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As summer approaches, soon you will no longer have to venture off to the ice cream store for a treat. Taunton, MA-based MooBella offers a vending machine that creates a fresh scoop of ice cream for under $3 in under one minute.  Moo-bella is essentially “competing against non-consumption” as they expand the opportunities for consumers to enjoy fresh ice cream, and enable restaurateurs and cafeteria operators to expand their sales with a new offering without sacrificing the floor space or labor that is traditionally needed.

As MooBella has delayed its roll-out, I suspect the company is struggling with its launch plans for this new product. We would urge them to initially launch an offering that is “good-enough” by focusing their launch on bringing a tasty offering with limited flavor selection to market in a controlled environment. Their current plan to launch within existing food-service locations fits such a strategy; the operators can perform minor maintenance and collect payments while providing MooBella with feedback on how to adjust their future vending machines and product offerings. Armed with the knowledge from these market tests, MooBella can then look to improve its product on other dimensions by launching new flavors or developing a truly self-service machine that requires no maintenance and can accept payments.

There's also an important lesson here for traditional ice-cream retailers who may not initially view MooBella as a competitor. To find new opportunities for market growth, you need to continually go beyond new product introductions and look at the circumstances in which consumers can consume your product. While ice cream shops offer a unique family experience, MooBella can become a more potent disruptive force by partnering with restaurateurs and foodservice operators to offer different experiences in various circumstances.

The market reacted with surprise today when it emerged that Blockbuster has offered about $1 billion to purchase electronics retailer Circuit City. The potential deal threatens to distract both companies from the unenviable task of wrestling with disruptive forces affecting their respective core business models. Over the past few years, online video rental pioneer Netflix has used its no-late-fees model to pummel Blockbuster. After dragging its heels for a few years, Blockbuster started fighting back in 2004. It now has a reasonable share of the online market but has never figured out how to be as profitable as Netflix. And Netflix is moving on to the next act -- developing a strategy to win in the video on demand market. Circuit City has had to contend with Best Buy, whose larger stores and lower prices have allowed it to dominate the electronics retailing market. Circuit City is also trying to play catch up in the emerging market for services to small businesses and individual consumers, where its Firedog service trails Best Buy's Geek Squad service. Behind Blockbuster's bid is a bold plan to expand its retail footprint and transition its business from video retailing to become in the words of CEO James Keyes a "one-stop shop with solutions for the consumers". Keyes said the combined entity could model itself after Apple's popular stores. Consumers could rent videos from Circuit City locations, or buy hardware from Blockbuster locations. Combining Blockbuster and Circuit City seems like a pretty bad idea to me (Circuit City doesn't seem to be convinced either -- the company is refusing to give Blockbuster access to its books).... Read the rest at Innovation Insights

 

Leading the headlines on the affordable Medicare debate, Wal-Mart has been speeding up its roll-out of $4 generic drugs disrupting pharmacies across the country. Consumers whose prescriptions are on the list of 331 drugs are now eligible to buy them for less than the cost of a Medicare co-pay at the worlds largest retailer (Target has also pledged to match Wal-Marts every move).

Historically, Wal-Mart has built its business by disrupting its industry leaving mom and pop retailers in its wake as it introduces low prices to communities across America. This recent price-cut not only benefits non-insured Americans, ever desperate to keep their rising medical costs low, but also insurers who have to shoulder less of their subscribers prescription drug costs. This low-end disruption is built on Wal-Marts strong suit: its ability to lower prices and make more products available to Americans who would otherwise be unable to afford them.Critics argue Wal-Marts recent $4 generic drug plan is nothing more than a superb high-level marketing blitz with no substance; they highlight that the promotion applies to older generics that amount to only 10% of a traditional pharmacys generic inventory.

Meanwhile, CVS and Walgreens, the nations largest pharmacy chains, are built on the premise that consumers want friendly local pharmacists in convenient locations. Over 90% of their pharmacy revenue is from insured patients and they choose not to compete withthe low cash prices offered by warehouse stores and large retailers such as Wal-Mart and Target.

CVS recently has made moves to sustain its core business by purchasing Caremark, a leading Pharmacy Benefits Manager (PBM), and developing ProCare, a specialty pharmacy for patients with difficult-to-treat conditions. With Caremark, CVS will now promote its convenience stores to insured consumers over Caremarks mail-order. Its specialty pharmacy, ProCare, with over forty locations nationwide, caters to Americans whose needs are underserved by the traditional pharmacy. These patients seek hard-to-find expensive drugs and over-the-counter supplements as well as specialized education for very serious medical conditions.

While Wal-Mart is serving nonconsumers by publicly forging a low-price path, CVS is moving to sustain its core business by developing convenient and specialized offerings to meet the underserved needs of the insured. Both firms may prove to be successful as there likely exists both a sizeable market of uninsured consumers who can not afford generic drugs and a group of underserved insured patients who need advanced care and improved convenience from their pharmacy.

See "CVS, Caremark Unite to Create a Giant", Wall Street Journal, November 2, 2006 and
"Wal-Mart's generics price push fails to panic its competitors", Drug Store News, October 9, 2006

Making business headlines today was the announcement that Paul Charron, a 17-year veteran of the $5B fashion apparel and accessories company Liz Claiborne will retire as CEO. Intrigued by the fashion world thanks to Project Runway and reading this recent news made me realize what a fascinating company Liz Claiborne is. It was the first company founded by a woman to be listed on the Fortune 500. The company has more than 40 brands in its portfolio (including hip fashion brands like Juicy Couture and Lucky Brand) that are available at over 30,000 points of sale worldwide. Lastly, Liz Claiborne is an innovative company that started as a low-end disruptor to established women fashion brands.

Liz Claiborne was founded by a group of designers who identified an important unmet Job to be done in the marketplace - helping women conveniently find fashionable ensemble driven clothes that are appropriate for wearing to work. Fashion brands such as Calvin Klein and Bill Blass were getting this Job done but their ensembles were too expensive for the average working woman. Recognizing the importance of keeping the clothes affordable, Claiborne established a low-cost model in the 1980s (at this time they challenged norms in the fashion industry by testing the concept of manufacturing overseas in Asia). They also recognized the importance making the shopping experience of the working woman more convenient and simpler. They were faced with a major stumbling block addressing this challenge. At this time department stores were classified according to items; pants in one department, skirts in another and blouses in yet another. This made it challenging for women to put together a decent outfit, forcing them to move around from one section of the store to another. Furthermore, the buyers at the department stores were not equipped to make purchases from one manufacturer across product lines. Liz Claiborne worked together with retailers to test a model wherein a section of the store was dedicated to a type of occasion (e.g., sportswear, suits that work, etc.). This model laid down the foundation for the brand and lifestyle "store-within-a-store" concept that is very popular today.

Over the last decade, Liz Claiborne has also had success riding out the waves of disruption in retailing. If you are interested in learning more about these patterns of retailing throughout history from specialty stores, to department stores, to category stores, catalogs and now the Internet, we recommend the HBR article Patterns of Disruption in Retailing authored by Clayton Christensen and Richard S. Tedlow.