Use a recent article to illustrate some topics from the the PowerPoint File
azmtn0150
1SustainableCompetitiveAdvantage.pptxSustainable Competitive Advantage
SCA – What is it?
Not always easy to identify – e.g.
Minnetonka – liquid hand soap – an advantage easily copied
Texas Instruments leveraged its ability to drive down costs to the wristwatch market - consumers wanted style more than cheap
RCA built barriers to entry in the vacuum tube market in the 1950’s – transistors made that irrelevant
CB radio makers built great capacity that was wasted when the CB craze died.
Conditions for SCA? - 3
Customers perceive a consistent difference in important attributes between the producer’s products and competitor’s.
That difference results from a capability gap between the producer and competitors.
Both the difference in important attributes and the capability gap are expected to persist over time.
Differentiation in Important Attributes
Not just any differentiation:
Must be reflected in some product/delivery attribute that is a key buying criterion for the market
The product must be differentiated enough to win a significant set of buyers - must have a footprint in the market
Amazon – fast delivery
PayPal – fast and secure payment
Amazon – convenience and ability to return for refund
The airlines? Southwest - cancel and keep the funds….. United…$100 to change…
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Differentiation in Important Attributes
MUST BE FELT IN THE MARKETPLACE
Differentiation in Important Attributes
For a luxury automobile ______?
For a family automobile ______?
For a commercial vehicle ______?
For an airline _____?
For an MBA degree ______?
Differentiation in Important Attributes
Mercedes versus Lexus………
Nordstrom’s versus Marshall’s _________
Gillette razorblades versus Dollar razorblades__?
Suburban living versus Fells Point_____
Business versus competitive advantage
What is the significance of lower cost of production than competitors?
…if the parent syphons the profits to fund another unit it is NOT a competitive advantage
The $ goes away from the company’s market….
To be a competitive advantage, it must help compete in the market – be applied to the market
Key Buying Criteria
Every product has attributes
Only some of them matter to the market
TI created an attribute (low cost wristwatches) that the market did NOT care about…not a buying criterion
Key Buying Criteria
Hasselblad professional camera
Amazing features
Cost ½ the price of a VW
There are two on the moon
The mass market could not care less about the myriad features
Not relevant buying criteria
Key Buying Criteria – benefits
Third party testing reject rate ( a quality metric)
Availability on the DAY you need it.
Key buying criteria vary by segment
In any industry only a few attributes are relevant
In tubular steel there are only two======
Footprint in the Market – breadth and depth
Breadth – a volume metric
How many customers are attracted to the product above all others by the difference in product attributes?
What volume do these customers buy?
Footprint in the Market – breadth and depth
Depth- How strong a preference has this difference generated?
Would minor changes in the product cause customers to switch?
Breadth and Depth = Branding
A source of competitive advantage
Perrier still has an advantage in bottled water
To be fair….
Breadth and Depth are not limited to branding
Even a low-price strategy must ensure that the lower price causes customers to choose the product ….
….and resist the siren call of non-price attribute changes of the competitors
Durable Differentiation The differential advantages must resist being erased…
The advantage is durable
Only if competitors cannot imitate the superior product/delivery attributes
…a gap in capability underlying the differentiation must separate the producer from its competitors
Capability Gap
No capability gap – no competitive advantage
Typical gap – one company has a larger fleet of delivery trucks
A capability gap exists when the function responsible for the differentiated product/delivery attribute is one that only the producer in question can perform.
Or that competitors can perform at maximum effort
Position Gaps
Result from prior decisions, actions, an circumstances
Eg- BHP an Australian steel producer enjoys substantial production efficiencies – Why?
It located its smelter next to the source of iron ore – eliminating iron ore transportation costs
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Lasting Advantage (sustainability)
There is not much point if it does not last
Manufacturers of
CB radios
Designer jeans
Video games
Suffered revenue declines not because of anything their competitors did…
The market changed
In each case the players thought they had an advantage that would persist.
Lasting Advantage (sustainability) Comes from two cases:
Case 2 – Competitors could close the gap but decide not to…
Inadequate potential
Corresponding disadvantage
Fear of reprisal
Management inertia
Examples
ATT ignored MCI which created the discount LD market –
Opening gaps elsewhere –
Japanese steel producers refrain from exporting too much to the US – fear of quotas
Honda’s success in the UK motorcycle market – Norton failed to counter their inroads
Lasting Advantage (sustainability) Comes from two cases:
How long competitors will tolerate capability gaps they could close depends on
The value of the advantage created by the gap and the cost of closing it
The worse the cost- to benefit ratio, the longer the advantage is likely to be sustainable.
Elements of Brand Equity
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Product Life Cycle
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Branding
Brand: Name, term, design, symbol, or any other feature that identifies one seller’s good or service as distinct from those of other sellers
Trademark - Legal term for brand
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Brand Equity
Set of assets or liabilities linked to the brand that add or subtract value
Value of assets depends upon results of marketplace’s relationship with the brand
Determined by the consumer on the basis of consumer’s assessment of the:
Product
Company that manufactures and markets
Variables that impact on the product
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Maxwell Smart’s original Cone of Silence
Sometimes innovation hits the mark the famous Shoe Phone
Use the above to clarify the five reasons new products fail
Flaw 1 – the company cannot support growth – Mosquito magnet
Flaw 2 – the product falls short of claims – Windows Vista
Flaw 3 – the new item exists in ‘product limbo’ – Coke C2
Flaw 4 – the product defines a new category and requires substantial consumer education – but doesn’t get it
Flaw 5 – the product is revolutionary but there is no market for it - Segway
The extent of new product failures?
Why major brands fail in the market
#1 Failure to Understand Consumer Needs and Wants
Example….AT&T Picturephone
AT&T believed:
a million units would be in use within 10 years of launch.
They pulled it off market 3 years later due to a lack of consumer interest.
Why did Picturephone fail?
As it turns out, users found the equipment too bulky, its controls unfriendly, and picture too small to actually enjoy viewing.
Blinded by their own vision the company ignored negative user feedback right from trials, and developed a product that failed to meet customers needs and wants.
#2: Fixing a Non-Existent Problem – the market does not need your product
In 1990 Maxwell House launched Ready to Drink Coffee.
The premise behind the product was simple:
To create a new, convenient way for customers to enjoy coffee instantly, without having to actually make themselves a cuppa at home.
A customer could buy the product at their local supermarket, bring it home, microwave it, and … voila, their coffee was ready.
#2: Fixing a Non-Existent Problem
So why did it flop?
You see, turns out that you can’t microwave coffee in its original packaging.
Instead customers had to pour the product from the packaging into a mug before putting it into the microwave… An activity no different than pouring yourself a cup of fresh coffee from the coffeemaker. Which is exactly what customers kept doing, forcing the company to abandon the product.
#3: Targeting the Wrong Market
Microsoft decided to take on the iPod in 2006. The company launched Zune which promised to do everything that Apple’s device could do too.
And yet, in spite of great promises, Zune failed on the market.
Why did Zune fail?
Microsoft admits that they were just chasing Apple and created a product that offered no reasons for customers to switch.
What’s the lesson from this mistake?
It’s hard to know how the market will react to a product and marketing messaging. Hence why it’s crucial to test these things beforehand. Ask potential users for feedback and test their response to the marketing message.
And then, listen to that feedback.
#4: Incorrect Pricing – Apple Newton - $700
Customers could afford the Newton. But what’s worse, is its pricing affected its market positioning too.
You see, a high price might suggest too sophisticated product to customer needs. And so, it could force potential buyers to look for alternatives they’d perceive more relevant to them.
#5: Prolonged Development or Delayed Market Entry
Taking too long to launch may also cause a product to fail. By the time it hits the market, customer needs could change, the economy could have taken a downturn, or the market segments may have evolved.
That’s the fate of Google Lively, the search giant’s answer to Second Life. After prolonged development, Lively finally launched in 2008, just as the recession started to take its toil.
As a result, the company pulled the product after just 5 months to “focus on core search, ads and apps business.”
#6: Poor Execution
Bad design, poor user experience, sloppy implementation, feature creep, and lack of quality control all contribute to product failure.
And there are plenty of examples of how poor execution affected the product’s performance on the market: BOB and Windows Vista.
Windows Vista used so much power that most users found it unusable. Add to it a plethora of problems they encountered when using the Internet, and you have a recipe for failure.
About 30 to 45% of new products fail to deliver any meaningful financial return. This typically happens due to a number of reasons,
from poor product / market fit,
failure to understand customer needs (or fixing a non-existing problem),
to a lack of internal capabilities like production or sales skills.
