Increasingly, companies that get themselves in trouble are those that don’t have a diverse product mix. Once the “goose that laid the golden eggs” stops laying eggs, the company is in trouble.
Circuit City is going through a turnaround process right now. They are “thinning management ranks and accelerating store growth to cope with growing competition and falling prices in electronics”. The problem is two-fold. First, the company is “squeezed by rival Best Buy’s bigger and brighter stores and the lower prices offered by Wal-Mart”. Second, they were “caught flat-footed by rapidly falling prices for big-screen televisions”. Circuit City “depends on TV sets for 32% of its sales, compared with 20% of sales at Best Buy”.
What to do? Part of the company’s strategy is to sell “add-ons, such as installation services, accessories, warranties and high definition feeds”. “There are only 10% of households that have true high-definition TV service today…this is a massive opportunity”, says the CEO. My 13-year old son told me yesterday that the TV we need to replace MUST be High-Def, so I guess the executive is right!
The Lesson: Keep in mind that even the most profitable product or service may not always stay that way. Since change is the only constant, consider how you would be impacted if your #1 product or service offering was less profitable.
Your Homework: Have you had success with a new product offering? If so, would you consider investing more capital, time and effort into the product?
(Source: “Circuit City Enters New Turnaround Stage”, Wall Street Journal, 5/31/07)
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