Category Archives: Business Strategy

Campbell Soup Failed To Attract Healthy Consumers. Was Its Strategy Doomed From The Start?

Denise Morrison, the Chief Executive Officer of the Campbell Soup Company, suddenly and unexpectedly resigned yesterday. Why did she do it?

Some analysts believe that she was compelled to resign because she failed to turn around a brand that is stale with age. Campbell’s was founded in 1869, and its canned products gained universal fame in a 1962 painting by pop artist Andy Warhol.

But our perception of Campbell’s hasn’t modernized in the half-century after Warhol created his signature work. Although Morrison and others made many attempts to update its product line and introduce healthier complementary products, consumers continue to associate the Campbell’s brand with sodium-packed cans of soup.

That’s why Morrison lost her position. But was she truly to blame?

On the one hand, the contemporary consumer is undoubtedly demanding healthier foods and beverages. A persuasive argument could certainly be made in favor of improving the health content of Campbell’s product line.

But on the other hand, let’s try to identify other firms that have successfully implemented this strategy. How many purveyors of unhealthy goods have transformed their product lines into healthy ones? Has McDonald’s, for instance, truly succeeded with its offerings of salads? What of its ill-fated McLean Deluxe sandwich?

Alternative examples abound of such purveyors “doubling down” on the unhealthy pleasures of their product lines. Burger King, for instance, unapologetically sells a Rodeo King sandwich that contains 82 grams of fat, 2,270 milligrams of sodium, and 1,250 total calories. Yes, you can order a large side of fries with that!

Likewise, it’s hard to imagine that many consumers would be attracted to a healthy version of a deep-fried Twinkie. Even if a small niche of customers were to demand such a product, they might not trust Hostess Brands to create it.

So let’s be fair to Denise Morrison. It’s easy to blame her for failing to execute Campbell’s transformation into a healthy foods brand. But it’s possible that this strategy, adopted by Campbell’s Board of Directors, was doomed to fail from the start.

Perhaps, in contrast, Campbell’s should have embraced the authentic and unalterable image that it has earned over many decades of canned soup production. And perhaps, like Burger King, it will only find future success by being true to its image.

Why The Post Office Might Choose To Continue Delivering Amazon Packages While It Loses Money On The Contract

If you support the United States Postal Service, you must have experienced mixed feelings about last week’s fiscal announcement. On the one hand, package volume increased significantly over last year’s comparative levels. But on the other hand, financial losses worsened significantly.

Huh? How can an organization serve more customers and yet suffer more losses? There are usually two possible reasons why such a mixed outcome is possible. The first is that the entity may be losing money on each customer served, and thus more volume generates worse financial results. And the second is that the entity may be facing a problem that is unrelated to customer volume, and that is suddenly generating losses.

Evidently, President Trump has not taken a position on this question, having simply tweeted that “Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed.

But the President has not considered the possibility that the Post Office might choose to continue its relationship with Amazon while it continues to incur losses on the contract. Why? Imagine, for the sake of argument, that you decide to pay freelance drivers to deliver packages in competition with the Postal Service.

Let’s assume that your only significant operating payments are $100 per day to rent a small office, and $10 per delivery for each service rendered. You charge and collect $15 per delivery, and thus earn a gross profit of $5 per delivery before paying the rent. You would thus need to deliver 20 packages per day to pay the rent and break even.

That arithmetic is not difficult to follow, is it? But now let’s assume that Amazon offers to guarantee you $600 per day to deliver 50 packages. You might estimate that you’re charging your customer $12 per package. On a per-delivery basis, that’s a loss of $3 in comparison to your normal $15 price!

But now look at the situation in total. You’ll earn $600 from Amazon alone. You’ll pay $100 in rent and $500 (i.e. 50 packages @ $10) for deliveries, yielding total payments of $600. You’ll actually enjoy a guarantee of breaking even on the Amazon contract alone! And you’ll start to earn a profit on the very first package that you deliver for any other party.

So when you read that the Postal Service is losing money on its Amazon deliveries, it may indeed be true. And yet, perhaps paradoxically, the government agency might choose to continue serving Amazon while it loses money on the contract.

Why? Because, as we can see from our example, it might be reasonable to do so.

GE’s New Business Model

Thirty years ago, it was easy to describe the business model of General Electric (GE). They were the legacy organization that was originally founded by Thomas Edison, the inventor or developer of classic electrical products like the light bulb, the phonograph, the motion picture projector, and the power generator. A century after its founding, GE still manufactured a wide array of industrial and consumer products, ranging from washing machines to jet engines.

But then GE aggressively developed its financial services division to help customers finance their purchases. And the division grew, and grew, and grew into a $600 billion banking organization.

At its peak, GE Capital accounted for more than half of its parent corporation’s profits, and was designated a Systematically Important Financial Institution (SIFI) by the federal government. In other words, it had grown so massive that it was deemed “too big to fail” as a global finance organization.

GE also diversified into other ventures that were barely related to its core identify. The NBC television network became a GE division. So did the film studio and theme park operator Universal Pictures. Even the Weather Channel became a GE service!

For some time, the disparate business units helped GE manage its profits by engaging in a smoothing technique known as “earnings management.” Instead of simply reporting the profits of each division, the firm would rely on the unusually profitable years of certain units to off-set the unusually unprofitable years of other units. That technique enabled the corporation to present an ostensibly stable overall profit picture to investors.

But as the years dragged on, the unwieldy conglomeration of unrelated divisions became more difficult to manage effectively. Thus, GE has recently reversed its strategy, opting to divest and streamline its business portfolio.

And now this new business strategy raises a vexing question. Once an organization begins to divest itself of unrelated units, when should it stop doing so? After all, if it cuts too deeply, it might endanger its own existence as a going concern.

It’s been a little difficult to understand how GE is answering this question. Although it sold off much of its Capital portfolio, it kept much of it too. Likewise, the firm disposed of its household appliance business, but it kept its medical imaging division. And last week, it announced the sale of its Industrial Solutions business to Switzerland’s ABB Group, founded in 1883 as an inventor and developer of electrical products.

1883? At that very time, GE founder Thomas Edison was developing his American firm. And today, more than 130 years later, his corporate descendants are selling Edison’s “heritage business” unit to their Swiss rival.

It’s certainly possible that GE’s divestiture strategy is part of a clever business plan to recapture its traditional global dominance in the electrical products industry. And yet it’s also possible that, after expanding far too broadly without regard to its long term sustainability, GE is now contracting a bit too extensively for its own well-being.