Thursday, April 10, 2008

Formulating a Successful Business Strategy

By Maria Gabriela Marin

There are multiple ways for firms to achieve competitive advantage but I would like to focus on Product/Service Differentiation & Cost Leadership.

A few years ago, Cingular Wireless entered the wireless market with an excellent product/service differentiation strategy: "Rollover Minutes". Cingular was literally unknown in the wireless space when compared to well established companies such as AT&T, T-Mobile, Nextel and Sprint. The question was: Why would anyone switch to Cingular and risk poor network/service? Well the short answer was rollover minutes! There were so many people (including me) switching to Cingular because of its rollover minute feature. The strategy was a complete success and it didn't take long before Cingular's customer base grew so much to allow it to acquire AT&T.





Another good example of product/service differentiation is Dell. For years, Dell allowed customers to "customize" their personal computers to their needs. You didn't have to buy a pre-configured system with too little or lots of computing power. Your Dell was no more than you needed and on top of it, its website was so easy to navigate that ordering a computer online and having it deliver to your home in a few days, was key to Dell's success.




United Colors of Bennetton is another example of product/service differentiation. For garments with difficult to forecast demand for colors, Bennetton creates an undyed garment called "greige". Stores send feedback on customer's preferences and the company sends a test batch of "greige" garments dyed with the requested colors. According to the company, this process increases costs by 10% but it also increases profit margins as well as cuts on overstocking and discount costs.



The second strategy that I'd like to discuss is cost leadership. Nobody embodies cost leadership more than WalMart. Its founders understood from the very beginning that retailing was a volume driven business and offered its clients better value for their money. WalMart's concept of "every day low prices" knocked out competitors such as Sears & K-Mart. The company that started in 1962 has become one of the largest retailers in the world with thousands of discount centers, supercenters & neighborhood markets throughout the US and the world. WalMart's plans, for fiscal year ending 2007-2008, are to achieve a revenue target of $500 billion.


The low-cost passenger airline JetBlue is another example of cost leadership. The airline focuses on delivering an excellent flight experience in their 2-3 year old aircraft at a very affordable price. The company started in 1998 and became quickly one of the most profitable players in the aviation industry. JetBlue targeted high-fare areas to cut prices and easily undercut its competition. The company operates 50 destinations in the US, Puerto Rico, Mexico and the Caribbean. In addition to the affordable airfare prices, JetBlue offers vacation packages that have resulted in higher profits not only for the company but for its partner hotels and car rentals.