In the previous post, we discussed complexity. Not only is the market place complex, but so are the frameworks that seek to organize it for decision-makers. However, there are three core competitive strategy principles emerging from those frameworks that can provide focus.
Create value that...
- matters deeply to customers,
- is different from competitors, and
- is based upon unique company resources and skills.
These principles not only provide clarity on the current competitive situation but also important insight for action.
The case example we built in the previous post is one of the most common scenarios that has emerged in over 800 growth cases that have been conducted with this model. The insights are direct and meaningful... and somewhat frightening, as depicted in the diagram below:
This assessment, based upon data obtained from end consumers, tells a tale of no unique advantage in the form of an empty green zone, compared to orange zone factors that explain why customers choose the competitor’s offering.
But we’re only halfway there. What is most important about this analysis is the direction it can provide for righting the ship and building your value proposition.
Insights to Actions: Move the Pins
So what should we do? If you want to win the customer’s choice more often, you’ve got to move the pins which represent the factors impacting customer choice. More specifically, you’ve got to bring value into your green zone that is more compelling than that in the competitor’s orange zone. That is imperative #1.
For example, a major pharmaceutical firm’s analysis found that urologists had significant misconceptions of competitive brand positions for overactive bladder (OAB) drugs. These physicians believed “efficacy�? to be a point of parity (grey zone) between drugs, even though clinical evidence had demonstrated the superiority of the firm’s drug. It was also discovered that urologists perceived the competitor to have a better managed care (reimbursement) program when, in fact, there was virtually no difference between the brands’ programs!
This insight sparked a major branding and communications initiative to more effectively position the brand on these and other dimensions. This program neutralized the competitor’s perceived managed care advantage (moving that pin from orange to grey) and trumpeted its efficacy advantage (moving the efficacy pin from grey to green), as you can see below. This program contributed to the brand’s rise from #4 to #1 in their category.
Build Your Green Zone
In order for customers to choose you, you must “own�? factors in your green zone. The conversation should turn to which factors are moveable and which we are best positioned to take hold of.
Candidates For Differentiation?
- Pins in the grey zone help us understand the concept of table stakes or points of parity. The imperative here is to make sure your firm is delivering these important customer benefits on a level at least at parity with competitive offerings. At the same time, one or more of these factors may provide an opportunity for differentiation.
- The orange zone is a natural source for action. A natural instinct here is to seek to immediately neutralize the competitors’ advantages by imitating them. This can be a powerful contributor to your differentiation, since it reduces the unique reasons the customer would choose the competitor. But there are two qualifiers:
- First, this judgment needs a cost-benefit analysis since it may be quite expensive to neutralize a competitor’s perceived advantage. Purchasing expensive machinery may not be as feasible as changing a process to impact delivery time, for example.
- Second, it’s important to keep in mind that when you neutralize the pins in the orange zone – moving them to the grey zone – you still have the task of determining what unique value you can deliver and promote in the green zone.
- For example, JetBlue designed its airline directly around Southwest Airlines’ low cost model (e.g., a single aircraft, regional point-to-point routes, simplified ticketing and boarding procedures), essentially turning the Southwest differentiators into points-of-parity in its business model. With those factors as a parity foundation, JetBlue then went about innovating the customer’s on-plane experience, building its green zone with value-adds like leather seats and entertainment systems for all passengers.
- The yellow zone is a powerful source of ideas for differentiation. If we can discover and deliver on these needs earlier and more effectively than the competition, there is substantial potential for sustainable differentiation.
- One illustration comes from a board member of a medical translation company, who conducted research in several hospitals to understand customer needs. Conversations uncovered a critical unmet need for high quality video communication for surgeons (yellow zone). This board member then set the firm about acquiring other firms who had such expertise (creating a new green zone differentiator). After one successful acquisition and a second underway, the firm itself was acquired by its largest competitor at a handsome return.
But how do you choose the factors to be the basis for your differentiation? That analysis is more complex than we can address here completely, but recall first that growth imperative #1 is that you drive value into your green zone that is more compelling than that in the competitor’s orange zone.
Second, there are two simplifying corollaries to imperative #1 that provide guidance in choosing the factors on which to focus:
- Choose factors which have a high level of importance to customers (and, therefore, are most likely to impact customer choice and revenue).
- Choose factors on which we already have or could build a natural resource or skill advantage.
The pharmaceutical manufacturer in our earlier example had a natural efficacy advantage that it needed to promote to move that pin out of parity. In contrast, the healthcare translation company did not have high quality video capability, but was able to acquire it successfully.
Seeing It In Action
So, let’s play out an action plan for the consumer durable manufacturer we touched on in Part 1.
Based upon the analysis, our firm realizes that the consumer’s in-store sales experience holds significant potential for differentiation. The consumer data shows very high importance weights being placed on the sales experience. Two choice factors in the current analysis capturing sales experience include:
- Knowledgeable salespeople
- Easy to find a model that fits my needs
Given these insights, our firm sets out to build differentiation around the consumer sales experience, which leads to two specific tactical initiatives.
- First, we hire a sales team leader from a major retailer, who has deep network relationships within the retail trade and significant background in improving the customer in-store experience.
- Second, we leverage the firm’s strong technology skill set in web and application development and the relationships we have with university researchers who study consumer search and decision-making in our product category. We develop a branded online tool with accompanying in-store tools that assists consumers in identifying their primary needs, matching those needs to the array of competitive brands carried by the store, and comparing competitors by providing access to online consumer reviews.
What’s the outcome? The new sales leader has tremendous credibility in working with retail sales teams, and the branded online search tool provides substantial value to consumers in navigating a complex array of brands. The tools and enhanced in-store sales experience have synergy –they reinforce one another in helping consumers come to decisions more easily, thereby increasing the probability that once in store, they stay there to make the decision (making retailers happy). Now the marketing messaging centers around the in-store shopping experience as well.
Over time, our firm moves two pins to your green zone, building brand equity by simplifying the consumers’ decision-making. As firms increasingly leverage new technology to pursue simplicity, they are enhancing both brand value and sales/financial performance.
This is a simple analysis and decision-making tool that helps you and your team stay focused on the most significant strategy principles – through the lens of your customer. It is designed to focus attention on building differentiation to give every chance that customers will choose your offering over competitors.
In sum, while the marketplace and even the frameworks that seek to define how to attack it are complex, there is a way to focus analysis in an actionable way. The three principles that we’ve discussed here are guides to action. The key to applying them, though, is to start with customer choice.
Understand how customers choose before your competitor does.
If you haven't already seen Part 1 of this series, be sure to read it now (click here).
For a number of other relevant examples, see Patrick Spenner and Karen Freeman, “To Keep your Customers, Keep it Simple,�? Harvard Business Review (May 2012).