How can you compete in a marketplace knowing that competitors all act somewhat differently? I’m Mike Sandman and we’re going to be talking about the strategies that companies adopt in order to compete and how they differ and why they differ.
Strategies for Marketplace Differentiation
There are really just three generic strategies. You can differentiate, you can be low-cost, or you can focus by picking out a market niche or going for a geographic segment. And still, competitors in the market, even though there are only three generic strategies, may follow very different strategies. For example, if you look at three or four automobile companies, you have Volvo which differentiates itself, and so just think about what it is that Volvo does to separate itself from its competitors. What do you think of when you hear the name Volvo? You probably think of safety. In fact, Volvo, when it first entered the US market, was a much safer vehicle than was required by government regulations. And its maintained that differentiation. Kia is probably right now the low cost producer in the automobile market, because of it’s position in the Korean manufacturing environment, but that will be a hard thing for it to maintain, and there’s a lesson there: it’s very difficult to maintain a low-cost position. And Porsche and Smart obviously have niches that they focus on.
Focus Your Business
Let’s take another example of that, let’s look at a couple of companies in the brokerage industry: Charles Schwab and Merrill Lynch. Schwab has offices in the suburban ring around cities, they’re typically on the second floor or above, the brokers sit in open bullpen, the buildout is not very extensive and clients are assigned to call center teams, and brokers are on salary, they get modest and modest annual commission, and client walk-ins aren’t encouraged. On the other hand, Merrill Lynch encourages people to walk in, and their offices are in the Center City, they’re built out nicely, and brokers have private offices. These are two companies that you think are competing head-to-head, but they have very very different strategies, and they’re really focusing on different segments in the market. One thing that you can learn from these examples is you too can decide what piece of your market you want to focus on and how you’re going to separate yourself from your competitors.
How Does Future Strategy Affect Current Strategy
Future strategy, what companies it into the future is really driven by four factors: company’s goals, what it’s doing currently, what it believes about the market, its assumptions, and its capabilities in management abilities. How will the company compete in the future? What will it do with regard to product, price, promotion, position? Those things are largely determined by the company’s goals, current strategy, capabilities and assumptions. This model that we’ve just shown you is the four corners model, and it’s very useful, especially if you think carefully about the assumptions that you and your competitors might have about the market. Understanding how competitors are going to act in the future depends an awful lot on your willingness to have an open mind.