Business School Lessons May Not Always Apply
To maximize profit, managers have pursued the Holy Grail of becoming number one or two in their industries. Recently, however, new measures of service industries like software and banking suggest that customer loyalty is a more important determinant of profit.
--James Heskett, et. al., “Putting the Service-Profit Chain to Work,” Harvard Business Review
Product companies seek to become market-share leaders. To do this, they look to launch and manage a portfolio of differentiated products that have specific features most appealing to a specific target audience for a reasonable (but as high as possible) price.
According to the famous and widely accepted PIMS (Profit Impact of Marketing Strategies) study, profit increases with market share. So, of course, product companies (and sometimes those that are marketing professional services) seek market share as a core strategic objective.
The jackpot situation for a product company is to
- Uncover an unmet market need for a product within its capability to develop and market
- Make that product unique or as much as possible unlike products already available in the market
- Launch the product with a strong marketing and branding campaign, supported by market research, that shapes the “personality” and appeal of the product so it can gain market share as quickly and aggressively as possible
- Develop the product to be difficult to imitate, also difficult to imitate quickly, thus keeping its hold on this profitable market for as long as possible
That is the widely accepted model of product marketing taught in many business schools and advocated by many management and marketing consulting firms. Therefore, when presented with a new business plan or product offering, we classically trained business types are programmed to ask questions such as these:
- How large is the market?
- What will make your offering unique?
- How will you communicate your marketplace differentiation?
- What are the barriers to entry?
- What will prevent other firms from copying you and rendering your product a commodity, thus erasing any market differentiation you might enjoy, pressuring your prices, and squeezing your profits?
→ end article preview
Read the Full Article
