The Background

Founded in $2004,$ Hangers Cleaners of Kansas City, Mo$.,$ was started as an environmentally safe dry cleaner. It uses colourless, odourless liquid carbon dioxide instead of the aggressive chemicals applied at traditional dry cleaners. It has $35$ employees and $2009$ revenue of $$1\mathrm{.}6$ million. When Joe Runyan started Hangers, he was hoping to bring a fresh approach to what he considered a stagnant industry. A first$-$time entrepreneur who had left a marketing career at Sprint, he had been dissatisfied with the local dry cleaners, finding dirty facilities and rude workers to be the norm. Then, while researching the business, he discovered that the chemicals used by most cleaners were prohibiting new entrants. Building owners refused to lease space to cleaners using perchloroethylene, or $$perc$,$ which is now heavily regulated. $$By no means was I a tree hugger,$$ Mr$.$ Runyan said. $$But from a business perspective, it was clear this industry had to change.$$

He found that liquid carbon dioxide was acceptable to landlords and as effective as perc in cleaning. Mr$.$ Runyan decided to employ the new process. While his business plan had called for $12$ to $14$ storefronts and drive$-$through counters throughout the city, pick$-$up$-$and$-$delivery vans emerged as Hangers$$ most effective sales channel. At a storefront, customers might forget to retrieve garments, and Mr$.$ Runyan might never get paid. His six vans, however, picked up and delivered clothes in waterproof bags from patrons$$ porches or garages twice a week. Upon delivery, Mr$.$ Runyan immediately charged his customers$$ credit cards. He didn$$t charge extra for the service, but he said, $$It$$s so much less expensive to roll a van.$$ Better yet, he found that if customers never put clothes in their own cars, they were less tempted by competitor sales. $$Our bricks$-$and$-$mortar storefronts provide credibility,$$ he said, $$but we encourage our employees to convert customers to the vans. Our stickiness is so much higher. It$$s one more errand people don$$t have to run.$$

And then, in $2008,$ Procter & Gamble opened an eco$-$friendly dry cleaner about $1\mathrm{.}5$ miles from Hangers$$ headquarters. Using Kansas City as a test market for a new line of franchised Tide Dry Cleaners, Procter & Gamble offered drive$-$through service, $24-$hour lockers, an on$-$site tailor and traditional $$wet$$ cleaning, as well.

$$I think there$$s enough business in town for both, especially if they focus on storefronts, but they$$re spending tons of money marketing and undercutting price,$$ Mr$.$ Runyan said. $$How do we overcome the gorilla down the road?$$

The Challenge

To survive the arrival of a huge new competitor, Procter & Gamble, which began testing a Tide dry$-$cleaning service in Kansas City in $2008.$

$$How can we leverage the trust we$$ve built, the payment mechanism, and the vans to capture a larger share of wallet?$$ he asked. $$What else can we do$?$ As Hough states: There are many routes to competitive advantage, but they all involve giving buyers what they perceive as superior value compared to the offerings of rival sellers.

Advise Mr Runyan on a low cost strategy as the best course of action to follow.