RELIABILITY: THE HARD ROAD TO SUSTAINABLE ADVANTAGE
Alaska has been called our last frontier - huge, magnificent, full of riches - and virtually unpopulated. Why do so few people live in Alaska? Because life there is hard. Its riches go to those with commitment and perseverance.
Most markets have an "Alaska" - a large area where competitors are few and the rewards are great for those who make the effort to get established. This area is "reliability".
Two Thirds of All Buys Linked to Reliability
"Neglected aspects of reliability are especially important in hostile markets."
Customers make buying decisions by stepping through a hierarchy of needs, eliminating suppliers at each step until the choice is narrowed to one. Function is the first consideration, followed by reliability, convenience, and finally price.
Although markets differ, a broad pattern does emerge. Function and price are far less decisive than many managers believe. Roughly 15% of customers make their decision on function; another 15% ultimately decide on price. In contrast, reliability and convenience are far more important than many managers believe. In general, 45% of all buying decisions are made on reliability, and another 25% on convenience. And, since a supplier known for reliability has easier access to most market channels, reliability contributes to convenience. Reliability is the foundation for about 70% of purchase decisions.
Reliability-More Than Just "It Works"
What is reliability? First, of course, a product must work, a service must be performed as promised. Failures should be few, and problems fixed fast.
But, reliability means much more. A second aspect is reliability of delivery. The product or service must be delivered when and where promised. Often, predictability of delivery is more important than durability but less important than dependability with end users and distribution channels.
Reliability also means maintaining a consistent image with end users. Customers want to know what a company offers, who it is trying to serve, and what to expect when buying from that supplier. A brand name represents a predictable product or a dependable service. When a company changes its image, appealing first to one type of buyer and then to another, varying the picture of its product or service, customers become confused and frustrated. Witness the last few years of Pan Am and Frontier Airlines.
Finally, reliability means maintaining consistent policies toward the channels of distribution. These intermediate buyers want suppliers who will remain in the market long term and will maintain consistent levels of sales support to go with product quality and attractive price. They want to say, "I know those guys; I trust those people."
Some companies fail to recognize the importance of consistency in dealing with end users and channels. Yet these neglected aspects of reliability are especially important in hostile markets. As competition intensifies, successful large competitors increase their advertising to end users, reinforcing their image. Medium-sized competitors, with limited advertising budgets, may focus more intensively on channels.
The most successful suppliers will be those who, over time, have built a unique reputation for consistency either with end users or with the channels, sometimes with both.
Needed: A Hearty Investment
"Few companies distinguish themselves on reliability."
Though reliability is crucial in the buying hierarchy, few companies really distinguish themselves on this dimension. Competing on reliability demands tough investments:
- In Energy. Reliability takes effort across the organization. People at all levels must be motivated and taught new skills. Policies will have to be changed, training programs developed, new systems put into place. Managers must pay daily attention.
- In Money. Building reliability takes money. The return on that investment may be years away. Holding to the investment is hard at any time, but especially difficult in hostile markets when margins are under pressure.
- In Calendar Time. Reliability means trust. No amount of money or energy can build trust quickly. A product/service and a company must prove itself over time.
The Rewards of Reliability
Precisely because reliability is so difficult to build, a reputation for reliability is a formidable, sustainable competitive advantage. Companies cannot match that advantage at will when market hostility grows. Just as Alaska offers great riches to a few hardy souls, so innovations in reliability promise prosperity to a persevering management.
Reliability creates a relationship of trust, which implies a unique commitment. Investments here seem high but are cheap in the long run. More share points per competitor are available here than in any other segment. And, customers who buy on reliability are expensive, in the extreme, to win away.
(Note: This Perspective was written in the context of the economy in 1992. While some of the companies may have changed their policies or indeed no longer exist, the patterns they exhibit still hold today.)
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Symptoms and Implications: Symptoms developing in the market that would suggest the need for this analysis.