You should be rightly concerned when the competition introduces a new product or service, especially if the advertised specifications and features seem appealing or even superior. The key is not to panic or overreact but rather to analyze the product features and how it affects usability, performance, costs...and other features. Weaknesses will reveal themselves if you look and study carefully.
In Asian philosophy, there is the concept of “yin and yang” – that polar opposites or seemingly contrary forces are interconnected and interdependent. The curves and circles of the Yin-Yang symbol imply a movement in which Yin and Yang are mutually-arising, interdependent, and continuously transforming, one into the other. One could not exist without the other, for each contains the essence of the other. Night becomes day, and day becomes night. Friends become enemies, and enemies become friends.
The smaller circles nested within each half of the symbol serve as a constant reminder of the interdependent nature of the black/white "opposites". It reminds us that all of relative existence is in constant flux and change. It means that each side always contains the other, as night contains day or as evil (at least a little evil thought) lurks even in the nicest people.
What does Yin and Yang have to do with competitive analysis? Everything.
Always remember that you can’t have everything in an organization or product. Features usually require some design compromise, especially when dealing with set architectures, platforms, and code. Newer products based on older product architecture most likely still carry the "old baggage" internally. Remember physics where every action had an equal and opposite reaction? Or the advice that you can't burn both ends of the candle? Every seeming advantage may have some hidden disadvantage. A plethora of features can compromise ease of use and add complexity (at least the perception). A program acquiring data at high speeds means heavy CPU processing, large data buffers, and perhaps even more data than you want. A more powerful machine, e.g. air conditioner, may mean incompatibility with standard 110V household outlets. A car with a bigger engine may sacrifice mileage. A lighter weight car may sacrifice safety or stability. A large organization may have bureaucracy and slow reaction to change. A small company offering low cost products due to low overhead may not offer critical and timely technical support. Fast delivery and availability may mean high inventory and related costs for a company.
I like to challenge our engineers, programmers, and myself to review competitive products/services and explain the possible compromises of each feature or design, especially by asking “why didn’t we do that?” or “what would we give up if we did that?”
Yin and Yang analysis may lead to the guerilla marketing strategy of “flanking” – where you do not attack the competitor directly from their position of strength. A Yin and Yang analysis in the fast food burger world shows that McDonald’s strengths in operational efficiency, speed, and consistency arguably compromises taste and individual customer requests. Burger King thus advertised that their hamburgers are flame broiled, not fried and ran a "Have It Your Way" campaign. McDonald’s operations simply does not allow such options.
The entire Lio clan went off to BJ’s Wholesale Club this weekend to stock up on essentials and loaded up the shopping cart. We grabbed a huge mega-rolls package of Charmin Basic toilet paper and left it on the cart so the cashier could conveniently scan it without having to move the bulky item back in. My wife and I curiously watched the cashier continuously place items around and under the toilet tissue as she was scanning. She finally rung up the total…but omitted the Charmin - worth over $25 with tax. I asked the cashier if she missed the Charmin tissue. She was surprised and scanned the additional $23.95 back onto the total.
Could we have walked out of the store and saved $25? Yes (the staff at the exit didn’t look at the receipt in detail). Could we use an extra $25 in our pockets? Yes. However, even though we could rationalize the cashier’s error, e.g. “it’s a big company”…”they made that money up on all my other purchases”…”not our fault” - we would be violating our own ethics and what we hope to teach our children.
One of the best articles regarding this is by Prof. Clayton M. Christensen entitled “How Will You Measure Your Life?”. (I would urge everyone to read this article.) Among the many insightful points made was how to live a life of integrity. Prof. Clayton has a theory that we are taught to employ the marginal cost doctrine in our lives, basing decisions on the marginal costs and marginal revenues that each alternative brings, and that we erroneously apply this doctrine to decide what is right or wrong. We will also continuously be tested. We were tested by Charmin toilet paper this weekend; Katy Perry may ask me to run away with her today (sorry, I just lost my train of thought*).
In Prof. Clayton’s eloquent and succinct words:
"A voice in our head says, “Look, I know that as a general rule, most people shouldn’t do this. But in this particular extenuating circumstance, just this once, it’s OK.” The marginal cost of doing something wrong “just this once” always seems alluringly low. It suckers you in, and you don’t ever look at where that path ultimately is headed and at the full costs that the choice entails. Justification for infidelity and dishonesty in all their manifestations lies in the marginal cost economics of “just this once.”
I’d like to share a story about how I came to understand the potential damage of “just this once” in my own life. I played on the Oxford University varsity basketball team. We worked our tails off and finished the season undefeated. The guys on the team were the best friends I’ve ever had in my life. We got to the British equivalent of the NCAA tournament— and made it to the final four. It turned out the championship game was scheduled to be played on a Sunday. I had made a personal commitment to God at age 16 that I would never play ball on Sunday. So I went to the coach and explained my problem. He was incredulous. My teammates were, too, because I was the starting center. Every one of the guys on the team came to me and said, “You’ve got to play. Can’t you break the rule just this one time?” I’m a deeply religious man, so I went away and prayed about what I should do. I got a very clear feeling that I shouldn’t break my commitment—so I didn’t play in the championship game. In many ways that was a small decision— involving one of several thousand Sundays in my life.
In theory, surely I could have crossed over the line just that one time and then not done it again. But looking back on it, resisting the temptation whose logic was “In this extenuating circumstance, just this once, it’s OK” has proven to be one of the most important decisions of my life. Why? My life has been one unending stream of extenuating circumstances. Had I crossed the line that one time, I would have done it over and over in the years that followed. The lesson I learned from this is that it’s easier to hold to your principles 100% of the time than it is to hold to them 98% of the time. If you give in to “just this once,” based on a marginal cost analysis, as some of my former classmates have done, you’ll regret where you end up. You’ve got to define for yourself what you stand for and draw the line in a safe place."
*I kid. Fanny Lio is the one and only. Sorry, Katy.
There are two strategy models that I use and highly recommend.
The “Five Competitive Forces” model was developed by Dr. Michael E. Porter (Harvard) in 1980 and has become the classic tool for analyzing the industry structure in strategic processes. Porter identified five competitive forces that shape every industry and market.
The model is based on the insight that corporate strategy should meet the opportunities and threats in the organization’s external environment. Competitive strategy, in particular, should be based on understanding the industry structures and the way that they change.
Porter's five forces are:
· Threat of substitute products or services, e.g. Palm PDAs and Blackberries replaced by Smartphones
· Threat of new market entrants, competitors
· Bargaining Power of customers/buyers, e.g. haggling
· Bargaining Power of suppliers, e.g. raising commmodity prices
· Rivalry among existing competitors
I’ve not found much fault with the model except that the advent of the internet has made Porter's model even more dynamic and accelerated. For example, the customer has increased his bargaining power with the ability to compare products and prices online instantaneously and new competitors can easily sell worldwide.
I attended a course from Dr. Arnoldo Hax at MIT Sloan (a brilliant and engaging person) introducing a competing strategic model named the Delta Model. The Delta Model does not treat the customer as a competitive force but rather as the focus and reason for being. The goal is to attract, satisfy (delight), and keep the customer. The Model shows a wide range of potential strategies – all pointing to the use of technology to promoting bonding (with customers, partners, etc.).
The range of Delta Model potential strategies include:
· Low Cost – Southwest Airlines, Walmart. This is very difficult since you must have the correct infrastructure and operations to sustain it.
· Best Product – best technical features, superior in performance, etc.
· Redefining the customer experience – Amazon (both Amazon.com and via the Kindle), Starbucks, Apple iTunes, Singapore Airlines. This is an appreciable change in the customer value proposition.
· Customer integration – Facebook, Google is Dell, SAP are tied deep into many companies’ IT and manufacturing respectively.
· Dominant Exchange - Google, YouTube, Facebook, Wikipedia, iTunes are the defacto paths to browse, see videos, network socially, research, and sell/buy music respectively. Dominant exchange is achieved when a critical mass of collaborating users is reached and each new user makes the service even more useful (e.g. YouTube, Facebook).
· Horizontal Breadth – Fidelity, Amazon offer “one stop shopping” for financial products and very much all products respectively.
· System Lock-in - Intel, Microsoft very much own the microprocessor and operating systems in PCs. Apple owns the tablet market with Google Android moving in. System Lock is the strongest form of bonding and integration among complete industries around a product (e.g. all the software companies developing Windows specific solutions). It focuses in the entire system economics instead of product-centered economics. Success is due primarily to the complementors that create solutions based on your product.
Strategies based on Best Product or Low Cost are the most difficult to sustain. Dominant Exchange and System Lock-in strategies are the most sustainable because they involve the complementors and the whole system.
You can see the Delta Model strategies being used in companies today. Amazon is a dominant exhange in ecommerce and becoming the dominant exchange in e-reading with the Kindle. Apple is covering many of the strategies with arguably Best Product(s), Redefining the customer experience, Dominant Exchange, and System Lock-in. Google is arguably Best Product (browser and analytics), Dominant Exchange, customer integration (Analytics), and also moving into System Lock-in with their browser and Android. All of these companies are aggressively using technology to enable their strategies.
Which model is best?
I don’t think that one has to use one model exclusively of the other. For example, one has to recognize the bargaining power of the customer (Porter) and should therefore constantly watch its cost structure but an organization should never think of the customer as anything but the center of its strategy and also work on its differentiators and compelling value proposition. Hax is correct in saying that Porter’s model is very turbulent and always in a state of violent competition from all sides…but that is a true reflection of the market. The Delta Model provides a customer centric approach with a number of potential strategies and is proactive in approach (IMHO). Hax does have a point that you wouldn't constantly be looking over your shoulder at competition if you are looking forward focused on bonding with the customer and doing the right strategy.
It’s worthwhile to review your organization, market structure, and competitors against Porter’s and Hax’s strategic models.
"I coulda been a contender. I coulda been somebody, instead of a bum" - Terry in "On the Waterfront" (1954)
You were born a winner! Correction...you were a winner at the very the moment that you were conceived. Think about it. Out of the millions of sperms making that race to the egg, being at the right place at the right time, pushing and shoving, slogging (?) through all that stuff, going through barriers…you did it!
So don't ever accept failure. Maybe some of the other little guys held back and rooted you onto the finish. You didn't get this far for nothing. Don't let them or yourself down. Follow your dreams.
One of my dear nephews heard this at a Buddhist retreat and shared it with me.
Breakfast Pizza…I finally tried it and am hooked. A combination of 2 of my favorite things: breakfast and pizza. What a country. That’s the thing about innovation – it can be simply fusion (although the wrong fusion can lead to confusion).
Some think that innovation simply happens - that's rarely true. Serendipity can help, but it takes awareness, sponsorship, and grit.
The 3M story about Post-It Notes(R) being simply discovered by a Chemist as a use for a high-tack/low peel adhesive, then used in Church for notes and internally, and becoming a hit is only part of the real story. Dr. Spence Silver at 3M was trying to invent a strong adhesive and ended up with a weak one. He would not let go of the idea that his unique adhesive had some application and held seminars for years to spark internal interest. A colleague, Art Fry, who was in charge new products at the Tape Division and in need of new offerings, heard about it and attended a seminar. He initially created bookmarks that were well received internally but with low demand. Then one day, Fry used a piece of bookmark to write and attach a note to a report and the reviewer did the same - that was the "Eureka!" moment when the sticky notes application was realized.
Still more was needed. Special machinery was required to create the pads and ensure that they remained flat with adhesive on one side. Fry created a prototype machine in his basement when the technical team expressed difficulty. When the Marketing dept. did not see much potential and resisted, Fry and Silver created and distributed pads to senior executives and colleagues(who were directed to call Marketing for replacements). The initial launch in 1977 was a failure. Advertisements didn't work because people who had never seen or used Post-It Notes could not fully appreciate it. Success started when they realized that they had to pass out samples so that people could grasp the concept and application.
So we are talking about years of work, stubbornness on the part of Dr. Spence Silver in refusing to let go of his "failure", some luck in the right player, Art Fry, coming into the picture to sponsor it, and more perseverance and creativity in getting the manufacturing worked out, overcoming Marketing resistance, and recovering from the failure of the initial launch. Some organizations would have taken Silver and Fry's perseverance as a waste of valuable time and resources (especially in light of conventional corporate wisdom) and they could have moved onto to other priorities.
It probably took much trying, experimenting, failure, and perseverance to get breakfast pizza right and selling.
3 tablespoons milk (optional)
1 tablespoon Butter or cooking oil
1 (10-ounce) (11-inch) thin prepared pizza crust
6 (3/4-ounce) slices Cheese (Cheddar, American, Provolone, whatever you like)
4 slices crisply cooked bacon, cut into 1-inch pieces or ham, sausage, whatever toppings you like except kippers (that should be totally illegal)
Heat oven to 450°F. Beat eggs and optional milk in medium bowl until well mixed.
Melt butter in 10-inch nonstick skillet (or use oil / cooking spray); add egg mixture.
Cook, lifting gently and stirring slightly to allow uncooked portions to flow underneath, until set (2 to 3 minutes). Remove from heat; set aside.
Place pizza crust onto large baking sheet; top with 4 slices cheese, cooked eggs and bacon.
Stack remaining 2 slices cheese. Cut cheese into quarters; separate. Place cheese pieces over pizza. Bake for 9 to 11 minutes or until cheese is melted.
Cut into 6 wedges. Serve hot.
Post-It Notes is a registered trademark of 3M
Product Life Cycle
Product roadmaps and life cycles need to be planned. Your customer base is one of your most valuable assets to be protected like your children. Many sales forces classify themselves as either farmers or hunters. Hunters seek out opportunities and seek out where their solution can solve a problem(s). Farmers build upon and cultivate relationships and opportunities, often through existing networks. Generally, your customer base is your “farm” so you need to seed, cultivate, and reap what you sow. Neglect it and you get nothing.
Many companies have a “fire and forget” mentality when it comes to developing and selling products – they pursue and focus on the customer until the sale and then forget about him/her until the next sale. That’s like pursuing a girl until you get to first base (or beyond) and then disappear. All products go through a life cycle from initial product launch to (hopefully) market acceptance, market saturation, and then end of life. (For simplicity, we will skip the concepts about “crossing the chasm”, early adopters, laggards, etc.) End of product life can be due to a number of reasons, including supplier parts unavailability (especially with the chip market), change in technology (e.g., PC operating systems), and just a general change in market conditions. At some point, it may also get prohibitively costly to continue support for older products used by a relative few. One of the most important things to do is getting regular updates from Purchasing and Engineering to understand the supply chain and technology changes. They can do last time buys, tap the grey market for certain parts, create repair exchange programs, or do re-engineering to extend a product life cycle to a certain point.
It is important to work with your customers to communicate the product roadmap, product life cycle, and options at each product life stage so that they can plan their budget, training, facilities, and transition accordingly. Some products need to be validated and compared to their predecessor. You may offer trade-in discounts, parts exchange, customized support services as options. Don’t make it a surprise where the customer must scramble. You will probably have to communicate this a number of times since customers tend to ignore or forget when things are running fine.
Remember that a product’s end of life can lower competitive barriers to entry and expose you to competition if not planned carefully. A user can use this opportunity to seek other options if he has been unhappy, has to retrain staff or find that the transition to your replacement product is just as time-consuming or costly as switching altogether – don’t give them that excuse to look elsewhere. Try to develop your replacement products with hooks to make the transition as seamless and painless as possible, e.g. import existing data in software, share common user interfaces, help files which explain product differences, upgrade packages, etc.
It is very important to watch and understand how your customers use your products. One of the best ways is to visit your customers in their environment to watch and interview them. There are quite a few benefits. One is that you will be able to observe the product usability in real life. What you and your designers thought may not match actual user experience. For example, while Microsoft Windows is primarily a mouse and pop-up windows dialog boxes interface, some users prefer to use the Tab and Enter keys for faster operation in software. Highly touted and costly features in software and hardware may also be "so what" in a customer's real world - allowing for some design cost cutting and support reduction without affecting customer loyalty and satisfaction. You also find that users may be having an incorrect and lowered impression of your product due to not knowing the full feature set. This is understandable since many customers may not have been fully trained, do not have the time to learn everything, may not have known enough to ask the pertinent questions during initial training, or just simply assume that the desired function is missing. Being with the customer in this follow-up visit allows you to learn and correct such false assumptions and to “delight” the user; you also learn how to improve your product or training to prevent this was occurring. (You also don't want this misconception to brew into customer dissatisfaction and affect future sales and word of mouth.)
In terms of innovation, I’ve observed that users will modify your product (if possible) to suit their particular needs. Some of their modifications have been very creative and brilliant. You can get some great concepts and ideas to bring back to your design team. Innovation does not have to start from you, Marketing, or Engineering alone. In fact, there's a whole area of study on this by Professor Erc Von Hippel called "User Innovation". An example is soldiers mounting machine guns on cargo planes in Vietnam out of their own ingenuity, which led to flying gunships and attack helicopters. You will also see and learn where you product and its usage fits in the total universe of the customer. Learn the user’s workflow, his/her bottlenecks, and challenges. Remember: people don’t buy products for features; they buy products to solve a problem that they have.
A very important side benefit is that customers usually very much appreciate that you are there in a non-selling situation mainly to learn about their situation, make their lives better, and stand behind your products and them. You also get to know them on a personal level and develop references. There is nothing better than knowing and treating your customers as friends. All things being equal, people will prefer to do business with someone whom they like.
Note: Eric von Hippel is an amazing person who truly beieves in open and democratic innovation, including free and open source software (FOSS). He has a very informative website where his papers and books can be downloaded for free! The man walks the walk.
My father was a bartender in Long Island, NY for over 40 years (he made the best martinis). He was an immigrant from China who learned English (and making drinks) on his own. Since he did not have a formal education, his English was broken but you could understand him with some effort. Dad always had a smile, a wonderful laugh, and his patrons were almost all long time regulars who loved him. He knew everyone by name, their spouses, children, work, etc. One couple came back from Colorado looking for my dad when I was covering that day – they told me how my father comforted them when their son was killed in the Vietnam War.
Dad taught me the trade when I was old enough to touch liquor and I watched him make all sorts of mixed drinks, from Rob Roys, margueritas, to fancy pina coladas, scorpion bowls. (I now make the second best martinis.) What intrigued me most were the long conversations that he had with his customers – some for hours on a regular basis. This was amazing since he and I could not carry a conversation solely in English.
I finally asked my father whether he knew what one particular customer (whom he knew for years) actually just said during his visit. Dad answered, “Not really”. There was a following time when I got to tend the bar myself and I had to ask that same customer whether he fully understood my father’s English. He replied, “not all the time”.
Dad showed me that often it’s not what you say that matters but how you listen, show patience and that you care. (Maybe the liquor had something to do with it.)
Frank Lio is a Product Manager, Strategist, and Change Agent in the Hi-Tech industry. His growing track record of successes include creating 3 winning software products, leading nationwide seminars, and turning around a failing business unit. He is currently serving a dual role as Product Manager and Business Team Support Manager at Instron ITW.
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