Gérard Métrailler
  • VP Products at Corel Corp.

The amazing business model of Santa, Inc.

When the success of your organization depends on global delivery within a window of just 24 hours, it’s imperative for your logistics and delivery systems to be flawless. Add to that a strict focus on delighting the customers using processes that rely heavy on outsourcing and you can see just what a challenge it would be. Wait a minute! There’s also that whole “deliver significant shareholder value and growth, year after year” thing. Daunting? Yes. But not for Santa, Inc.

How does the company do it?

First, let’s look at its customers. The total addressable market is about one-quarter of the world’s population (18.9% in the USA, or around 61 million children under the age of 14 years according to the CIA World Factbook).

That market is segmented in many different ways, of course, each one resulting in different personas. The logical segmentation is the separation between those who are naughty and those who are nice. To ensure delivery is both accurate and prompt, this addressable market is segmented by Santa Inc. in other ways, as well, including by gender, by age, by interests and — something that is critical to ensure the timely delivery of millions of packages — those who open presents on Christmas Eve versus those who wait until Christmas morning.

In the “good old days,” customers would simply write a letter listing their needs and give it to their parents to be mailed to Santa Inc.’s North Pole head office. While the quantity of mail was huge, it was a fairly straightforward process of sorting and filling orders. Now, however, in this digital age complete with email, contact forms and a full spectrum of social media, things are much different.

When you have to handle hundreds of millions of orders, normally coming in all at about the same time, the scalability of the infrastructure and the ability to ramp up the customer service team very quickly need to be truly remarkable. And they are.

Santa, Inc. outsources heavily to the peer-to-peer network called parents

Santa, Inc. outsources everything and relies heavily on one of the largest (if not the largest) peer-to-peer network of adults on the planet: parents.

These volunteers are true product managers who help coordinate everything from collecting the information and prioritizing the orders to making sure the top items can be processed and delivered on time and within budget.

Sorry, did you say volunteers? Yes! That’s the beauty (one of the many beauties) of the whole business model: even with the unpaid — but well-fed — elves on the factory floor, the total full-time headcount of Santa, Inc. is virtually zero.

And it gets better.

Rumour has it that Santa Inc. leverages that unpaid workforce beyond the month of December. Although it can’t be confirmed, it is believed Santa Inc. also uses this workforce in the off-season to handle everything from chocolates and flowers to pumpkins and even plane tickets.

Santa, Inc. has an average ratio of almost two product managers per customer

With an average ratio approaching two product managers per customer in Canada, for example, you know these PMs know their target audience extraordinarily well. It seems somewhat counterintuitive to define personas of just one and to overstaff your product management function to such a degree, so we asked a representative of Santa Inc. for a comment. Mrs. Claus, the company’s Chief Customer Officer got right to the point.

“We have millions of people willing to do this for free. We can hardly turn them away. We figure that because they are all volunteers, why limit ourselves?”

Fair enough.

But the company’s command of order processing is just the beginning. Like all successful enterprises, to make sure its customers keep Santa Inc. top of mind, the company relies heavily on its marketing department.

“We long ago learned that discounting and mass emails were unsustainable strategies,” says Mrs. Claus. “Instead, we focus on brand value.”

Having built significant equity into its highly recognizable icon, it’s a strategy that has paid off. After years of hard work and relentless focus on the brand image — including through strategic partnerships with companies such as the Coca-Cola Company — the image of jolly old Santa with a fluffy beard, a relentless smile and a red and white jump suit is the face of the brand worldwide (except in places such as Russia where “Father Frost” wears a floor-length red coat and, for some unexplained reason, is always accompanied by his so-called “granddaughter”).

Santa, Inc.’s CEO drives the open, happy and caring culture by example

Despite a wide open policy of providing non-exclusive licenses to use its image, it has been able to develop a very strong self-policing culture within its customer base. Clearly, this strong culture is a clear result of Santa, Inc.’s CEO leading by example, always being open, happy, loving and caring. He is an authentic leader who deeply cares about customer delight.

One particularly smart bit of marketing — again, a process that depends heavily on outsourcing — was developed to keep the sales funnel full. These include in-store events where “Santa” showcases the brand to millions of customers who are new to the brand. Granted, not all of them are crazy about the idea of sitting on a large, bearded man’s lap, but slowly sensitizing them to the brand is part of the strategy. (As an aside, the company has even convinced it’s in-store representatives to pay for their own costumes. With an estimated 42,000 “Santa’s” worldwide and costumes costing upwards of $950 each, that’s an impressive bit of cost-saving.)

These customers largely replace those who no longer buy into Santa Inc.’s unique value proposition, a group represented by the “teenager” persona.

While Santa Inc. has historically relied on a significant employee workforce — albeit an unpaid one — to prepare all the gifts in company factories (officially called “workshops”), the company has been a pioneer of the sharing economy when it comes to purchasing and wrapping the toys destined for worldwide delivery.

Santa, Inc. is a true pioneer of the sharing economy for packaging & distribution

These “freelance contractors” — colloquially known as friends and family — cheerily carry out all the floor-level work of package delivery. This is done at no cost to the company. The impressive cost-savings are achieved by having the end users pay the freelancers directly using the global currency of smiles, kisses and hugs.

But what about that logistics nightmare of getting all the orders delivered — worldwide, remember — within a 24-hour window? (Although they seem to be improving delivery times every quarter, it’s unlikely even FedEx and UPS combined would be able to achieve such an amazing feat.)

It starts with the chief reindeer pilot who, coincidentally, is also the business owner. Long before he is scheduled to fly his multi-reindeer aircraft at speeds that would scare NATO, he updates his instrument and night-flying ratings, making sure he is perfectly fluent in the latest flight technology.

Both his sleigh and his fleet of power reindeers (Dasher, Dancer, Prancer, Vixen, Comet, Cupid, Donner — originally “Dunder” but reindeer teasing can be particularly cruel so he changed it, and Blitzen) went through a rigorous annual inspection in early December to guard against mechanical problems with the aircraft or the engines. Lead reindeer, Rudolph, faces tough advance testing and preventative maintenance procedures, as well, especially in light of recent tabloid articles about an intermittent red nose.

(On the subject of reindeer, a rumour started many years ago had a tenth reindeer named Olive. Not true. This rumour first surfaced when the song Rudolph the Red-Nosed Reindeer was published in 1939. It included the lyrics, “Olive, the other reindeer, used to laugh and call him names. . .)

Logistics teams also work feverishly with aviation organizations around the world to ensure all the paperwork is done and the proper flight plans are in place. NORAD is also kept in the loop to keep the airspace free of other traffic during the flight.

Everything is scheduled to the micro-second and has been coordinated with an army of volunteers to make sure the delivery happens as efficiently as possible, ideally, without the actual customer ever even seeing the pilot!

It’s this unflinching commitment to detail at every step of the process that has helped Santa Inc. become the successful enterprise — and global leader — it is. And it’s that same commitment to detail that will almost assuredly keep it that way year after year.

Business Model Canvas of Santa, Inc.

Santa Inc. brings joy and happiness to millions of children around the world who are clearly delighted by the customer experience. Five-star ratings and highly positive reviews start to rack up before he even lands back at the North Pole factory (sorry, workshop).

Despite that, based on historical metrics, there is still an annual unhappiness rating that averages around 8.42 percent. This is mostly for deliveries where substitutions had to be made because of either product shortages or funding issues. Although they have worked to address this issue — mostly through modern gift-exchange programs that are actually handed by the same “volunteer” parents — Santa Inc. has determined this to be an acceptable side effect of outsourcing most, if not all, the work.

Despite this minor glitch, nobody — and I mean NOBODY — has ever even come close to toppling this gift-industry giant. Santa Inc. has, as they say, completely dominated its space in the industry.

Rumour has it its sights are now focused on Valentine’s day as part of its business expansion strategy. Is there a friendly take-over in the works? Stay tuned. . .