Second-Tier Busine$$ $trategie$

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Say 'news media' and most people think of the biggies: New York Times, Wall Street Journal, CNN, etc. People living in the Tampa Bay area of Florida might think of the St. Petersburg Times, the Tampa Tribune, and various local television stations.

But those news media organizations are only the tip of the proverbial iceberg.

Floating just under the surface of instant name-recognition status are a larger mass of smaller news outlets, ones we might call second-tier organizations.

Second-tier is one of those eye-of-the-beholder kind of terms that gets bandied about casually and expands or shrinks to fit the moment. Second-tier doesn’t necessarily mean second-rate. In fact, second-tier thinking in the business world, however, can prove quite profitable. 

Forbes.org, for instance, noted in a May 23, 2011, posting that Bethesda, Maryland, based Coventry Health Care, Inc. uses a “growth by acquisition strategy” that “targets small, local health plans in second-tier markets, where it can leverage its four regional service centers and improve operating efficiencies, largely through economies of scale.”

Apparently Coventry’s strategy works. Forbes noted that Coventry “reported net income of 150.3 million … in the fourth quarter” up from “109.1 million in the prior year period.”

The World Bank noted in its report Global Development Horizons 2011—Multipolarity: The New Global Economy that one category of so-called second-tier companies, emerging-market companies, are “becoming powerful forces and agents of change in the global industrial and financial landscape.”

Danny Ng, writing in the July/August 2010 issue of China Brief, noted that while China’s second-tier cities—numbers four through nineteen in terms of population—“account for roughly six percent of China’s population…they contribute about half of the country’s total foreign direct investment.” Foreign direct investment refers to other companies from other countries coming in and building a manufacturing or other facility in the host country.

What makes second-tier markets attractive? Ng says the second-tier cities often have governments that are actively pursuing foreign investors and offer comparatively lower operational costs than larger cities but still have large potential labor pools and markets. They may also offer a less competitive atmosphere—especially for foreign banks—than the larger cities, where the market is often saturated. Finally, because consumers in second-tier cities tend to expect less, they are an easier audience to cater to. But that doesn’t mean this is not a lucrative market. Ng noted that “The demand for luxury products is so hig in some second-tier cities that it is outpacing demand in their first-tier counterparts” (p. 10).

Locally, St. Petersburg-Clearwater Airport, generally considered a secondary airport compared to Tampa International Airport, has carved out a niche in the travel industry by attracting secondary airlines, such as Allegiant Airlines, that fly to other secondary airports. Not everyone wants to fly to Memphis, but enough people want to fly from here to the Tri-City area on the Johnson City, Tenn., side of the Smokies to make it a regular run.

Sometimes it pays to think smaller.

And in the media world?

Stay tuned.