If you’re not number 1 or 2 in your market, then, well, so what?

I can’t tell you how many times I’ve heard the following fact: Most magazine categories only have room for two titles. However, I know of small publishers who have the #3 title in a market but who still are quite profitable. New Yorker writer James Surowiecki explores this topic in an article (quick, before it goes behind the cost wall) that uses Ninetendo as an example of how a #3 market-player can be extremely profitable.

The key to succeess in a crowded marketplace is the common sense but counter-intutitive-to-MBA-types principle reflected in the following quote from the article:

“The more a company focusses on beating its competitors, rather than on the bottom line, the worse it is likely to do. And a study of the performance of twenty major American companies over four decades found that the ones putting more emphasis on market share than on profit ended up with lower returns on investment; of the six companies that defined their goal exclusively as market share, four eventually went out of business.”

  • Doug Shore

    About 15 years ago, I heard a major b-to-b publisher claim, at an ABM meeting, that he would not let his rivals beat him on price. I suppose the race to the bottom had already begun (at one time it was usually the weaker players that discounted), but the value of an ad page quickly dropped in the minds of most ad buyers, and ad page yields for publishers plummeted. Thus began a profit squeeze that continues through today, alleviated briefly by the Web 1.0 boom and its side effects.

    Some of us refused to commoditize our properties — some, as you point out, still exist — and continued to be highly profitable, but often with less market share (counted in pages). While we always counted pages, we were more concerned with market share counted in dollars (harder to do, but it was possible to make educated guesses).

    So, would you rather print more pages for fewer dollars, or fewer pages for more dollars? It’s amazing how many chose the former. And as their profits dwindled, we also saw competitors necessarily cutting back on the “cost” items that kept them in touch with their markets — experienced editorial and sales staff and their ability to travel and meet customers.

    The publishers who better maintained their yields and margins and kept their teams intact were often able to further beat their commoditized competitors with superior market knowledge and the investment funds to create new products and services to serve their customers.

    And, of course, when your salespeople become price negotiators instead of customer problem solvers, your ability to compete in the multimedia marketplace of today is more limited.

    P.S. — One of my favorite stories was the time we called a competitor to place an ad campaign in their magazine for one of our trade shows. First words out of the rep’s mouth: “We can give you a 25% discount off the rate card.” They were negotiating with themselves before we even opened the discussion!

    I hope, as an industry, we’re getting better at this, but based on the five-year cost and profitability review presented at the recent ABM conference, I’m not so sure.

  • Rex Hammock

    Doug, I just want to point out to any rexblog readers who may be passing by and who aren’t in the B2B media business, that you (in addition to being one of the original seven readers of this blog) have bought and sold more magazines than most of us have read.