turn in expense reports, etc. Where are the opportunities there?

In addition, Cardinal also recognized that its product “may serve more than one user, each with different needs and priorities.” Think about your exhibitor’s staff. They all have different agendas — sales, PR, new product introductions, branding, image, etc. “We call this broad web of activity the customer’s internal value chain. Embedded within it are all kinds of hassles and ineffiencies waiting to be improved, and it represents tremendous economic activity, often 10 to 20 times greater in total value than the product market itself. Understanding and participating in this customer value chain is the key to demand innovation.” Where else could we be working on an exhibitors’ value chain?

What pressures are your constituents facing? Survey each of your customer groups — buyers, sellers, consultants, media, suppliers, etc. — to find out their problems, and it may provide a wealth of ideas for other opportunities for you to facilitate face-to-face meetings. How can you help exhibitors improve their costs? How can you help attendees save time? What kind of attendee information or market intelligence can you provide to exhibitors? “Wherever there is touch, there is opportunity.”

Capitalizing on hidden assets
Fifteen years ago, the check printing business enjoyed high profit margins. Since then, bank consolidation, coupled with the decline in check writing due to online banking and increased use of pay-by-phone and debit cards, have shrunk the profits. In addition, cheaper printing methods have increased the number of competitors who sell cheaper checks directly to the consumer. By the mid-1990s, Clarke American, the third largest provider of checks to financial institutions, had a crisis on its hands. In response, the company decided to reorganize to better serve the two types of financial institution customers that had emerged — a few giant banks and thousands of credit unions or smaller banks.

“Clarke American initiated a strategic account program in 1994 that was built around four critical elements:
• Screen current and potential partners to select the best opportunities on which to concentrate.
• Reorganize the sales force from its traditional geographic
structure to a customer-segment-oriented structure where salespeople were dedicated to large key accounts, community banks or credit unions.
• Create new partner relationships that were broader and deeper and focused on developing relationships with senior managers and banking executives responsible for consumer marketing, not just purchasing managers.
• Change sales force incentives from rewarding the winning of new business to rewarding relationship maintenance, customer satisfaction and the growth of existing accounts.”

Through new high-level conversations with customers, the company identified the need for conversion support, which is extremely important in retaining existing customers. “Conversion refers to all tasks required to maintain customer service when one bank acquires another. It includes integrating account databases, combining check ordering processes, handling customer inquiries and getting newly printed checks out to the acquired customer.”

Clarke American launched a conversion management program to handle these tasks for the bank. To make the program work, the company used its hidden assets — its long-standing reputation for accuracy and the ability to update and integrate databases. The company was able to grow by helping its customers grow their revenues and enhance their own customer relationships.

Later, the company began running call centers to handle check ordering. The call center consultants are trained “to work with customers and upsell them to personalized checks and cross-sell accessories such as leather checkbook covers. Clark American and the bank share the profits realized from this. By viewing check printing and end customer management as a system of integrated services, Clark American has grown its revenues in a declining market from $280 million in 1995 to $470 million today.”

How can exhibitions apply these principles? Does your show have a strategic customer program focused on developing increased revenues and uncovering emerging needs for bellweather exhibitors? Are key account reps visiting with these exhibiting companies in person and developing relationships with high-level managers and execs? How well do you know the needs of your exhibitor’s customers — attendees? What can you do to help your exhibitors serve those needs better? Shows are uniquely positioned to interact with attendees on a regular basis. What opportunities does this present?

A new business model
Founded in 1837, Deere & Co. has built a solid reputation as a manufacturer of agricultural equipment. But the company’s revenues are “largely tied to the economics of agriculture, one of the world’s most sharply cyclical industries. Deere has been working continuously to improve its production efficiencies in pursuit of better and more stable earning growth. But cost-cutting efforts will not suffice. Growth is also an important factor in continued success.”

In 2001, the company identified the fastest-growing segment — the $100 billion “green” industry, which includes contractors who design and install landscaping in new developments, as well as maintenance companies that manage irrigation and sprinkler systems for golf clubs, corporate grounds and education institutions. The green industry was growing 10 percent to 15 percent annually, and it appeared to have the best potential for long-term growth, with housing developments booming and new regulations for water use and landscaping proliferating.

Deere focused on the structure of the green industry. “When it did, it noticed that it was shaped like an hourglass. At the bottom are the landscapers, irrigation installers and lawn maintenance companies — a highly fragmented business with few big players and tens of thousands of small operations. All these firms currently have to deal with products from thousands of suppliers at the top of the hourglass, including nurseries, quarries and irrigation manufacturers.”

At the middle of the hourglass is distribution — also highly fragmented and dominated by regional and local operations. “A few calculations showed that an all-in-one distribution company could claim a share of 50 percent of every dollar spent on a landscaping project. Participating in half of a fast-growing $100 billion business looked to Deere like a significant opportunity. An integrated Deere distributor could provide landscapers with one-source convenience.

Expanding its offerings to the green industry could leverage one of the firm’s hidden assets — its customer authority in this space. In late 2000, John Deere Landscapes (JDL) was launched. For real success, though, support (or at least acceptance) for this initiative would also be required from the group that most directly served as the custodians of Deere’s customer relationships: the network of John Deere dealers.”

To leverage the success of JDL to the benefit of traditional Deere dealers (its core business), JDL is testing a number of programs, including functions for landscapers and dealers, trade shows where dealers display their products, and JDL account managers going on sales calls with dealers. “JDL has learned that with creative attention from management, the potential liability of channel conflict can be transformed into an asset.”

What lessons can show organizers learn? Do you understand the distribution channels within your industry? Are there customer segments that you underserve or don’t serve at all? Talk to exhibitors about their suppliers. How do they distribute their products? How can you help exhibitors grow their revenues by selling more products?

Demand innovation at work
Implementing a product-focused strategy such as demand innovation to a service-oriented industry won’t be easy — especially for organizations under short-term pressure to perform this quarter. There are some tactics you can use to generate short-term gains in revenues and profits (see sidebar). For long-term strategies, the book provides specific tactics and checklists for developing a growth action plan.
“The good news,” the authors say, “is that if you begin the process now, you’ll probably be one or two steps ahead of most competitors. But don’t wait.”

At a time when most shows have reduced expenses as much as possible to maintain profit margins, creating new growth will be increasingly important for your organization. Show organizers who are unwilling to face the hard task of growth risk stagnation.

Danica Vasos is Editor of EXPO. She can be reached at 913-344-1303 or e-mail: dvasos@ascendmedia.com.
 

About the Book

How To Grow When Markets Don’t is written by Adrian Slywotsky and Richard Wise, with Karl Weber. Slywotzky, Vice President of Mercer Management Consulting, has worked extensively for several major corporations. He’s co-authored a number of books, including The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow’s Profits, which Business Week magazine named one of the top 10 business books in 1998. Wise heads Mercer’s North American Strategy practice. Wise speaks and writes frequently on growth and strategy. His articles have appeared in The Harvard Business Review, The Wall Street Journal, The Financial Times and Investor’s Business Daily.