"Achieving The Low Cost Position"
Most people think primarily of physical costs. However, a second, less understood type of cost is more important and holds the key to achieving the true low cost position
"Acquisitions: The Buy or Win Decision"
Acquisitions are common in hostile marketplaces. To understand why, in those industries, acquisitions make sense consider what hostility means for companies trying to survive to better times.
"Attention K-Mart Copiers"
To match experienced price competitors, management must be realistic about what a low cost and low price strategy really entails.
"The Big Slice of the Pie"
The head of one industry leader explains his company's insistence on being a key supplier to each of his customers: "The guy with the big slice of the pie doesn't go hungry." The workings of the typical hostile market provide solid support for this philosophy.
"Building On Customer Volatility"
In one crucial respect, hostile markets are actually more stable than non-hostile markets. During market hostility, share shift slows.
"Buying Share, Not Sand"
One practical way to gain significant share during hostility is through acquisitions. But an acquisition will be successful only if it brings a significant base of loyal new customers.
"Can We Raise Margins With A Price Increase?"
Before a company commits itself to a price increase, it should check marginal costs in the industry and the ability of low cost producers to expand.
"The Choice of New Products"
Companies add new products whether or not a market is hostile. But the choice of which products are most advantageous to add varies with the market situation.
"Commodities and Hostile Markets"
Conventional wisdom tells us that a commodity market is one in which the products are virtually indistinguishable and the buying decisions are based on price. Conventional wisdom is wrong.
"The Commoditization of Scale"
Scale is a commodity traded every day on the stock exchange. Scale alone no longer guarantees a company an advantage in the market place.
"Convenience: Much Tougher Than it Looks"
Convenience is best described as short order time. It is the time between the customer's discovery that he has a need and the meeting of that need. Convenience is a very important aspect in customer decisions – more important than price.
"Costs: The Last Consideration"
As margins fall and profitability slides, the obvious first response is to cut cost. Knowing why that may be the wrong choice requires an understanding of the difference between effective cost control in hostile and non-hostile markets.
Customer Segmentation: Finding the Human Dimension
Many people talk about segmenting customers by needs, but few write about it. We have examined several thousand product innovations to determine the implied needs that the products met for customers. We have found three categories of human needs: intellectual, physical and emotional. Our work has led us to look for customer needs in any market by asking a series of fifteen questions derived from these three categories of need.
"Cutting The Right Cost"
When markets turn hostile, managers turn to cost cutting. Reducing cost seems like the most direct route to improving profitability. Often, though, efforts to control costs make the situation worse.
"The Dart Player's Guide to Pricing When Prices Fall"
A company in a falling price environment can reduce the loss of sales and margins threatened by falling prices the way a dart player wins at darts.
"Discovering Hidden Pricing Power"
A company's effective use of the pricing tool in a price-sensitive market requires more flexibility and market knowledge than is needed in a less hostile environment. The pathways to the pricing opportunities in tough markets lay in three actions a management can take to use price effectively in a market that appears intolerant of price increases.
"Entering A Different Dimension"
Understanding key differences between hostile and non-hostile markets can help leaders make the transition between the two.
"Failure Shifts More Share Than Success"
For a company trying to gain share in a mature market, nothing succeeds like failure – the failure of a competitor.
"Finding the Open Door"
Volatility is the movement of volume from one supplier to another. A company can not gain volume unless customers are willing to make a change in suppliers. Volatility has special rules in hostile markets.
"Getting Bigger, Getting Smarter"
During hostility, acquisition is a realistic path to achieving, quickly, significant share growth. The full value of the acquisition can be achieved, though, only if reductions in cost occur along with market share growth.
"The Grasshopper and the Ant"
Leaders of industries coming out of hostility would do well to remember the grasshopper and the ant. Hostility, like winter, always returns.
Hallmarks of Hostility
Companies whos industries are in hostility will have to confront several symptoms of this hostility that show themselves int he channels of distribution.
"Hostility in a Differentiated Market"
A bottle of wine is surely a differentiated product. Nevertheless, the table wine industry underwent the same economic traumas faced by more traditional industries.
"How Price Kills Profits"
Many people use their costs to determine their prices. But customers don't care about a company's costs. By thinking more like customers when pricing products, a company might increase its profits.
"How the Auto Rental Market Became Hostile"
The auto rental market, during the '80s, illustrates a typical trip into hostility.
"If Whitey Ford Ran My Company"
A well-managed company succeeds the same way that Whitey Ford won all of those games. Neither a pitcher nor a company can stay in the game long without the basic elements working together.
"Is Bigger Really Better?"
In the average large industry, the market share leader is only slightly more likely to lead the industry than is any one of the next three competitors in the industry. Market share leaders often fail to become return leaders because they serve some customers who yield low returns and rely on size alone to create economies of scale.
"Is Your Industry Ripe for Hostility?"
A company enjoying above average margins probably has a competitive advantage. But if margins are high for an entire industry, tough times may lie ahead.
"The Lessons AT&T Holds for Industry Leaders"
When a strong industry leader is in a Leader's Trap, the industry may stay relatively attractive for the follower companies. However, once the leader gives up its Leader's Trap pricing, the industry has a very different future.
"Making Acquisitions Work in Hostile Markets"
Strategic acquisitions can help a company through hostility, but the acquisition target must add the right customers to the buyer's base and reduce unit costs without sacrificing customer service.
Managing Before and After Hostility Starts
Low levels of profitability for most competitors make a hostile industry a tough place to compete.
Meeting Falling Prices with Creativity
Sooner or later, most companies face the prospect of falling prices in their industry. Many companies will respond to falling prices with price cuts across a wide spectrum of the market. Some companies, though, have found ways to limit the price reduction to carefully selected segments. In order to succeed at this, a company must make three specific choices. These choices should result in higher margins and better revenues than is the case with an across the board price reduction.
"Must the Cycle Start Again?"
Does hostility represent an inevitable cycle at work or can an industry prevent, or at least delay, the return of bad times?
"The Myth of the Hockey Stick"
From the early stages of hostility, real improvement in price was a long time in coming.
"The New Pricing Structure"
The structures of industry prices are fundamentally different in hostile and non-hostile markets.
"Overcapacity: Threat or Opportunity?"
Overcapacity is a problem that occurs in service, as well as manufacturing industries. When it strikes, the problem affects most functions in a company, and astute managements in a wide range of industries have found common formulas to outperform competition in markets with overcapacity.
Patterns of Product and Service Innovation
" From an analyses of several thousand product innovations, we conclude that all innovations fall into one of three categories of help for the customer: provide information; reduce resources the customer uses with the product; or improve the experience the customer has with the product. We have found that eleven questions can help any product innovator be both comprehensive and creative in developing improvements to a product or service.
"Rare Mettle: Gold and Silver Strategies to Succeed in Hostile Markets"
Managements of winning companies have common themes for success in hostile markets. They each follow five basic themes. While virtually all successful companies are aware of these themes, their implementation differs according to their market situation at the onset of hostility.
"Reliability: The Hard Road to Sustainable Advantage"
Most hostile markets have a large segment where competitors are few and the rewards are great for those who make the effort to get established. This segment is the "reliability" segment.
"The Rust Belt Revival"
The revival of the U.S. Rust Belt in the late 1980's holds lessons for companies who would prosper in hostile marketplaces.
Sandlots and Super Bowls
A market that is not hostile is something like a sandlot game in sports.
"Staying Alive in a Hostile Marketplace"
A few companies survive and even prosper during periods of hostility. How do these companies avoid being the victims of tough market conditions?
"Success Under Fire: Policies to Prosper in Hostile Times"
A hostile market evolves through six predictable phases. Most companies fail, withdraw or become acquisitions before this evolution is complete. They fail because their management policies were not effective. The few who survive and prosper do so by making decisions that follow two rules: attract customers and discourage competition. Losers lose by not following the second rule.
"Turmoil Below: Confronting Low-End Competition"
There are four major types of competitor who offer your customers low prices. Each of them have distinct weaknesses. Your response to them depends on your answer to several tests that you would apply to your market and your competition.
"The Two Best Consultants in the World"
The two best consultants in the world are a company's customers and its competition. The customer informs a company about the value of its product. The competitor is an authority on the company's cost. Neither consultant is ever wrong.
"Use Subtle Strategy in Tough Markets"
A hostile market operates differently than a market with "normal" competitive conditions. But as difficult as a tough market can be, it can also present an astute management team with an unusual opportunity.
"What Makes Returns High?"
At any point in time, most high returns can be traced to external factors that enable the company to charge high prices. Management really can not claim credit. Long term high returns, however, usually are the result of management efforts to control cost.
"Which Customers Matter Most?"
Average customer profitability differs dramatically in non-hostile and hostile markets. Does the relative importance of one customer versus another change as well? The answer is less evident than many business leaders believe.
"Who Has Pricing Power?"
One of the first clear signs that a market has become hostile (or that hostility has ended) is a change in who sets prices. Pricing power shifts as a market moves into and through hostility.
"Why Do Leaders Lead?"
There are four potential kinds of leaders in the marketplace. In order to be successful, each must follow its own particular rules.
"The Wisdom of Salomon"
In the late 80s', the investment banking firm of Salomon Inc. decided to leave the municipal bond market – a market the firm had led. This withdrawal showed just how limited management's options are when a market goes into overcapacity and how the best choice under such conditions may be the painful decision to leave the industry.