Market leaders succeed because:
b) the build business systems that can deliver more of that value to their customers
c) By doing so, they raise customers’ expectations beyond competitors reach
While consumers expectations of value has expanded from price and quality to include convenience of purchase, after sale service, etc., the focus of market-leading companies has narrowed to three value disciplines:
1. Operational Excellence
2. Customer Intimacy
3. Product Leadership
Moreover, market leading companies do not excel at all three disciplines. They excel in one of the three, and meet industry standards in the other two (some, like USAA, Staples, and Toyota, have mastered two of the three).
I. Operational Excellence.
Operational Excellence describes a specific approach to the production and delivery of products and services, focused on price and convenience.
· minimize costs
· optimize business processes
Examples are Dell Computers, Wal-Mart, American Airlines, FedEx.
Also, GE’s White Goods (home appliances) division is a good example of a company that reinvented itself as a market leader in operational excellence.
Historically the home appliance industry’s model is “a loaded dealer is a loyal dealer”, and incentivized dealer purchases through volume discounts so that dealers carried large inventories.
GE, recognizing that discount electronics chains (Circuit City) were squeezing independent dealers, adopted a new model, called Direct Connect, in which retailers no longer maintain their own inventories, but rely on GE’s “virtual inventory.” Dealers place orders with GE as they make sales to their customers, and GE makes deliveries within 24 hours. Dealers promise to make GE products 50% of their sales, and agree to a shorter payment period.
Result have been excellent for both dealers and GE. Most important, GE gained access to high quality information about consumers buying habits, since its orders from dealers represent actual customer orders, not inventory stock.
II. Customer Intimacy
Customer Intimacy specialists continually tailor products to fit an increasingly fine definition of the customer. Their operating models allow them to address each customer or small subsegment of their market individually. They look at the customer’s lifetime value, rather than as a single transaction.
Examples are Nordstrom, IBM, Home Depot, Ceiba-Geigy, Kraft.
· Home Depot’s strategy is to provide not just building materials, but information.
· A leading financial brokerage firm installed a telephone system that recognizes callers by their phone numbers, calls up their customer histories, and routes them to the appropriate person, sending large accounts to senior account reps, small account to trainees and junior reps, and specialized accounts to specialists.
· Kraft tailors its ads, merchandise, and operations within a single store or subset of stores to the particular customer of that store (micro-merchandising). It has a large database of customer activity and preferences, and allows its salesforce to tailor its presentations to merchants based on highly individualized data.
III. Product Leadership
Companies that pursue product leadership strive to produce state of the art products and services. They are creative, they commercialize their ideas quickly, and they “relentlessly pursue solutions to the problems that their latest product or service has just solved”, so as to render obsolete their own technology. They avoid bureaucracy, always seek new ways to shorten their cycle times, spend little time on detailed analysis. Their strength lies in reacting to situations as they occur.
· J & J’s Acuvue (first disposable contact lens)
IV. Sustaining the Lead
The greater challenge, after developing a market discipline, is to sustain the lead by driving the strategy through the internal culture, and develop internal consistency. The danger is to lose focus by pursuing projects that have individual merit, but which are inconsistent with the companies value discipline.
· Sears: introduced “everyday low prices” and cut costs, trying to be operationally excellent, inaugurated “Brand Central”, in line with the customer intimacy discipline, and had models and actresses endorse the fashion line, trying to follow the product leadership tack. As a result of trying to do all three, rather than focusing on a single discipline, the company failed at all three.