competing in the midst of giants - hrai · 2017. 8. 24. · the distinguished professor of...
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Competing in the Midst of GiantsCompeting in the Midst of Giants
by: Ken Wongby: Ken Wongby: Ken Wongby: Ken WongQueen’s School of BusinessQueen’s School of Business
Key Skills to Win Against Giants
TO DETECT…TO DETECT…
TO DESTROY…TO DESTROY…
TO AVOID…TO AVOID…
MARGINMARGIN--SUCKINGSUCKINGMARGINMARGIN SUCKINGSUCKING
MAGGOTSMAGGOTS2
MAGGOTSMAGGOTS
The Real Goal
Price
C
MinusUnitMargins
CostNet
Income
g
TimesIncome
DividedBy
MarketShareUnit
Return OnInvestment
AssetsManaged Market
Size
TimesVolumes
3
Size
The Real Questions To Ask For Profitability
1. How can we defend and improve my prices?
2. How can we contain and reduce my costs?
Wh th b t f l ? H d3. Where are the best sources of volume? How do we penetrate those targets?
4. Should we focus more on price impacts, cost impacts or volume impacts?
4
What matters most
A 1% change in...
Creates a change in operating profit of ...
Price 11.1%
Variable Cost 7.8%
Fixed CostFixed Cost 2.3%2.3%
Volume 3.3%
5KW-210
(Average economics of 2,463 businesses in Compustat)
Price Realization MUST Be Priority One
You You cannot survive in a world of falling cannot survive in a world of falling pricesprices
Costs can’t fall fast enough to keep Costs can’t fall fast enough to keep pacepace Avoid cutting costs if quality is impairedAvoid cutting costs if quality is impaired Avoid cutting costs that depersonalize the relationshipAvoid cutting costs that depersonalize the relationshipAvoid cutting costs that depersonalize the relationshipAvoid cutting costs that depersonalize the relationship There’s rarely enough volume to offset lost There’s rarely enough volume to offset lost marginmargin
6
An Even Larger Concern
Is Lower Price the Giant’s ONLY Advantage?
A “P i B ” Th i O l T t?Are “Price Buyers” Their Only Target?
7
Economies of Scale Economies of Scale –– You Can’t Coach SizeYou Can’t Coach Size
100100
Unit costUnit cost
100100
ThTh
5050
TheTheSmallSmallFirm’sFirm’sLOSSLOSS
12 5012 502525
The Large Firm’s PROFITThe Large Firm’s PROFIT
11 22
12.5012.50
8844 VolVol
8
HOW GREAT BUSINESSES USE SCALEHOW GREAT BUSINESSES USE SCALE
MOREMORESCALESCALE
Via experience effects,economies of scale,market power, etc.
LOWERLOWERCOSTSCOSTSCOSTSCOSTS
Via businessplanning
LOWERLOWERPRICESPRICES
9
HOW GREAT BUSINESSES USE SCALEHOW GREAT BUSINESSES USE SCALE
MOREMORESCALESCALE
Via experience effects,economies of scale,market power, etc.
LOWERLOWERCOSTSCOSTSCOSTSCOSTS
Via businessplanning
BETTERBETTERBETTERBETTERQUALITYQUALITY
10
HOW GREAT BUSINESSES USE SCALEHOW GREAT BUSINESSES USE SCALE
HIGHERHIGHERSALESSALESVia sales and
marketing MOREMORESCALESCALE
Via experience effects,economies of scale,market power, etc.
SUPERIORSUPERIORVALUEVALUE
LOWERLOWERCOSTSCOSTS
Via execution andimplementation
COSTSCOSTS
Via businessplanning
LOWERLOWERPRICESPRICES
BETTERBETTER
AND/ORBETTERBETTERQUALITYQUALITY
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Fi hti B kFighting Back
Don’t Sell Your ProductDon t Sell Your Product
12
What is your REAL Product?
Viagra RuleViagra Rule Viagra RuleViagra Rule
••People don’t buy products or services People don’t buy products or services –– they buy they buy p y pp y p y yy ySOLUTIONS to problemsSOLUTIONS to problems
Price ceilings vary with the importancePrice ceilings vary with the importance and••Price ceilings vary with the importance Price ceilings vary with the importance and complexity of the of the problemproblem you solveyou solve
“What is the real problem that you help to solve?”“What is the real problem that you help to solve?”“How complete a solution are you?”“How complete a solution are you?”
13
Problem-solving businesses also have lower costs
How to Improve the Retail Experience (Sample Advice)How to Improve the Retail Experience (Sample Advice)
Personalize the experiencePersonalize the experience
Help the customer find their wayHelp the customer find their waye p t e custo e d t e aye p t e custo e d t e ay
Explain product differencesExplain product differences
Show them you careShow them you care
Show them why they “get what they pay for” (i e up sell)Show them why they “get what they pay for” (i e up sell) Show them why they get what they pay for (i.e. up sell)Show them why they get what they pay for (i.e. up sell)
EDI, EEDI, E--tailing, etc. etc.tailing, etc. etc.
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Connect to the Ultimate Business Customer NeedProduct Innovation
Product Quality
Marketing Effort
Price Strategies
g
Process Innovation
Functional EfficienciesCost Strategies
Margin
Marketing Effort
Discretionary Spending
Integration
Cost Strategies
Net IncomeMarketing Effort
Customer Value
Barriers to Entry
Market Share Strategies
Volume New Products
New MarketsMarket Size Strategies
More Usage Occasions
More Usage Per Occasion
Strategies
Fi hti B kFighting Back
Sell on ValueSell on Value
16
VALUE = Quality / Price
Four Ways to Increase ValueM i t i Q lit REDUCE PRICE1. Maintain Quality, REDUCE PRICE
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VALUE = Quality / Price
Four Ways to Increase ValueM i t i Q lit REDUCE PRICE1. Maintain Quality, REDUCE PRICE
2. REDUCE QUALITY InsignificantlyREDUCE PRICE Significantlyg y
18
Diminishing Returns Diminishing Returns
REWARDREWARD
EFFORTEFFORT
VALUE = Quality / Price
Four Ways to Increase ValueM i t i Q lit REDUCE PRICE1. Maintain Quality, REDUCE PRICE
2. REDUCE QUALITY InsignificantlyREDUCE PRICE Significantlyg y
3. RAISE QUALITY, Maintain Price
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VALUE-ADDED MARKETINGIdentify the Components of "Cost-in-Use"
Cost-in-Use
==Acquisition
Costs + PossessionCosts + Usage
Costs
Interest expenses Opportunity costs
Training User's labour
Price Paperwork
Storage/handling Installation Quality control
costs (especially if re-engineered)
Longevity
p Shipping time Expediting orders Cost of errors Quality control
(of your product on installation)
Tax and insurance
Replacement/repair costs
Disposal
Cost of errorsin ordering
Pre-purchaseactivities Tax and insurance
Shrinkage Obsolescence
pcosts
Regulatory
activities Purchase
evaluation© Kenneth B. Wong (2005)
Know Which Costs Create Value … and For Whom
Total Costs
Add "Good"Costs
Reduce "Bad"Costs
I R d
Costs Costs
Increase"Value"
Reduce"Waste"
LowerCosts
Higher Pricesand Sales
22Higher Profits
VALUE = Quality / Price
Four Ways to Increase ValueM i t i Q lit REDUCE PRICE1. Maintain Quality, REDUCE PRICE
2. REDUCE QUALITY InsignificantlyREDUCE PRICE Significantlyg y
3. RAISE QUALITY, Maintain Price
4 RAISE QUALITY Significantly4. RAISE QUALITY SignificantlyRAISE PRICE Insignificantly
23
The Meaning of Value-Add Varies with the Nature of the Consumption Problem
1.1. DEFINE THE EXECUTION STEP: DEFINE THE EXECUTION STEP: What are the MOST CENTRAL What are the MOST CENTRAL TASKS that must be accomplished in getting the job done?TASKS that must be accomplished in getting the job done?
2.2. DEFINE PREDEFINE PRE--EXECUTION STEPSEXECUTION STEPS: : What must happen BEFORE the What must happen BEFORE the core execution step to ensure the job is successfully carried out?core execution step to ensure the job is successfully carried out?
Wh b d fi d l d?Wh b d fi d l d?1.1. What must be defined or planned?What must be defined or planned?2.2. What must be located or gathered?What must be located or gathered?3.3. What must be prepared or set up?What must be prepared or set up?4.4. What must be confirmed BEFORE execution?What must be confirmed BEFORE execution?
3.3. DEFINE POSTDEFINE POST--EXECUTION STEPS: EXECUTION STEPS: What must happen AFTER the What must happen AFTER the core execution step to ensure the job is successfully carried out?core execution step to ensure the job is successfully carried out?core execution step to ensure the job is successfully carried out?core execution step to ensure the job is successfully carried out?
1.1. What must be monitored or verified?What must be monitored or verified?22 What must be modified or adjusted?What must be modified or adjusted?2.2. What must be modified or adjusted?What must be modified or adjusted?3.3. What must be done to prepare for the next job cycle?What must be done to prepare for the next job cycle?
24(Bettencourt & (Bettencourt & UlwickUlwick, “The Customer Centered Innovation Map, HBR 2008), “The Customer Centered Innovation Map, HBR 2008)
BUNDLING : Creating a "Seamless" Total Solution
ARE THESE ‘GOOD’ COSTS?ARE THESE ‘GOOD’ COSTS?
VALUE = Quality / Price
Four Ways to Increase ValueM i t i Q lit REDUCE PRICE1. Maintain Quality, REDUCE PRICE
2. REDUCE QUALITY InsignificantlyREDUCE PRICE Significantlyg y
3. RAISE QUALITY, Maintain Price
4 RAISE QUALITY Significantly4. RAISE QUALITY SignificantlyRAISE PRICE Insignificantly
Th Ad t f Q lit D i V l The Advantages of Quality-Driven Value• Longer Strategic Window• Greater Economic Efficiency• Greater Economic Efficiency
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Fighting Back
You Can Be Bigger Than You Are
The BRAUN Rule
FILTER FILTER FILTER
CARAFE
STAND
CARAFE
STAND
CARAFE
STAND
CARAFE CARAFE CARAFE
BASE- On/off
BASE- On/off- Timer
BASE- On/off- Timer
28
- Timer- Flavour controls
© Kenneth B. Wong (2005)
How Common Components andModules Create Value
100
Unit cost
ADDEDPROFIT
FORMODEL A
MODELA
MODEL A
MODELB
MODEL C
COST IF COMMON COMPONETS USED IN MODELS A+B+C
ADDED PROFIT FOR MODEL B
ADDED PROFIT FOR MODEL C
MODEL ASALES
MODEL B SALES
11 Vol
COST IF COMMON COMPONETS USED IN MODELS A+B+C
29
MODEL C SALES
COMBINED SALES OF A+B+C© Kenneth B. Wong (2005)
Fighting Back
Know Who Matters Most
The Profitability of a Transaction Focus
ProfitProfitcontributed by:contributed by:
ProfitProfit
Base profitBase profit
Cost of newCost of newcustomercustomer
31
TimeTime
Source: Bain & Company (Frederick Reicheld)Source: Bain & Company (Frederick Reicheld) KWKW--153153
The Value of Customer Loyalty
ProfitProfitcontributed by:contributed by:
Price premiumPrice premium
ReferralsReferralsReferralsReferrals
Lower costsLower costs
ProfitProfit
Increased volumIncreased volum
Base profitBase profit
00 11 22 33 44 55 66 77
Base profitBase profit
Cost of newCost of newcustomercustomer
32
YearYear
Source: Bain & Company (Frederick Reicheld)Source: Bain & Company (Frederick Reicheld)
Profit Impact of a One-PercentIncrease in Customer Loyalty
1919Advertising agencyAdvertising agency
VolumeVolume3.3%3.3%
CostCost7.8%7.8%
PricePrice11.1%11.1%
1717
1717
PublishingPublishing
Bank branch depositsBank branch deposits
g g yg g y
1616
1717
Auto serviceAuto service
Auto/Home insuranceAuto/Home insurance
gg
99
1515
Industrial distributionIndustrial distribution
Credit cardsCredit cards
00 44 88 1212 1616 2200
77SoftwareSoftware
33
00 44 88 1212 1616 2200
Percentage Increase in Profits per CustomerPercentage Increase in Profits per Customer
Source: Bain & Company (Frederick Reicheld)Source: Bain & Company (Frederick Reicheld)
Fighting Back
M k S Y St ffMake Sure Your StaffKnow Who Matters Most
What Matters Most
The Five-Step "Profit Chain“The Five Step Profit Chain
Profits grow from satisfied customers who receive value due toti fi d d l l l h h d t i i hisatisfied and loyal employees who had proper training, coaching,
and support
COMPANY
ExternalMarketing
InternalMarketing
35EMPLOYEES CUSTOMERSInteractive Marketing© Kenneth B. Wong (2005)
Putting It All Together
If you have to compete against someone bigger than you…don’t sell the same thing they do (and expect margins to stay healthy)
Solve problems over selling products/services Solve problems over selling products/services
Communicate REAL AND SPECIFIC VALUE over pricep
SME’s Unite!
Prioritize Accounts
Build Your Firm to Keep Its Promises36
THE FINAL RULE : Focus On "Execution"
The EXECUTION of the
MARGIN-SUCKING
MAGGOTSMAGGOTS
Kenneth B. (Ken) WongThe Distinguished Professor of Marketing & Business StrategyS.J. Smith School of BusinessGoodes Hall Room 366Goodes Hall Room 366Queen’s UniversityKINGSTON, Ontario K7L 3N6
Email: [email protected]: 613‐533‐2367Fax: 613‐533‐2321
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