n h e t h e rt o i n t e r n a t i o n a L i z e

P a r tI T h e d e c i s i o w

to solve specificproblems.Value shops are organizedaround making and executing

decisionr;in the specificserviceinteraction situation raritha customer - identifying
and asserssing
serviceproblems or opportunitiei;,developingaliternativesolutions or
approaches,choosingone, executingit and evaluatingthe results.This model appiies
to most service-orientedorganizations.
Many product companieswant to succeedwith embeddeds,:rvices:as competitive
pressuresincreasinglycommoditize product markets,s;ervices
will become the main
differentiator of value creation in coming years.Horvever,companies will need a
clearer understanding of the strategic rules of thLisneu' game - and will have to integrate the: rules into their ,tperations- to realizethe promise of these fast-growing
businesses.
'virtual
At the end of this chapterthe
value chain' was introclucedas a supplement
to the'physicalvalue chainl thus using information to createfur:therbusinessvalue.

:]H'

VermontTeddyBear:Should
Vermont
Teddyliear
go abroad?

illt$r"
'i)l'llllll' )''

A.s Elisabeth B. Robert, CEO of The Vermont

Teddy BearCompany (www.vtbear.com),
wali:es
up
o.n 30 June 2006 (the day where the 2005 financial
rt':sults
arepublished)shecan look back on one of the
most eventfulyearsin the history of the company:
On 16 May 2005Vermont ileddy Bearannounced
the signingof a definitiveagreementthat enabledthe
companyto be taken private by an investmentgroup
led by The Mustang Group, a Boston-basedprir,.ate
equity firm. The main motive for taking thir; step
has been statedby ElisabethB. Robert: 'As a prirate
company,Vermont Teddy Bear will no longer face
ttre challengesof a small company trying to comply
rvith increasinglycomplex and costly public company requirements.\4'e will have more timi: and
resourcesto devoteto growing our business'.
The key financialfiguresfor:2005were:
2005
Net revenue:
Net profit:

$39.0rnillion
$2.5 rnillion

The number of employeesat the end of 2005was;352.

But Elisabeth has further ambitions for the
ccrmpany:
My longer-termvision for the companyis to leverageour marketingand operationalstrengthsvrith a
sound brand strateg).to grcrwour companywith
teddy bearsand orher productsin the gift delivery
serviceindustry. Unlike othe,rInternet companies,
wehaveprovenour abilitl'to profitablymarketa gift

34

delivery servicr:using radio ancl the Internet. Unlike

other Internet companies, we have an established,
state-of-the-art, cost-r:ffective fulfi lment ooeration
with integrate(l systernsto cu:itomize, perionalize,
pick, pack, ancl ship, and provi<1esuperior customer
sen'ice.And, the people of The Vermont Teddy Bear
C o m p a n y a r e n o t o n l y p e r s i s t e na
t nd smart,they
have become over the past se\.eralyears extremell'
good at what they do. Why shouidn't we aspire to
be one of the premier gift delivery services in the
world?'
Source: Vermont Teddy Bear Annual Report.

The company
Vermont Teddy Bear's principal activity is direct
marketing in the gift delivery industry. Founded in
1981 in Vermont (on the eastcoastof the United
States)Vermont Teddy.Bearexpandedvery quickly.
In 1992 Inc. M,egazinerecognized The Vermont
Teddy Bear Company as the 80th fastestgrowing
private company in the United. States,The same
year, Vermont Teddy Bear went on the stock
exchangein New York to financefurther expansion.
Building on its success
u'ith its beardeliveryseruices,
Vermont Teddy Ilear begana new businesssegment
in fiscal 2001, with its SendAitlERICAsubsidiary
selling handicraftsand i,oodstuffi;made by US arti_
sans and growenr. Vermont Teddy Bear launched
PajamaGramin .A.pril20,02.
Vermont Teddy Bear (VTB) has six operaring
segments:

C l ' r a p t 1e r G l o b amt a r k e t i ni q
n t h ef i r m

I The Bear-Grnrn
seryiceseqntentinvolvt:ssending
in Irlorida and Clalifornia.(.lertainvarieriesof
personalizetl
teddy ltearsdirectlyto recipientsfor
fiesh cut fktrvers are flrlh'n in from farms rn
specialoccasions
suchastlirthdays,anniversaries, l',cuador,Coktntbia,-l'hailand
anrl Hoiland to the
rveddings,
anrlnew babies,asrvellasholidayssuch
grolr'ers'irnporl warehouses
in the United States.
asValentine'st)ay, Chr:istmas,
and Mother'sDay.
Preparedshipping lal>els,also transmittedelecV'I'l) positions its BearGramgift cleliveryservice
tronicalil',,
are appliedro rhc colourful gift boxes
'creative
asa
alternaliveto flowers'.
that are shippeddirectlytiorn the grower'sware2 The PajantaGrumservicese{ment 1;rouicles
cushouseto the receriver.
loniers rvith a convenientgift that includesan 5 The retail lperariorlsegnlentinvolvestwo
retail
iternfronr a brcradassortmentof Pajar.n,ls,
gowns,
locatior.ts
and farnily tours of the tecltlybcar thc
robesand spa productsdeliveredrvith a :fr-ee
gift
tc)l] and store.
card, lavenderl>athtr:a,and a 'do not ,listurtr' 6 -fhe wholesalelcot'porate
segrnent proactively
sien,all in a kecpsakehatbox.pajarna(iran.r
gifts
develops,3pp()Itunities
in the corporateaffinitv
a r e o r d e r e do n l t n ea t p a j a m a g r a m . c o o
nr via a
marketand certainwholesalernarkets.
toll freeteleplionenumber.l'he ser.vice
is targeted
In 2005the llear-Grams,ervice
to appealto fernalecustomersin t>rderto l:,roaden
accounleclfor ,16
VTB's predominatelymale customer base. In per cent of r,:.venue;
the Pa.jarnaGrarn
servicefor 22
2005 women purchas:d approximatcly4g per Percent;1'astyGranifor I pcr cen! Cal)x & Conrlla
r:entof l)ajantaClram
eifis,vcrsusonly 3r);rercent 26 per cent;retailoperationsfor 4 per cent;and cor(includinglicensing)fbr I per.cent.
of BearGranrgifts.VT'13alsr>uscsdirect rcsponse porale/wllolesale
Ilecauscti:Le
radio advertisingto rrarkeL the pajamaGram
Com;oanypositionsitselfprimarill,in
sen'ice,drivingvisitorsto both the toll Il.eenum- the gift rnarl<et,its distribution is highly seasonal,
ber and the rvebsite.N4anyof the same ra<lio u,ith Valentine'sDay, Mother's Da1'anclChristrnas
approxinrately
statiousand syndicatecl
ll8 per cent,21 per cent,
radio neturorksair both representing
llealGram and Pajama(lram ads. In addition, ancl l6 per cent of thc cc,mpany'sannual salcs,
VTB usescabletelevisionand print, ',vithe,mpha. rcspectivell,.
sison largeting!v()nian.As the customerbaseft)r
PajamaGramgifts expands,\/'fB has also adrled T h e B - t - B : ' B e a r s - t o - B u : ; i n e s s '
'Bears
catalogue
to its rnarketingluix fbr this segmcnt. The 13-t-13,
or
to-Ilusirrcss',
prograntrneoffbrs
3 7'he lasty(_)rantService.'fhrorrgh this business promotionalproductsand corporategifts
for mainly
segrnent,
the cotnpranl'
ntar.kcts
and sell.s
a variety large compatries.One exarrrpleof the 'llears-toof regionallitod specialties
such as Ny Carnegie Busines.s'
programmetook placein late 1999when
Deli Chee.sccake
ancl Gino's ChicagoDeep l)ish the conrpanvhad a copronrotion with Seagrarn's
Pizza.Using proprietary technology,r:ur;torner Ginger Ale. Across the country,
liO rnillion litre
ordersareprocessed
and fonr'ardedelectronically bottlesof Seagrarn's
Ginger Aie were labelledwrth
via the Internetto the 'fbod' supplier.'l'he sup_ a chanceto win a Verrnont
I'cddy Bearand carrieda
plier prints a personaliz:ed
carr.l,pickine instructions, and a prepared shipping labellrom the
ordcrinfrrrrnationreceived.'l'he
.supplierr;
prepar.e
their unique productsfor shippingrvith packag_
ing that incorporates'l'astyGramlabelling.'l'he
companycoordinates
pir:kupof the gift ilem at lhe
supplier'slocationby FederalF,xpress
fbr delivery.
4 Calyx 6 Corolla.On 2!r r\ugusl 2003,the cont_
pany cornpletedthe accluisitionof certainassets
'
and the bu.srness
model of (lalrx & Corr:,lla.
This
new business
segtnent(ivhichaccountsfrrr..26prer
centof the total \r'l-Bsalers)
is al.soa wholl.r-olvned
subsr<iiary
of the conrpa;rr1,.
It clirectntarlietspremium direct-from-thegrolverfl owers,pl antsancl
'I'he
preserved
fioral itenrs.
companyhasrrrrangenlen{s}rith l7 grorversn:rostof which are,localed

+
35

P a r tI T h ed e c r s i ownh e t h etro i n t e r n a t i o n a L i z e

coupon for a 20 per cent discount on any of the

\/ermont-made bears offered through the Bear(iram gift deliveryservice.
Another example of a corporate custorner is
ltMW of North America, which regularly usesthe
llear-Gram gift delivery serviceto congratulateand
thank both employeesand clients for their dedication and service.
Among Vermont Teddy Bear's corporat(l ,cust,omers are lohnson & Johnson, Kraft lroods,
I4arriott Internationaland PepsiCola.

For the 2005;Fall/holiday season,the company

mailed a 48-pragecatalogue to approximately
4 million names incluLdingboth its customer list
and prospects.The company believesthat it has
significantopportunity to grow the segmentthrough
cataloguemarketing in addition to direct response
radio distribution.
VTB hasalsoinitiated an onli,teffilittte-marketing
prlgramme for its delivery service.The company
has worked with affiliate partners,including opt-in
list aggregators,ne\4rsand entertainment websites,
existing radio stations and char:itiesto adverrrseto
i l 4 a r k e tc o m m u n i c a t i o n
new prospectsvia e-mail, and praidthesepartnersa
\rTB's marketing and selling expensesare imrnense. percentageof salesgenerrated.
The companyhasalso
Of VTB's total salesof $66 million, 37 per cent is been successfulin acquiring certain keywords and
usedfor this purpose.
phrasesused on theselnternet searchsitesand pays
The company developedthe BearGram sei3ment these partners on a 'cost per dick' basis.Affiliate
using predominantly direct r,esponse
radio for mar- websitesare pre-qualified based on criteria estabketing and distribution in combination with a toll lishedby the companya:ndsignedup and monitored
free telephonenumber and subsequentlyits r,r'ebsite by a third-party serviceprovider. Under this system,
v,ermontteddybear.com.
Nlostof the radio adv,:rtise- the company pays its p'artnersa percentageof revments are read 'live' by local radio personalitiesin enuesgeneratedthroug.hlinks fiom their websites.
major metropolitanareas,In 21005
the compan./used
local radio stationsacrossthe ,countryto adverliseits O n l i n eo r d e r i n g
BearGramand PajamaGramservices.Many of the As the companl.beganto clari$, its identity as a gift
slationsand personalitiesair advertisements
for both delivery serviceas opposed to a toy manufacturer,
segments.
customer service increasinglybecame the focus of
In the early 1990sthe Company producedsev- its efforts to differentiate its trrand. Focusing
on
eraltelevisioncomntercials
that were aired on a small customerservice,incluclinglast-minute gift delivery
scaleon cable networks. These TV initiatives \4.ere and personalization,the company
expandedits conn,ct consideredsuccessfulat the time. In 2003 V'TB tact centre,investedin the technology
infrastructure
again tested a small-scaletelevision ad campaign to support onlinr:ordersand built
a nervdistribuuon
f<rr the BearGramsegment a1"Valentine's Da.rrand facility with state of the art fulfillment,
personalizfc,r both the BearGram and l,ajamaGram segrnents ation and shippingcapability.Orders,
including perat Mother's Day. Encourag,:d by the results of sonalizationin the form of artwork
or embroidery,
thLese
campaigns,the company in 2004 engai3eda eventuallycould be taken as late as 5 p.m,
for delivLos Angeles agency to produce commercials;and erythe next day.On the dayprior.to
certainkeyholiincreasedits spendingon cablenetworks.The com- days,the company set up its
own remote fulfillment
pany intends to continue expanding televisiorras a operationnear the carrier
distribution hub to receive
meansof direct responsemarketing and distributlon and process orclers until
midnight for next day
particularlyfor the BearGramand pajamaGramseg_ delivery.
ments in the holidays. Basedon the results during
The company began taking ,crderson its web2005, the company intends to, continue developing site in March 1997,
recognisingthat the website
TIy'as a advertisingmedium fcrrall its segments;.
provided visual support of the company,s radio
VTB has periodically testeddirect response
prirft advertising campraigna(:rossthe .oorrr.y and was
aalvertisements
in a variety of magazinesand rrelvs_ a convenientwa1'for customers
to place orders.In
papers.Theseearlyeffortsweredeemedonly marginally December
1997online ordersrep,resented
7 per cent
successful.
More recently,VTB's brands havegained of total Bear-Gr;rm
orders. In Trpril 2000 approxgri3aterawarenessin markets nationally and as it imately 35 per
cent of the Bear-Gram orders were
embracedthe 'art' of multi-ch,annelmarketing;,the received
via the Company'swebsite,triple the level
company has again begun to test a variety of print of the prior year.
In 2005 nearly60 pei cent of the
advertisingopportunities for a1lof its gift segments. orderswere
receirredvia the Internet.

35

C h a p r t e1r G l o f r anl r a r k e t i ni q
n t h ef i r n r
Competition
c o m p a n ) 'c o n r p e t e sw i t h o t h e r d i r e c t f r o m - t h e C)ompetition
in the giii marl<etis very intensr:.
ldany gro\verfloral retailer.s
such as l g00,Fiowers,FTD
of its cornpetitors
sellsirnilarproductsat lower plice and ProFloler; anclwith localretail
floriststhroughpoints and havegreaterfinancial,scllingand rnar- out the counlrr and 'lvire
scn.ices'cornpanies
such
ketingresources
than the company.'l'heCompany, as'l'elelrlora,
1-800-Flowers
and I:TI) that distribure
however,believesthat its brancl strength,its cus_ orders1odelivcringflorists.
It als<icompetesbypro,
ton'lerrelationshipsand itr; last-minute pers,:nal- viding high-enc designs
for its bouquets,1iesl cut
ization and tulfilhncnt caprabilities
positio;r it to varietieslesscomrnonlvavailatrlc
anclexclusive
concompeteeffectively
u'ith its currentand futurer:om- tainersfor bourluetsanclplantr;.Finally,
it competes
petitorsin eachof the gift servicecategories.
Ilalriers by provirlinea convenientservicethat ilcludessupto entry into the compally'sInarketsare lou,, how- port to receivcrs
in caringfor th,eirflowersa1dplants.
ever,ancl increasedcontpctitionba.scdon pri<:eor
In a broarlersensc\/'JJl alsocornpetes
with other
'bricks
other considerations
could result in clecreas,:d
revand mortar' retailers.'rherecan be no assurerlues)lncreased
marketingand sellingexpcnclitures ancethat adciitionalcornpanies
rvill not.seekto corriand lowel profit maruins'
Iretedirectlyrvith V'l'B, inclu<lingthosewitl.rgreater
fhe VTB's IJear(lrarnscrvicecolnpete.s
lvith a resource.s.
nunlberol''sellcrs
of florvcr.s,
balloons,cfrnfcctionery, v'tll keepsirs productiol in Verrnont
because
it
c:akes
and rlthergifi iterrls,r'v|ichcan be ordcredtry is convince<l
tirat irs iclentityas,an Americanbrand
telephone
and overthe Inlernetfor specialoc<:asi<ln.s
rnanufacturer
(rvithproductionin verrnont, 1JSA)is
andaredeiiverecl
by express.sen'ice
itt a mannr:rr;ini- a key elemelrtof its ma.kct positioning{or the V,I.B
:iar to Bear-Gramgifis' 'l'hecompanyalsocorn;rctc, brurid.,A.pproxirnately
350,000l>earsare asscmblecl
Io a lesserdegreewith a nunlber clf comirani:slhat per,vear.Onlv
a relativt:lysrnallper centof this pr,rsellteddy bear'sin the Ilnited states,inJrcli;rg but cluction
is oLrtsourcedto overseasmanufacturer.s,
n o t l i m i t e c lt o s t c i f l o f ( i e : r m a n y D
, a k i n , N , r r t h m a i n l y i n A s i a I. l o r v e v c r , t h e m a n a g e m e r t i s c x p l o r Bear',(lul.rdanclBuild-A-l3calworkshop. ing someopportunities
in other pu.t, ur the worlcl.
"urterlcan
'.['he
company aiso c,rmpetesrvith busircsscsthat As iilisabeth
Robertsay,5;
market and sell terldl,bearsand other stuffeil ani_
(ittt gLvingrsa cleepll'rooted
rnalsin a rnannersimilar to Bearcrams,inclucli'*
traditionin rnanyfor'Pooh-Grarns'
elgn
culturc'\.rUsirtg
cr:mmonr:arriers
suchasFeclEx
rnarketeclby cenain subsiciiarie:;
o?
and takjngor<lers
on the Internet,we avoidsetting
l)isneyEnterprise.s,
Inc.
uP arl rlrlernationaldistribuLtionilrfrastructure.
With its Pajamaciram
gift 4elivery servicethe

pany
co,npetes
againsr
virtuairy
aliapparer
,..,lii:l;

""*

nodifferent

li::t';1iil:,i:';HJ;:l];;:,
s'eilingpajamasand rclated slleeprreaiancl .spap,1iysource:
verrnonr
l.errtly
llcarAnnual
Reporr.
c'tucts,
incluclingLands l:nd, L.1,.Bean, (iAl) and
\"ictoria'sSccret,that can delivertheir proclucts
until nou' the conrpanyhas only been
'ia
,,llu*.u-.,1
sclttngto tJScuston)ers,
e:rpress
selice. The conrpany,:c)mpetes
prirnarilyin the big citieson
lly pro'icling
.::,.c_oasr
irs customersrvir' a c<invenie:nt
r;uclt
as
New york, lloston and
se^,iceand reliabi.l l-|t:.
l'trtladel;t11ix.
erpediteddeliveryoprions.it alsocompc.tes
by pr.
viding its cu.stomers
lvith a ,completc,gift rvith the
a,:lded
valueof a freegrer.sonalize<i
greetingcar<land Questions
a f r e ea c l d - t i n
s u c l ra sl a v e n < l er ur b L a , p a i a g e , l i n a 1 W h a tk i n r Jo f d i f f i c u l t i cws o u L d\ / e r m o n t
T e c l dBy e a r
d c c o r a t i vbeo x a n d d e l i v e r e ci nl a c o l o u r f u .l s i r i l , p i n g m e e ti f i t w e r e t r -irn t c r n a t i o n a l i z e
its business?
c c ' t t t a r rn' e
2 l n w h a tp a r to f t h ew o r i ds h o u l rtjh e c o m p a n y
start
w i t h i t s T a s t v G r a ms e r v i c ct,h e c o m p a n y
itsinternationertizatiorr?
.omp e t e sr v i l h o t h e r s p e c i a h yr e t a i l e r st l t a t
s e i l f b o d 3 H o w s h o u l dt h e c o m r a n y p e n e t r a t e
the foreign
rtemsand deliverthern via exPres.s
service.s,
itrclud_
markets:
in,qflany and I)avid, OrnairaSteaksanci
l{ickory
{aJ by lnternet.?
Farms..Again,
the cornpanycompetesby pr.ovicling {b} by physicaL
stores.:)
con'e'ient customerserviceancloffering
a gift pre^
{cl by a combirratron
of the two?
sentationof the item ivith a frecp..ruu.lir.,i"carcr
Id) by other merans.?
in
a colourfulgift box.
'
with the'callx& cc,rolla
busine.ss
seg,rienr
rtre :ff,:::':

;[::iilii:

ir:j il,n],i

thechosen