Differentiator or Cost Leader

Michael Porter said you could either be a "differentiator" or a "cost leader", and most everyone since has agreed with him.

But what do you do with Samsung and Wal-Mart?

Samsung was exclusively a cost leader for years, but now is known for quality products. Their cost leader business strategy only accounts for a percentage of their business, while their real business is in quality R&D and production.

Wal-Mart is similar. The bakery at Wal-Mart (I know I keep referring to it, but it is spectacular) is known for quality, as are the great value brand items. So while Wal-Mart specifically targets consumers using the cost leader strategy, they are also a differentiator.

The truth is, the world isn't black and white. You have to select where and when to use specific marketing strategies for specific segments, and a similar event occurs with your business strategy.

There is no real case of a differentiator transitioning into a cost leader, but it is common to see a cost leader transition into differentiation: Toyota, Samsung, Wal-Mart, and others are well known examples of this.

So what does all this mean for your business?

Ask yourself these questions:
Who are our customers?
What is our business strategy? (Differentiation or Cost Leader)
What value does our product/service bring?

These questions ought to be in the back of your mind when you do anything, or plan anything. Simply because if you are a cost leader, and your strategy for a particular segment is to market as a differentiator, you may have some issues being successful.

A current example might be Kia's attempts to create a luxury car. Kia is seen as a cost leader in the United States, yet they attempt to sell their new line of cars as luxury.

Contrast this when Toyota brought luxury cars to the States, they separated their Toyota brand from a new luxury brand called Lexus. It was highly successful.

This is called "fit", and it is a comparison of your planned strategy with your currently used and customer understood strategy. If it doesn't "fit", then drop your planned strategy.

There are other questions to ask, and other ideas to brainstorm about, but keep reading... maybe we'll get to it soon!

Francis Trascritti

Core Rigidities

There is much talk in the business world of "Core Competencies" and "Core Rigidities".

Let me explain:

When a business does something well, it is a Core Competency. Wal-Mart is skilled at low prices, and has a great bakery.

When a business sticks to that thing and refuses to change with the times, it becomes a Core Rigidity. If Wal-Mart decided to never change their bakery because they liked them too much, it becomes a rigidity.

Whenever you consider "rigidity" and "competency" I think it best to give an illustration:

When the Japanese developed the Katana, a curved long sword with one edge, they solved a serious problem. If the steel used was to be sharp, it couldn't be soft; soft steel can't hold an edge. Likewise, steel that is too rigid (like that which can hold a sharp edge) breaks easily. So there seemed to be a catch-22: soft steel didn't break yet couldn't be sharpened, but hard steel held an edge and broke easy.

To solve this, they put a core inside the sword that was soft steel, and an exterior of hard steel, so they were able to sharpen the outside steel and made a sword that was both sharp and strong.

Businesses can learn a lot from this model: select what is rigid about your business. This is your edge. Then, select what is not, and these things can change with the times and address new markets, new strategies, and new challenges.

Make your business both sharp and strong.

Francis Trascritti

Evolution

Evolution is the process of change. While typically referred to in a biological manner, here we refer to evolution in the business sense.

Businesses all to often stay stagnant and watch the world go by. Only when they begin to see their stock price decline, their sales fall, or the public turn against them, do businesses realize they must change. By that point, though, it is too late to save face.

This blog is dedicated to publishing the best ideas in business and strategy. When election time comes around, I may direct my strategic thinking towards political parties, but until then, expect a lot of references to the tech industry, retail, and marketing.

I hope you will enjoy this blog, and learn something new from it.

Francis Trascritti