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[MUSIC]

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So, in this section, what I want to focus

on is an introduction of a, a

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framework that I think you'll find very

useful for figuring out

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how to think competitively to become a

leader in your market.

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And what I'm going to go over is based on

a, a

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book that was written by Tracy and

Wiersema it's called Market Leadership.

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And its based off of their framework,

although I've adapted

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it some.

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And, the framework or the, well I'm going

to think of it as kind

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of the graph or the strategic tool, is

based on a set of principles.

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These principles have to be true and you

have to

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believe in them in order for this

framework to work.

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And they're very strong principles.

They're very strong assumptions.

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I don't think they're that controversial,

but they're

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not vague, they really are very strong,

and

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in order for this technique to work, you

really need to abide by them.

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And the first one is; that you have to

know your markets.

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Now before I mentioned a lot of, most

businesses

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are now in customer fosed market, customer

focused marketing.

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That is the type of marketing most

businesses are doing.

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because most businesses are very

competitive, they're global.

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There's a lot of competition out there and

the only

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way they're going to win in their market

place is to

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focus on the customer.

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So, that's a very important principal in

this framework, it says, in order to

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use this framework, we are going to assume

that you know what your customers want.

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And furthermore, you know how your

competitors are likely to react.

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And so what you are trying to do

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is what I mentioned that principle of

differentiation.

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You're trying to find a way to

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provide customer value, better than the

competition.

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And the only

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way you can really deliver this.

Is to know your market.

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So you.

And you can't just guess.

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You have to do market research and you

have to really

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understand what your customers want and

how your competition's likely to react.

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So that's the first principle.

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The second principle and this is where

it's pretty, it's a

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pretty defined and pretty It's a definite

assumption that's being made.

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And the assumption says and

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what I've written here is customers have

the final say.

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And what that means is the customers are

going to choose what they want.

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But the assumption is a strong assumption

because

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we assume the customers go through this

decision process.

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They look at all the data and all the

values

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and all the attributes and all the

products in the market.

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And, there's so much information out

there.

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That they can't consider everything.

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And, so what they do is they

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kind of chunk a bunch of different things

together into kind of three bundles.

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And the three bundles are.

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One is all sorts of operations factors.

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Which includes price and cost.

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But delivery, service, reliability, those,

all of

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those kinds of things are considered

operational things.

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The other bundle is product features or

designs, so product attributes style,

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innovation, technology and they put that

in another bundle.

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And the third bundle is.

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Whether or not it meets my needs, so is it

customized to meet my needs?

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And what the customers have the final say

says,

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is that customers look at these three,

they kind of classify

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the products into these three bundles and

they kind of give

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them a score in each one of these three

dimensions.

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And then they decide which one

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of those dimensions is the most important

to them and they pick the product

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that's the best on one of those dimensions

and good enough on the other two.

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So, it's says, you can't be pretty good in

all three of them.

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Because then the customer won't pick you

but the customers going to

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pick something not that's kind, if they

care about price they're

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not going to pick something that's kind of

a good price they

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going to go for the lowest price or if

they care about

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design it's not going to be something

that's kind of good design, they're

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going to go for the very best design that

they like the most.

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Or if they care about how much it meets

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their own needs, they're going to go for

something that meets

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their needs the best, as long as the

product

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delivers satisfactorily or good enough on

the other two dimensions.

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So, that's a very strong assumption.

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But if you think about it, it

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kind of approximates the way customers

make decisions.

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If you believe that assumption, that the

customers have the final

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say and they choose the product that

delivers the best on the

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bundle of attributes they care the most

about, that suggests that

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if you want to be the first in the markets

that you serve.

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You better be the best at something and

good enough at the other two things.

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And that should be your market strategy

and once you decide on which

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type of thing you going to be the best at,

the market leader

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at, then that have indications for the way

you structure your business, the way you

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prioritize resources, the way you allocate

resources, the

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type of people you hire into your company.

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It has all sorts of implications for your

business organization so that you can

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deliver total value and total quality and

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guarantee the customer satisfaction on

this dimension.

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So, those are the assumptions.

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Now, before I show you the framework I

have to introduce

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one other concept and this concept is what

I'm going to call, fair value.

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And what I have on the screen here is a

value map.

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And you have on the vertical axis,

relative costs to the customer.

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And on the horizontal axis, relative

benefits.

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And what the map says is that if you offer

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more benefits, customers are willing to

pay a higher price.

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If you charge a lower price,

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customers will expect fewer benefits, as

long as what you offer appears to be fair.

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If you offer something inferior and it's

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not fair value, then customers won't buy

that.

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So it, you won't make it in the market.

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You'll be, it'll be cancelled out of the

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market because you're not offering a fair

value.

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And what the framework says is that you

need to offer fair value

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on two of those bundles, but offer

something better than fair value on one

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of the bundles, on the bundle you are

going to be the leader on.

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So if you can imagine a marketplace where

everybody is trying

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to deliver fair value and somebody is

delivering something of superior value.

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Think about what's going to happen in that

marketplace, in a very competitive market.

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Somebody comes out, let's say Apple comes

out with a better design and so the iPad

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comes out and it's a much better design.

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It, it fair price on these other axis, but

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there are, their tablet is better than

everything else.

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What happens in the marketplace?

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And what happens is everybody tries to

copy and mitigate the advantage.

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And so what happens is what's perceived to

be fair

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value, that fair value line is not a

static line.

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It's constantly moving up, moving to the

lower

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right as the market gets more and more

competitive.

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So what's fair value is constantly

changing over time.

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So although I say what you need to do

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in this framework is to deliver the best

of something

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and state fair value on the other two

bundles,

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the problem is fair value's not a static

constant concept.

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It's constantly changing as a function of

competitive reaction.

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So, with that said as background, here's

the framework.

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And here are the three bundles; one of

them is operational excellence, the

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other's performance superiority, that's

the bundle

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that delivers on product design and style.

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And the third is customer intimacy, which

says give the customers what they want.

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And, you're intimate with customer needs

and you

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try to deliver something that's responsive

to their needs.

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And so the three crosshatches here

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are fair value lines.

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Now I had them drawn symmetrically on this

axis, but it doesn't have to be symmetric.

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What you need to do is, if you want to use

this framework.

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Is in your marketplace, figure out, what

are the

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product attributes that relate to

operational excellence in your market.

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And define that dimension.

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So that you understand what operational

excellence is in your market.

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You have to do the same thing, or

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what are the product attributes that

matter to the customer?

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Are they design, technology, whatever it

is,

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what are those attributes and define that

dimension.

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And then you have to figure out how much

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customization is there in your market and

define that dimension.

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That's the first thing you do.

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The second thing you do with this

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framework, is anticipate where fair value

is.

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This is the trickiest part of this

framework.

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What are customers expectations on each.

Think of these

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as axis.

Like an x, y, and z axis.

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And where is the reference point or the

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fair value line on each of these axis

points.

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Sometimes people think about fair values,

the average of what everybody offers.

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Sometimes fair value, nobody offers.

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Like for example, I would say in the

airline

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business, people expect an operational

excellence, constant on time arrival.

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And we know very few airlines

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deliver to that fair value.

But that is.

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What I think people expect and I would

say, most

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of the competitors in the market are below

fair value.

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Sometimes, everybody's above fair value.

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In some mature markets, people don't care

about

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some of the bells and whistles that come

out.

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And everybody's delivering at least what

they need.

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And some people more.

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But people didn't even care about that.

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So figuring out exactly where fair value

is and each of these axis is

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a very tricky thing and you need market

research to do that.

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Once you figure out where your value is,

on these, the next part is to plot, where

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your company is delivering, on each of

these axes relative to fair value.

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Are you above fair value in operations?

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Are you meeting fair value or below fair

value on each one of these axes?

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Then you figure out where you competition

is on each one of these axes and

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then you start playing the market strategy

game.

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You think about a short-term strategy, a

long-term strategy and you figure out

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What should you be doing right now in

order to beat the competition?

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And what you're ultimately looking for in

a long term strategy is to

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be the best at one dimension and good

enough on the other two.

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That's the long term strategy.

In the short term it might be that

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let's say your long term strategy is to be

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customer intimate, but you're not at fair

value in operations.

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So in the short term you might be looking

to hit fair value in

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operations, but in the long term you're

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looking to be the leader in customer

intimacy.

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And once you decide what your leadership

strategy is then

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that has implications for everything you

do in your firm.

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So for example if you are an operational

company and

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that's what you want to be your leadership

strategy, that tends to be a

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very hierarchical strategy that, with

allocation of

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resources prioritized to information

technology et cetera.

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If you are a performance superiority

company, that tends

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to be more of an R and D company.

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You tend to hire kinds of people that are.

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Very innovative, they don't like

structure, they don't

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like top-down organization, you really

need to give

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them a lot of free reign.

And in a customer intimacy, you

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really have to focus on prioritizing

market research, customer

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knowledge and you kind of have a

consulting, a yes culture.

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You have to let the customer come first.

So each, once you decide on your

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leadership strategy has a lot of

implications for the rest of the firm.

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[MUSIC].