If you’re struggling to get your company, or clients, to shed their complacency and to face a gathering storm, you may find A Tale of Two Boxers useful. It’s a cautionary story about how lethal it can be not to recognise your true source of competitive advantage.
A long time ago, but not so far away, there was a small country with two cardboard box makers. Let’s call them Boxer C and Boxer K. If you wanted cardboard boxes for your soft drinks, or your packets of pills, or bags of fasteners destined for factories, you had to buy from one of these two companies. It was much too expensive to ship boxes in from the big country further away.
One day, a strategy consultant arrived at Boxer C and sat down with the company manager to start developing the new strategic plan. It didn’t take her long to see that Boxer C made a much better return on capital than usual for the industry. Knowing high profitability was often a sign of a strong competitive position, and she quizzed the manager on the secret of Boxer C’s success.
The manager puffed up. “Easy. We make excellent boxes, and people want to buy them.”
The consultant thought the boxes looked pretty ordinary. “What does excellent mean, exactly, in the world of boxes?”
By way of answer, he strained, and failed, to rip open the side-wall of a nearby box. The boxes were made with virgin kraft pulp, he explained, and that was what gave them such strength. With an abundance of trees in the small country, the recycled paper market hadn’t developed – unlike in their neighbouring country – and local customers still expected high quality products.
“And your customers all want these really strong boxes? Even for potato chips and non-fragile things?”
“What you have to understand,” said the manager patiently, “is that we work very closely with our customers. We really understand their needs. It’s not just strength. We can produce boxes in a whole range of sizes to help cut their distribution costs. We hold stock and deliver in 24 hours. And then there are our specialty lines.”
He pulled over a shallow cardboard tray that had been engineered for storing fruit in a coolstore. It could cope with months of damp under high crush weights, and then travel around the world, holding its shape.
The consultant wondered if the premium from these specialty lines could explain Boxer C’s profitability. A few quick numbers, however, showed they were merely the icing on a well-risen, fruit-rich, brandy-soaked cake. She rubbed her chin thoughtfully, sensing they’d not got to the heart of things yet.
“Tell me about Boxer K,” she said. “What’s it like competing with them?”
Boxer C shook his head. “It’s tough. We’re both after the same kind of clients. Consumer goods, pharmaceuticals, agribusiness. It can get fierce.”
The consultant probed the word fierce. She learned that Boxer C’s prices had in fact been rising in line with inflation for some time. Market share was stable, with chunks of business won and lost at regular intervals.
Not so fierce then, she thought. This might be the answer: a favourable industry structure.
The consultant fiddled with the coolstore tray on the table. The manager wasn’t going to like her idea. “So…could this market set-up, with just the two of you competing, be driving your profits?”
“No. I’ve told you.” He sounded impatient. “We make good money because we look after our customers. Boxer K is a pain, but keeps us on our toes.”
She tried another angle. “What would happen if a new competitor entered? Boxer V, say, from the bigger country?”
That earned her a dismissive laugh, and the manager began ticking off on his fingers all the factors that would keep the manufacturer out. Lower product quality; slower delivery; higher shipping costs.
The consultant tried one last time. “But their boxes are much cheaper, aren’t they? With recycled paper?”
“Our customers are loyal,” the manager insisted. “They’d never buy from a foreign manufacturer.”
“So it’s the great boxes, the tailored customer service, and the deep customer loyalty, then?” she said wearily, frustrated she’d failed to convince him.
The manager nodded, satisfied the consultant had finally grasped the secrets of his company’s success.
* * * * *
A couple of years later, in an airport overseas, the consultant picked up a newspaper. She sucked in a sharp breath at a report entitled The Boxer Uprising. (Sub-editors must be allowed their fun.)
Boxer V has made a successful entry into the small country, and the two incumbents are reeling. Offering very limited box sizes at a thirty per cent discount, Boxer V has quickly signed up a critical mass of customers. It has announced plans to build an onshore plant.
A spokesperson from Boxer V said, “We are delighted with the response to our offer. Recycled fibre is good for the environment, and good for the customer. It’s cheaper, and for many applications, it’s strong enough.”
Neither Boxer C nor Boxer K could be reached for comment.