Is Your Company in Double Jeopardy?
Dr. Judd Michael and Dr. Paul Smith of Penn State, in their article The Theory of Double Jeopardy: An Example From a Forest Products Industry, demonstrate through their research that the phenomenon of double jeopardy works the same in the wood products industry as it does in other, more noted, areas as such TV shows and branded consumer products. Through surveys of furniture market customers, they demonstrate that buyers not only tend to flock to the well-known shows, but even exhibit more loyalty, in the form of perceived benefit, to the more well-known shows even if they don't attend those particular shows.
To draw a comparison in hardwood lumber milling, that would translate as "lumber buyers in general tend to call the bigger mills more, plus , most of them, including my own customers, tend to believe that doing business with the biggest, most well-known mill is more beneficial to them." The result as Drs. Michael and Smith show in the table below, is that the entire pool of customers together make their significant purchases through the well-known organizations, and use the smaller outfits for relatively small, perhaps specialty-oriented purchases.
|Market||# of single-show attendees||Avg. $ amount of orders||Total $ amount of orders|
Unfortunately for the smaller businesses that are experiencing this double jeopardy, the business they do in fact bring in tends to be primarily that business which the more well known companies don't desire, which frequently means that business with smaller profit margins. If your company is caught in this vicious cycle, it means that you're working harder, perhaps producing better quality, and yet realizing less in the process. Not exactly the ideal business model.
Does this mean that you're doomed to fail in the long run? Not necessarily, as Drs. Michael and Smith point out. They state that "managers should…acknowledge and capitalize on double jeopardy patterns within their strategic and capital planning." As an example, they suggest that a company seeking to increase sales and profitability could consider two options for breaking the double-jeopardy cycle that is working against them. That company could work to build up customer loyalty through even more aggressive promotion of product value; or more preferably, it could focus on increasing the number of customers without necessarily increasing the amount or frequency of the business from the expanding customer base. In this way, the increased recognition gained from having a broader customer base could work for you, and your products that really are better values in the marketplace could break through the double jeopardy stranglehold and gain market acceptance even in the face of the bigger, more well-known competition.
As an operational step in the plan, your company should analyze its constraints against implementing this strategy, and move precious resources to allow your company to better meet the re-prioritized goals. We'll talk more about that in the next WoodPro Tech Note.