The business strategy of a market leader
Twenty years ago, when the book The Discipline of Market Leaders was published, it was revered as one of the seminal works on business strategy. The premise of the book is that market leaders fall into one of three categories:
- Product Innovators: Providers who redefine markets with radical new products
- Customer Intimacy: Providers who understand their customers’ specific needs and segment them accordingly
- Operational Excellence: Companies that drive efficiency, standardization, scale and cost reduction
At the time, a company could hang their hat on one of these strategies and build a successful business.
Times have changed
A lot has changed in two decades. Today, the ability to offer perceived value has been compromised by globalization, consolidation, commoditization and professional procurement. Fulfilling only one leg of the stool is woefully inadequate. For example, operational excellence, once a source of competitive advantage, is the cost of admissions in most industries.
Large customers are consolidating their suppliers while expecting more of them. Vendors must meet their onerous compliance, supply chain and payment terms. In B2C, consumers have access to a dizzying array of choices available to them overnight, and the ability to price shop one supplier against the next.
Customization meets standardization
In today’s environment, value propositions must be dynamic (ever-changing) and not static. They need to be multifaceted, end-to-end ecosystems.
Case in point: the poke craze. In this instance, customers are wowed by the novelty of fresh fish. They get to order it exactly the way they like it (customer intimacy), get it delivered in a matter of minutes, and pay less than $10 for it in a very clean environment (operational excellence).
This model of mass customization blurs the lines between customization and standardization. It’s the rage in many online businesses. One of our clients, for example, makes custom-design t-shirts and ships them the next day to customers for the same cost as a mass-produced product.
Part revolution, part evolution
I worked for years with a Vistage member who recently sold his business as a high multiple. The company’s value proposition was:
- An industry-leading brand, well known to referral sources for the product
- Strong distribution through dealers around the world
- Insourced manufacturing, promoting tight lead time and strong quality control
Yet, the company had a deficit; it did not manage product introductions well. To remain a market leader, the company needed to add an engineering team and be purposeful about the product-development process. Soon after overcoming these challenges, the company was able to complete its transaction and optimize its enterprise value.
A dynamic value proposition is ever evolving. It is part revolution, and part evolution.
Competing like a platform company
The world’s most valuable companies—such as Amazon, Apple, Facebook and Uber—demonstrate that platform companies will drive economic value in the future. These platform companies have multiple revenue streams and many tentacles with which to touch clients.
While some Vistage members may feel they do not have the resources to compete as a platform company, there are attributes commonly found in such companies that any provider can adopt:
- Seamless transactions: The ability to complete a transaction instantly
- Education: The ability to offer or sell knowledge
- Co-revenue: Sharing revenue with customers or alliance partners
- Radical pricing: Offering a radically different pricing model
- Personalization: The ability to customize to suite (such as Proper Cloth)
- Asset sharing: Shared utilization of assets (such as Airbnb)
- Usage-based pricing: Paying for only what you use
- Collaborative ecosystem: Collaboration across supply chain
- Scalability: The ability to complete an unlimited number of transactions at little incremental cost
Platform companies have very sticky value propositions. They have a lot of touchpoints with customers, which makes them harder to fire. Further, platform businesses have the advantage of mining data and learning more about their customers’ behavior. Amazon makes money selling you the product, shipping the product, providing servers to the company selling you the product, and so on. Plus, they can anticipate your next purchase based on your buying behavior.
This level of integration is just now becoming possible because of converging technologies such as cloud computing, relational databases and the Internet of Things (IoT). Of course, expanding vertically poses challenges, as there is execution risk in shifting any business model.
Stay the course
Only the strong will survive. Market leaders will need discipline to continuously improve. Look for opportunities to expand your business model to be an end-to-end supplier. One leg of the stool just will not do.