How Can Retail Leverage Help Garmin?

By Ben Smith




EVEN GARMIN CAN FEEL LOST:

Who wants to be the first to admit they don’t have the answer to a problem?  What do you do when your product is becoming a commodity, and even worse, when others start giving it away for free?

Garmin, the maker of GPS systems, is getting hit with this double-whammy.  The majority of their problems center on their Automotive/Mobile business segment, which includes the main product that comes to mind for Garmin, the portable GPS for your car.  Just as Tivo has watched the cable / satellite companies erode their share with generic DVR’s, smart phones are poised to erode the stand-alone portable GPS business.  How big of a problem is this for Garmin?  Take a look at their business by segment:

Garmin’s business is built around 4 key segments:

  • Automotive/Mobile, 73% of sales, 62% of profit
  • Outdoor/Fitness, 12% of sales, 18% of profit
  • Aviation, 9% of sales, 13% of profit
  • Marine, 6%, 7% of profit

DENIAL IS NOT A RIVER IN EGYPT (OR GARMIN’S STRATEGY):

Look – It’s not that they don’t know that they have a problem and aren’t doing anything about it:

“As evidenced in our nüvifone line, Garmin intends always to be part of new markets, not be replaced by them. Garmin’s intuitive turn-by-turn directions can be delivered in many packages, whether a PND, a mobile phone or a yet-to-be-created device of the future.” -Garmin 2008 Annual Report

So their answer seems to be to develop their own Smart Phone, the nüvifone line (an extension of their popular nüvi GPS naming).  I’ll be the first to admit, I like Garmin and have relied on their products (portable GPS – loved it til it got stolen; GPS running watch – love it).  I bought those products for a dedicated purpose / application.  Unfortunately for Garmin and lots of other manufacturers, “there’s an app for that”.  Most smart phones provide GPS mapping capabilities, and most do it good enough to serve as substitutes.  In addition, they key benefit of smart phones, led by the iPhone are the wide variety of capabilities enabled by applications.  GPS is but yet one of many useful functions, albeit an important one.

Will consumers select a phone because it is the best at providing / integrating GPS functionality?  I don’t know.  I’m not hopeful.  Then again, I don’t think a Facebook phone would make much sense either (contrary to what this AdAge article suggests). Ultimately the market will decide.

WHERE DOES GARMIN GO FROM HERE?

The central question for Retail Leverage and our readers is “What can Garmin do to gain Retail Leverage with its nüvifone line?”

They’ve already launched their first nüvifone in the US as an exclusive via AT&T. Early results have not been promising.  I’m not sure if this is due to typical problems with a 1st generation product (lots of kinks to work out), or getting lost in the shuffle behind iPhone and Blackberry.  They recently announced new models that will be available soon in Europe, and the expectation is that they will make their way to the US in time for Holiday 2010.  I would expect that the new phones will offer typical 2nd generation improvements you expect from any product (key lesson from my dad – never buy the 1st of anything unless you can afford to buy the 2nd also).

THE ANSWER IS:

So I already admitted that I didn’t have the answer.  This article is our first attempt to get our heads around this problem.  Got ideas?  Share them with us.  See that comment section below – it’s open for business.  We welcome ideas from our fellow arm-chair marketers.  The real value in this exercise, and in Retail Leverage in general, is the continuing education you get from observing and thinking about challenges to marketing at retail.  We’ll revisit Garmin’s problem later after we’ve had a chance to crowd-source and refine some ideas.

FURTHER READING/SOURCES:

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5 Responses so far.

  1. Doug Garnett says:

    Great post. And thought provoking.

    Is market segmentation the key? Consider a few things…

    - I’m not a Garmin likely customer. I’m quite tech savvy and a great map reader. So, the iPhone works perfectly for me. I get a rough map, can see the street layouts, and that’s all I need. So, that means I don’t need what Garmin offers in blow-by-blow directions.

    - But, I know people who love the simplicity of their Garmin BECAUSE it’s single purpose, always in the car, and never interrupted by the phone. Truth is, some portion of the population & even some youth (possibly a majority) are challenged to use tech when it comes to balancing 15 different functions in a single small device.

    If there’s any truth to this, then Garmin might be able to hack out very nice targeted markets (like your watch for running).

    But there’s a caution: I’ve done strategic communication work for several superbly useful “anti-tech” products (e.g. the Presto printer http://www.presto.com). These are products with highly simple technology that is extraordinarily usable – and was probably invented 10 years in the past but never packaged for easy use. (People with Presto’s love them and so do their kids who can now send email to their parents/grandparents.)

    But, tech press tends to crucify anti-tech because they’re not “sexy” enough. (Look at how the tech skeptics complain even about the iPad announcement.) And that’s a hard way to start a product introduction.

    It seems to be very difficult to succeed with “anti-tech”. From my experiences, critically this requires a very clear understanding of what the target consumer needs and how to find those people. And, it probably requires a very aggressive campaign to get the tech press to grudgingly accept that anti-tech provides important solutions to human problems.

    Love to hear other thoughts. This is a great & tricky question.

  2. Ben Smith says:

    Doug – I like your take. Thanks for participating. Following your suggestion, I’m sure one option, albeit painful short term, is to go back to the future, where they become very focused on targeted markets where they already have an advantage and can’t be easily displaced by the basic GPS functionality in smart phones. Almost 40% of their profit came from the segments outside of automobile / mobile; Outdoor/fitness, aviation and marine. And some of the auto segment profit HAS to be from providing the GPS equipment to the big automakers for their in-dash GPS. Combine that with your anti-tech focus for their dying business, and perhaps that helps retain some of the profitability from auto/mobile. From a market perspective, that company would still be valuable – just on a smaller scale. And who knows – the nuviphones could be successful. I just fear they’ll be lost in the shuffle.

  3. Bob Solimeno says:

    While I’m not a marketer (even the arm-chair variety) I am a very satisfied Garmin Nuvi owner. I see the challenge before Garmin and their nuviphone line and think there is opportunity in giving end users more choice than iphone or blackberry.

    There is both risk and reward available for those companies willing to dip their toes into “open innovation.” By opening part of the product architecture up to innovators around the world with challenges to develop both ideas for new features and to develop them – goes in a direction that neither Apple nor RIM dare to go. They key word is “daring.” The innovation comes from the market itself.

  4. Ben Smith says:

    Bob – thanks for your comment! Interesting to think that through open innovation perhaps they could differentiate nuviphones by having the best apps specifically designed to take advantage of location based services. I think you are on to something! They could put the “mobile” in smart phones!

  5. [...] week we asked “How Can Retail Leverage Help Garmin?” We didn’t pretend to have the answer, but we did share lots of background on their current [...]

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