Notes

[MUSIC]
So in this section, I want to spend a
little time with the framework that I
just introduced so I can show you what
an effective tool it is for planning
marketing strategy.
And for facilitating conversation within
your
company about different assumptions people
have.
So let's go back to what the framework
said.
As you recall, there were three
dimensions.
There was the operational excellent
dimension.
There was
performance superiority dimension and
there was customer intimacy dimension.
So the first thing you do in using this
framework is to think within your
industry for your product and your firm
What does it mean to be operational
excellent?
Typically these are things like customer
service, reliability,
cost considerations, delivery, inventory
control, those kinds of things.
But what's important here is that you
determine what operational excellence
means in your industry.
And so you define that axis in terms of
what your
customers think, your competition thinks,
and you think determines that axis.
Similarly with performance superiority,
what does it mean
to be, have the superior performance in
your industry?
Financial service it's about the
performance of stocks or, or
instruments, financial instruments.
It could be product design.
It could be style.
It could be technology.
Whatever it needs to be prod-, product
superior or performance superiority.
That's what goes on this axis, that's what
this axis is.
And this axis is customer intimacy, which
means you're delivering what the customer
wants.
It's about customization.
Delivering to what a custom, unique
aspects that a customer demands.
And what it means to be truly customer
intimate, this is
something that Pete Fader is going to
discuss in the next section.
But think about what does it mean to be
customer intimate in your industry?
That's the first thing to do.
Agree on what these dimensions stand for
in your industry for your product or
service.
The second thing to do is to determine
what fair value is.
Fair value is the expectation
that the customer has on each of these
dimensions, and you must meet fair value.
If you're below fair value, customers
reject you.
So you've got to be at least at fair
value.
What the framework suggests is that you're
going to meet fair
value on two dimensions and be the best on
one.
But first you have to determine what are
those customer expectations?
And these customer expectations change
over time, they're not static.
they change as, as customer expectations
escalate.
So just to give you an example.
Lemme, let's talk about what would happen
in a brand
new industry, when a brand new product
enters the market.
As an example let's think about Apple's
iPad.
And when they introduced that product, it
kind of
changed everybody's expectations for what
a, a tablet should be.
When you have a brand new market and there
nothing existed before,
customer's expectations are at the origin.
They don't have any expectations because
the product doesn't exist.
When a new product comes into the
marketplace,
it tends to enter with a new product
feature.
And so, when the iPad came in it came in
with a new feature the product features of
that iPad.
And that became, was better than what
people expected, and Apple was wildly
successful.
Over time, people started to expect that a
tablet had to
have at least those features, and that
became the new fair value.
So there was pressure on Apple to come up
with new features.
And they came up with the iPad Mini.
So they came up with the smaller size
screen, a better resolution on
the screen, different kinds of things
that changed, that would exceeded those
expectations.
But over time those expect,
those, those new features will become the
new expectations.
And you can imagine as the product gets
more and more
mature, the fair value or the customer
expectations can go far out.
If you're in a very mature
product category, customer expectations
are quite high.
And if you want to enter a mature
category, you
really have to deliver products that meet
very high customer expectations.
In most markets, if the expectations of
product features become so high
that it's very hard to differentiate and
be a leader on that.
Many times, what you tend to see is
movement on the operational end.
So people will deliver those benefits at a
cheaper price.
And over time, in mature industries these,
the competition here, gets very hot.
For very efficient, low cost, and personal
computers,
for example, the features are quite high
and the price is driven down.
And so you see very high expectations on
both the operational and the performance
superiority dimensions.
It, it tends to be in mature markets that
operational excellence is high,
performance superiority is high, but the
customer intimacy line is not as high.
So this tends to be what you'll see in
product, in mature product markets.
But you can imagine lots of different
scenarios.
for example in services personal services,
you might
have, had very high expectations on
customer intimacy.
You expect your hairdresser to cater the
hairstyle that
they give you to you, so it's very
personalized.
It may be that they use state of the art
products, but perhaps they're not very
good at operational excellence.
So you might see in some market like that,
very high expectations
on customer intimacy, very high
expectations on performance
superiority, but not as high in
operational excellence.
The point here is, you determine what are
these axes.
And what are customer expectations for
fair value on each of these axes?
This is actually the hardest part of this
framework, determining what fair value is.
You can do market research on it.
You can kind of predict
it based on your experience in the
industry.
Some people use the average of all
competition to plot this.
Sometimes fair value is at the minimum,
and all
the firms are above fair value on some
dimension.
Other times, fair value or customer
expectations
are higher than any firm can deliver to.
So for example in the airline industry, I
would
argue customer expectations are for 100%
on time landings and
on time take offs, but no firm commits to
that.
Or can perform to that level.
So in that case, operational excellence
might
be higher than any firm is delivering to.
So that's the first step in this
framework,
determine the axis and determine where you
are.
Where your fair value mark is on each of
these axes.
So the next thing you do is you plot how
your firm is delivering to fair value.
So let's just for the sake of argument
assume fair value
in this industry is here, and is here, and
is here.
So then I either do market research or
discuss it and try to get some
kind of managerial insight on where my
company is
on these different dimensions, relative to
fair value.
So it maybe that below fair value on
performance superiority.
Maybe
I'm above fair value on operational
excellence, and I'm
kind of hitting the, relatively low
expectations on customer intimacy.
So that's the next thing.
Where is your firm?
Then you plot, where's the competition?
So perhaps the competition is way below
you in operational excellence, but
above you in performance superiority, and
also hits the spot on customer intimacy.
Now you're ready to plan strategy.
And what you want to do with this case
is plan short term strategy and long term
strategy.
So in
the short term, what you have to is, if
you remember what the framework says, it
says you have to meet fair value on two
dimensions and be the best on one.
So if I was the red firm, what I might
argue my short term
strategy would be is to get up
to speed on performance superiority,
because I'm below.
And if I don't keep up with my product, I
might ultimately be, you know, be shaken
out of the market.
And so in the short term, I
might plan strategies to improve my
performance superiority.
In the long term perhaps, I want to be
known as the market leader in operational
excellence.
So, I need to do what it's going
to take to keep that operational
excellence leadership.
And become like a Walmart, or a Vanguard,
that's known for being the best at
operational excellence.
That's just one example of
the kind of strategy you can plan.
But what's great about this framework is
it forces everybody to identify their
assumptions, to map in a very complex
market what matters to the customer.
Where customer expectations are, where you
think the competition is
delivering, and where you as a firm are
strong and weak.
And it puts it right on one framework.
Now this framework can be used very
systematically, you can run market
research studies to actually plot where
you and your competition, customer
expectations are.
The other thing to remember is fair value
is
not a static concept, these things change
over time.
So you need to map this over time to see
where customer expectations are.
The other thing that happens, and you have
to think about this as a
dynamic strategy, is when you make a
move competition reacts, they're not just
standing still.
So you need to
think well if I move here or if I move
there, what's competition going to do.
So it gives you a way to plan those kind
of moves over time.
And lastly, you think about how costly it
is
to move up at these different kinds of
things.
And that might affect your strategy.
Perhaps its very, very costly to move
along this product axis.
And so you may think about whether or not
that's the right short term strategy.
Maybe that's
something you're going to do in the long
term, because you have
to, you know, invest more to be able to
move here effectively.
The other thing you need to consider when
you think
about all of this is that these dimensions
are not independent.
If I move along the product dimension
here, I'm going to change my cost
position.
I'm going to change my efficiency.
So as I move here, I might be lowering my
operational excellence.
And similarly,
as I become more product featured or
product focused to
deliver the technology and design, I may
become less customer intimate.
And so you have to think about the
interactions of all these things.
But what's very, very nice about this
framework is
that it's clear and simple and it maps, in
a
very direct way, some of the intricacies
and complexities
of your marketplace, of your firm, and of
your competition.
And for that, it's a very,
very effective planning tool.