Nortek is a large provider of products and services for consumer home security, automation and entertainment. Nortek manufactures and sells many product brands through multiple use-case segments and channels, including large service providers, small dealers, niche websites and big box retailers.
Nortek saw huge revenue and margin potential of the services businesses that use its products, particularly at the intersection of security and smart home automation. Nortek was also enjoying significant growth in the service provider channel. Their dealer channel business was experiencing unprecedented disruptive competition, however, they were struggling to get even modest traction in retail channels.
Complicating matters further,Nortek’s growth strategy could create tension with some large customers. It also lacked a couple core competencies that would be required to succeed in a services-dominated business model.
Sprosty Network first provided Nortek with a highly customized fact base that comprised of current consumer behavior and demand in several emerging product categories, five-year demand forecasts by product, channel and customer use-case, and detailed current and expected competitive dynamics. The customer insights were based, in part, on machine-learning assisted analysis of real-time product ratings and reviews. The analysis made it clear that Nortek would face extraordinary competition in the premium services segment, and that low-end segment would see a race-to-zero by competitors with limited differentiation and highly efficient business models.
From there, Sprosty Network illustrated how new entrants could essentially “rent” most of their infrastructure from a combination of third-party cloud services. This would provide low barriers to entry and exit and significantly lower operational risk. Sprosty Network recommended strongly against pursuing a service provider strategy. In the year since these recommendations, the average monthly service price at the low end has fallen more than 25% and is poised for further erosion.
Sprosty Network’s analysis identified that many of the product categories the Nortek sold were beginning an expected trend of explosive growth. This growth came from retail channels where consumers purchased add-on products to enhance the services they were getting from the Nortek’s largest customers. Succeeding in that market would therefore eliminate the risk of channel conflict while leveraging mostly existing capabilities.
A remaining gap the Nortek needed to fill was developing a retail channel strategy and the capability to execute it. Sprosty Network developed the strategy, facilitated discussions with major retailers, and supported the transition of one of Sprosty Network’s consultants to becoming Nortek’s full-time employee.