Thursday, December 23, 2010

Imitation is flattery not strategy

Nigel Holis

Last month I attended Forum de Marketing e Negocios do Parana in Curitiba, Brazil. There I was fortunate to hear Michael Porter speak on the subject of strategy (even if he did join us from New York by video conference and not in person). His presentation focused on what makes a good strategy and what does not. Porter believes that most companies do not have a good strategy. They either do not understand the basic principles of strategy, or fail to define their industry properly. Lacking a good strategy of their own, companies often end up imitating other successful companies in their industry. Porter suggests the pressure to imitate comes from many sources: managers, employees and most of all, customers. The end result is head-to-head competition and reduced margins all round. Porter believes that if more companies were to identify a good strategy, the result would be category expansion and better long-term profits for all.

Here are a few of the points from his presentation that I found worth noting: Strategy is not about being the best Good strategy involves identifying how to serve a particular segment of consumers better than another company. Many managers espouse the belief that their brand must be the best in its category to succeed. This thinking is fundamentally flawed in that there is no “best.” Each customer will define what is best for them in their own way. Strategy is not about trends Good strategy is timeless. Good strategy is about identifying a sustainable competitive advantage: A point of differentiation that originates from the value chain and which can be sustained over time. A sustainable competitive advantage can either derive from cost leadership or benefit differentiation. Strategy is not about a goal, a vision or a set of actions Good strategy is gaining competitive advantage by finding a distinctive way to serve the needs of a specific set of customers. Operational effectiveness means doing the same as other companies, copying best practice. Strategic positioning means doing things differently in order to satisfy a different set of needs. So how do you know when you have a good strategy? In his presentation, Porter summed it up this way, A good strategy must make some customers unhappy. A good strategy recognizes that a brand cannot be all things to all people. I found this presentation useful because it confirms many of the patterns we see in our brand equity data. Creating a strong brand requires absolute clarity about why the brand exists: which customer segment does the brand serve, and how does it serve them better than other brands? All too often marketers end up trying to create differentiation that is not based on a sustainable competitive advantage. The end result is a poorly differentiated brand and an inability to command a price premium. Strong brands have a sustainable competitive advantage that originates from the value chain, and which is framed and accentuated by the brand experience and good marketing. It is all too easy to think of brands that have succeeded because they had a good strategy. When it comes to cost leadership brands, think Walmart, Ryan Air and Aldi. When it comes to differentiated brands, think Apple, Ikea and Nespresso. They are all valuable brands in their own right. They just make their money from different sources of competitive advantage. So what other brands might you add to the list?

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