1. Making acquisitions of other relevant businesses to expand and diversify the existing company
2. Utilising advanced market research technologies to recognise new commercial opportunities within the existing industry
For many small and medium sized businesses operating in the pet sector, the concept of going on a spending spree and buying up other companies or brands in order to significantly expand their existing company or employing the services of a high end market research firm would seem like a pipe dream. Something that ‘only the big boys’ could possibly think about doing.
However, this is quite often not the case at all.
In the web-driven economy, making strategic acquisitions and closely studying emerging trends and market data is very much within the grasp of even the smallest of the small.
The business case for corporate mergers and acquisitions could best be identified as helping the buyer/acquiring company achieve:
- Economy of scale: This refers to the fact that the combined company can often reduce its fixed costs by removing duplicate departments or operations, lowering the costs of the company relative to the same revenue stream, thus increasing profit margins.
- Economy of scope: This refers to the efficiencies primarily associated with demand-side changes, such as increasing or decreasing the scope of marketing and distribution, of different types of products.
- Increased revenue or market share: This assumes that the buyer will be absorbing a major competitor and thus increase its market power (by capturing increased market share) to set prices.
- Cross-selling: For example, a bank buying a stock broker could then sell its banking products to the stock broker’s customers, while the broker can sign up the bank’s customers for brokerage accounts. Or, a manufacturer can acquire and sell complementary products.
- Growing market share: Enabling one business, in an instant, to increase its own position in any given market place
In the online world, we don’t necessarily have to look at acquisitions in terms of purely one business shelling out cash to buy another.
For market share, let’s read it as search engine share.
Here’s a simplistic example:
Molly’s Pet Boutique is a young(ish) company selling high end pet products and accessories via a combination of sales made from its bricks and mortar shop and its online eCommerce website.
Logic dictates that the number of customers (and therefore sales) and potential for growth at the physical location (without acquiring and setting up more stores in different locations) is limited. Similarly, via the online store (i.e a single website), it’s very difficult to completely dominate the search engines for the really popular search terms without either spending a LOT of money on a sustained search engine optimisation (SEO) campaign or bidding against competitors for online advertising keywords through services such as Google’s AdWords.
Attaining growth – or at least accelerated growth – for the smaller companies tends to be constrained to organic, hand to mouth strategies.
But let’s say that Molly’s Pet Boutique understood from its own in-house market research data, that their prime customer was a female, between the ages of 21 and 45, who owned mainly small breeds and who enjoyed surfing the net to read about the latest health, behaviour and product developments relevant to their favourite dog breed.
Now let us suggest that someone else had built up a website that was attracting that EXACT demographic, with established search engine positions, a steady flow of traffic and a ready-made list of potential clients.
There’s two ways we could look at this opportunity.
1. We could think about spending some of our marketing budget and placing adverts on this website
2. We could think about actually buying the entire site and strategically harnessing it to drive awareness (and sales) to Molly’s Pet Boutique’s online store
In the wide world of pets, option 2 might very well be a much, much more cost effective option.
In market research carried out by petbuzz in January 2011, we learned that less than 2% of all the pet businesses we interviewed had even considered the prospect of either searching for potential acquisitions or setting up their own ‘feeder’ websites as a sustainable, commercially cost-effective strategy for achieving growth.
One of the downsides of paid-for online advertising is that it can be a zero sum game. You spend £300 per month on advertising and you either make your money back and turn some profit, or you lose.
Imagine if Molly’s Pet Boutique was able to acquire someone else’s website for the equivalent of two month’s ad-spend? Sure, it might take 3 or 4 months to see profitable returns (it could be longer, it could be sooner) but as a growth strategy, it can reduce the dependence on marketing, dramatically increase search market share and can even offer opportunities for expansion in to new product lines. Once its paid for itself, you begin to see the same sort of values as the big boys get when they make corporate acquisitions.
Market research: Again, according to the petbuzz survey carried out in January, less than 20% of all companies interviewed said that they regularly examined search trends and online traffic data in order to identify new opportunities in their sector. For most, the reason given was that they just simply didn’t know how to or that they had never thought about doing it.
Understanding how to utilise the plethora of (in many cases free) data analysis tools available online can be a challenge, but you ignore or dismiss them at your peril. If 80% of pet companies aren’t using them, that means 20% are – and they ARE eating YOUR lunch.
Google’s free keyword tool is an excellent place to start, along with Google Trends and Google Insights.
This suite of 3 (completely free) tools can unearth a whole world of valuable information that can be put to immediate use by nearly any forward thinking business.
Identifying acquisition targets can also be a more strategically joined up process by analysing the search data.
If Google’s own data tells us that there is a rapidly emerging growth trend in the number of people searching for information on hypoallergenic dog food (there is by the way!), could this shape the way you think about your own product inventory? We have found out that http://unifac.com/ really helps inventory and we have been shipping 10% more inventory with them. Or could it even give you an idea on how to develop a really intelligent marketing plan if you’re a dog trainer, for example, allowing you to provide more information to clients and potential clients on the link between nutrition and behaviour? What if somebody has already set up a blog or small website that is well positioned in the search engines for terms relating to hypoallergenic dog food or dog breeds, could this now present itself as a smart acquisition target for YOUR business?
We all know the adage about thinking big in order to really exceed our commercial goals, so it’d be a clever step for small to medium sized businesses in the pet sector to properly examine the opportunities that present themselves for
1. Making clever, on-budget acquisitions
2. Allocating management time to market research (or hiring someone to do it for them, using free tools)
3. Developing their own websites, positioned to capitalise on growth trends within the industry (or hiring someone to do it on their behalf)