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Competing on ...
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Competing On ...
Regardless of what areas you compete in,
innovation is the key to sustained success and growth:
Competing on Price
Price is a very attractive area
in which to compete since it is usually the most important consideration in a
consumer’s decision process. However, competing on cost can be dangerous for the
long term health of a company. It can entail a race to the bottom as the company
chases new low cost entrants as the locations continue to move to less and less
developed countries. We are seeing this now with companies moving their
production from Mexico to China. Many companies are investigating eventual moves
to Africa for the lowest cost production.
In addition, it is very
difficult to continue reducing price and keep healthy profit margins without
sacrificing quality and service. This simply accelerates the spiral downward. As
you continue to chase the low price leader your products become commodities and
your brand can begin to loose its equity and customer loyalty. You are unable to
innovate and become purely reactionary. Your fate is no longer in your hands.
Eventually, the company can become hollowed out as margins have decreased to the
point where it is difficult to remain profitable even after drastic measures
such as layoffs and market retrenching.
Successfully competing on
price requires constant innovation in the production and distribution processes
to keep costs low without sacrificing quality. This preserves margins and allows
for the research necessary for the innovation.
Competing on Quality
Competing on quality is the laudable goal of most
companies, yet few do it well. It requires commitment, resources, and stamina to
continue to make quality the primary competitive weapon, even as you see some
customers defect to lower cost competitors. Although competing on quality can
reduce pressure compete on price, it is crucial that enough capital and human
recourses be provided to maintain the quality gap between your company and low
price competitors. These competitors will attempt to travel up the value chain
themselves in order to continue growing. Thus, once they have their basic
production and distribution processes established, they will seek to reduce
their costs and will start moving to competition on quality.
Thus, constant innovation is
required come up with new products and services that move the quality gap to
other areas where it will remain for a while.
Competing on Service
The ability to compete on customer service is at
least partially determined by the quality and usability levels of a company’s
products. The lower the product’s quality and/or its usability, the greater the
need for customer service. To be a leader in service the company must maximize
the customer’s interaction with its people. The use of technology to reduce
costs, such as IVR systems and overloaded chat personnel inevitably leads to
poor service experiences for the customer. There are significant opportunities
for innovation here as companies strive to provide service at lower cost while
maintaining market leading customer experience.
Competing on Features/Functions
Most companies who do not compete on price compete
on product features and functions. Just look at the PC software or mobile phone
industries. Each generation of product contains more and more features. Never
mind that the vast majority of customers utilize only a small fraction of the
available features. While it is true that competing on features and products can
produce market advantages, such advantages are becoming increasingly fleeting as
competitors quickly adopt those features in their own products.
Moreover, such a strategy inevitably leads to
complex products that are difficult to use, decreasing customer satisfaction and
requiring greater levels of service. In addition, development costs increase
nonlinearly, reducing cost advantage and/or profitability. Thus it is difficult
to pursue such a strategy over the long term.
Competing on
Appearance and Physical Design
Competing on Appearance and physical design is a promising approach. However it is difficult to do well and
requires the services of good industrial designers. You must avoid the
temptation to produce form without function or adding design elements that
compromise usability. Therefore, usability analysis should accompany form factor
design in an iterative design process. Nevertheless, an innovative, iconic form
factor design (the most obvious examples are the Motorola RAZR and the Apple
iPhone) can provide a significant competitive advantage. Even then, continuous
form factor design innovations must continue to be pursued since competitors can
rapidly produce their own devices with an appearance that approaches your
product's.
Competing on Usability
Largely ignored or not given proper emphasis in the
past, usability and simplicity is now a major trend in product design. Spurred
by the recent success if the Google web site and Apple iPod, more and more
companies are seeking to make their products simpler and easier to use.
However, this does not mean that the product
itself must be simple. Many products are inherently complex in order to provide
their functions (think nuclear power plants and medical imaging devices).
However, they must appear simple to their users. That is, the complexity visible
to and experienced by the user must be low. Products that provide this will be
successful, regardless of how complex they are 'under the hood'. |
