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Creating a niche and dominating it
True to her last name Baker, Erin Baker was known for her baking skills. She started the company in 1994 by delivering cookies on her bike to local grocery stores while she was juggling two other jobs - working at a pizzeria and managing a bed and breakfast. Recognizing many Americans did not have time to sit and eat a full breakfast, she saw an opportunity for breakfast cookies -- nutritious breakfast food that could be eaten on the go. Focusing on ingredients like oatmeal, fruits and honey that would provide sustained energy and nutrition to customers, she created her first breakfast cookies recipe. She was able to acquire three contracts to deliver fresh cookies and biscotti to coffee shops in her area. Within 6 months of developing her recipe for oatmeal cookies, she was making enough to quit her two jobs and concentrate full time on the cookie business.
Her cookies caught the attention of the local dieting community looking for delicious treats. The cookies were especially popular with members of Weight Watchers, a company that offers various products and services to assist weight loss and maintenance. Under the Weight Watchers point system - which assigns points to foods based on their calorie and nutritional content to help dieters watch what they eat - the cookies were only 2 points a piece which encouraged dieters to eat the delicious cookies without feeling guilty. The cookies proved so popular that Baker had to expand the company to keep up with demand and the company exploded from 2 employees to over 100 employees over a year.
And then came the big blow
However, just as quickly as Baker's cookies became popular, so was the sudden change in consumer taste. Unexpectedly, Weight Watchers changed their point system which made Baker's breakfast cookies no longer desirable as guilt-free treats to Weight Watchers members. The dieting community was also swept by the Atkins low-carbohydrate diet which encouraged people to eat as much protein and fat as they want but to avoid foods high in carbohydrates. Foods high in sugar content, grains and high-carbohydrate fruits like bananas and apples are discouraged under the Atkins diet. Baker's breakfast cookies were made of nutritious products like honey and fruit but the Atkins diet discouraged all desserts and sugar products.
While Baker's cookies were still nutritious and delicious, the perception by dieters as the cookies being a healthy guilt-free treat had changed. This had a drastic impact on the company. Within 8 months, Baker's company had lost 60 percent of distribution. Baker was forced to layoff her staff and cut spending including her own salary to keep the company afloat. With dwindling customers, it was time for the company to steer a new strategy.
Change your product or look for different customers?
Erin Baker had to make a crucial decision: should she abandon her nutritious cookies which she was good at, and try to create low-carb cookies to appeal to the changed perceptions of diet conscious consumers? Or should she continue innovating and strengthening her brand of high-nutrition content cookies and look for consumers who value the nutrition content and not the calorie content.
She wisely concluded that among diet conscious consumers, a perception had got created that her nutrition rich cookies are not good for them. It would be a herculean task to first create a brand new set of products and then try to woo back the same customers, once the perception has been created.
She decided to strengthen what she was good at - which was creating innovative high nutrition cookies, and decided to find customers who value her cookies for their nutrition content. She started innovating with new products like granola, a breakfast and snack food consisting of rolled oats, nuts, honey, and sometimes puffed rice. Baker started distributing samples of her nutrition rich cookies at marathons and triathlons. Athletes and people who are physically active need high nutrition to replenish the energy they burn up. They don't need to watch their weight - their active lifestyles anyway do that for them.
Her strategy to focus on physically active consumers proved a success. In 2006, the company changed its name from Baker's Breakfast Cookies to Erin Baker's Wholesome Baked Goods to reflect the new products like the granola and mini-cookies. The company also tweaked its packaging to incorporate the new products and changed its website design to push for more online sales. In 2007, the company's online offerings were featured on one of the shows in Food Network, a popular cooking TV channel. The resulting publicity from the TV channel feature led to the company spreading its wings across the United States. Over the following years, the company also supported Olympic athletes and was featured in Women's Health Magazine and Oprah Magazine. By 2014, the company's products were available in major retail outlets across the US.
If your proposition is good, find customers who value it
There's an important lesson here for financial advisors. If you suddenly face the prospect of losing a sizeable set of your clients to a combination of enhanced commission disclosures, direct, robo advisors and e-commerce platforms, you need to first calmly take stock of your position. Do you actually have a good proposition which adds value to investors, but unfortunately looks expensive to one set of clients who favour a lower cost alternative? Do you have young tech savvy clients who came to you when there were no tech oriented solutions, but are now gravitating towards robo advisory platforms, now that these are available? Does this mean that your proposition is weak or does it mean that your proposition is not meant for this set of investors? Are there a different set of investors who you think will value your high personal touch financial planning proposition?
If your proposition is strong, look for investors who will value it. There are all types of investors who make up the market, and there always will be. Your job is to do an honest appraisal, like Erin Baker did. Is my proposition good? Can I keep strengthening what I am good at? If yes, don't abandon what you know works, abandon instead the customer segment that does not now see value in your proposition, and go after the segment that does.
Content is prepared by Wealth Forum and should not be construed as an opinion of HDFC Mutual Fund.
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Wise Advice: Evolve
You have a product or an advisory proposition that attracts a segment of customers. You build your business around it, and expand your team significantly, to serve these customers. Then all of a sudden, competition emerges which makes your proposition look unattractive to these customers. You lose 60% of your business almost overnight. What then should you do? How should you evolve your business model? Change your model to try and remain relevant to these customers or try to find new customers?