Blog
JJB should have listened to Porter (or even Mr Miyagi)
24th September 2012
Business news this morning is dominated by developments at JJB who have filed to go in to administration after struggling for a number of years since Dave Whelan sold the business. Buried in this story is a great example of the dangers of not delivering either a differentiated offering or the lowest cost offering. Michael Porter calls it "low cost vs differentiation" and it's a great concept that often makes an appearance in BUSS3 case studies.
Here's an excellent BBC article analysing why JJB got itself in to trouble. There are a number of issues, inlcuding expanding too fast, overtrading and excessive gearing. But I was particuarly struck by this paragraph, which struck a chord with an interview I heard given by the Chief Executive of JD Sports on Radio 5 a couple of weeks ago:
Despite JJB struggling with debts going back to the 2007 buyout, Mr Piner said its core problem was a lack of retail focus.
"JJB's main issue is that it never really found a proper point of difference," he said.
"If you look at its two main rivals, Sports Direct is very much focused on offering the best possible value for money. While JD Sports is at the fashion end of the sportswear market. Both are very focused.
"By contrast, JJB doesn't fit in with either of those. It didn't have a coherent offering, so there was no reason for customers to want to go there - it was more expensive than Sports Direct and did not have as fashionable an offering as JD Sports."
This analysis sums up perfectly Michael Porter's assertion that businesses must either be offer the lowest price or offer something no-one else does. It firms fail to do this and tread the ground in the middle they will ultimately fail. It's a very simple idea, and I love this clip from the classic film Karate Kid , in which Mr Miyagi gives one of his legendary pep-talks to Daniel as an alternative way of putting across Porter's theory.
So there you have it, a video clip to put across the theory and a great up to the minute example of Porter's Low Cost vs Differentiation in action (or more accurately not in action in this case).