Strategic Trade-offs, Examples -A Tip To Grow Your Business
“A product for everybody is a product for nobody”
The first and foremost factor for business success is to try registering your brand’s name into a consumer’s mind. The way to enter their mind is to make them aware that your brand means only one thing. BMW means driving experience. Volvo means safety.
Choosing a unique position in the minds of customers ensures a long lasting business. Unfortunately, choosing a unique activity or a differentiation is not enough to guarantee a sustainable competitive advantage as competing brands could easily copy or imitate those value propositions and unique activities. But they would find it difficult to copy one thing — The Trade-offs.
Trade-offs are the activities a brand chooses not to do, the activities that would be incompatible with the brand’s vision and core values.
Without trade-offs, there would be no choice and thus no need for strategy — Michael Porter.
The desire to grow puts enormous pressure on the business owners and they make some compromises. They add a series of incremental changes which lead them to lose their way. So, it is important to understand what our business should not do.
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Starbucks owes its initial success to a unique strategic position involving clear trade-offs.
Mixing Low-Quality Beans -Initially, to combat price war, Maxwell coffee house added a tiny amount of robusta beans in their existing coffee blend made from Arabica beans(Higher Quality beans). Sensory tests showed that customers could not find the difference. As time passed, the consistent pressure on profits forced the Maxwell team to continue adding a small percentage of robusta beans in their coffee blends. By 1964, their coffee sales declined drastically and lost their position in the market. On the other hand, Starbucks from the very beginning never compromised on the quality of the product. Even when the price of Arabica beans was on the rise and it was tempting to take an incremental step of adding small robusta beans to the existing blend, Starbucks never did.
No Artificial Flavour -In the late 1990s, there was a demand for artificially flavoured coffee beans. Competitor brands were making compromises to please its customers by adding the artificial flavours in the roasting process. But Howard Schultz saw that this activity of adding chemicals to the roasting process is incompatible with one of the Starbucks’ core values — Being of authentic quality. He refused to pollute the high-quality beans with chemicals.
No Franchising-The desire for growth forced every other competitor of Starbucks to expand quickly through the franchising route as it was the logical, quick and easy way to raise capital. But Howard Schultz never allowed franchising fearing the risk of losing the control of the quality of the product. He felt that franchisees are the middlemen who would stand between Starbucks and its customers.
Starbucks trained their own baristas. They controlled the entire supply chain. They roasted their own beans. They had a common work culture, unlike individual franchises. This gave a consistent quality of coffee in every store. This provided a consistent experience in every store which is an important part of Starbucks’ experience. Companies that franchised too early and too widely lost control of quality. Some of the competitors did grow through franchising but never developed a strong brand.
Selling in Supermarkets-By the late 1980s, many brands began to sell whole-bean coffee in supermarkets. Consumers welcomed the move. Brands like Millstone and Sarks sold volumes much higher than Starbucks. It was tempting for the Starbucks team to sell in supermarkets as they would have easily tripled their volume of sales. But Howard refused to entertain the idea of pouring the coffee beans into clear plastic bins, where they could get stale. He chose not to sell coffee beans in supermarkets in order to maintain a clear distinction from grocery store coffee.
The Benefits-By delivering one kind of value, Starbucks projected an image of consistency whereas his competitors were confusing their customers. Starbucks’ reputation grew. This trade-off showed its employees how Starbucks’ management is seriously committed to the brand’s core values. It made the organizational priorities clear to all its employees. It guided employees in making day-to-day decisions. It helped the brand to build a strong internal brand culture.
Starbucks, by choosing not to do some of the activities, projected a consistent image of credibility and built a sustainable competitive advantage.
In the year 1937, two brothers Maurice and Richard McDonald started their own fast-food restaurant at San Bernardino. The business soon attracted a lot of teenagers and continued to grow rapidly.
After world war II, the brothers felt that they were not making enough profits. They realised that one of the reasons was that they were selling too many items like every other competitor. Their resources were stretched to the limits, affecting the quality and the timely service.
Leave Out Some Food Items -Their consumer research showed that most of the customers expected a ‘Quicker service’ which none of the competitors offered. McDonald brothers felt that this could be a strong differentiation.
For enabling ‘Quicker Service’ Mcdonald brothers realised that cutting down the number of items on the menu would free the resources to help in a quicker delivery.
Their research also showed that Hamburgers and French fries brought almost 80% of the revenue. They felt that it would be a wiser decision to focus on only those two items. They shortened the menu and traded off other food items from the menu which helped them to expend their energy only on core strengths.
No Mixing In Beef Patties -Everywhere Hamburger patty is a piece of meat but in McDonald’s, it was a piece of meat with a soul. From the beginning, they were hell-bent on maintaining one hundred percentage beef in the patties. They never allowed mixing anything in the grounded beef mixture while the competitors were mixing things in beef patties to save cost. The competitors had also put holes in the patties like a doughnut and plugged the hole with pickles or other ingredients. But McDonald’s never compromised on their quality. They developed tests to strictly maintain the prescribed nineteen percentage fat content.
Pizzas -McDonald’s traded-off selling Pizzas as they thought that it would affect their core strengths and core values.
Avoiding Other Revenue Sources -In the year 1960s and 1970s, many of the Fast Food Chains were earning an extra income through pay telephones, jukeboxes and other types of vending machines. Being tempted by those extra profits, many franchise operators approached Ray Kroc to allow those machines. But Ray Kroc stayed firm and never allowed. He felt that it would create unproductive traffic in the store and create inconvenience to core-customers, affecting the brand’s core values. It would downgrade the family image, which McDonald’s was trying to portray.
Marcus Sheridan’s ‘River-pool’ is specialised in fibreglass swimming pools. A few years back, they were selling other bathroom products like tanning beds, pool tables, and hotbeds along with the swimming pools. They had invested and built nice retail stores in prominent locations. Unfortunately, their sales did not pick up as expected. Based on their user research, they dropped all other products and focussed only on fibreglass swimming pools. They closed offline retail stores and focussed only on online sales. The company turned around the corner.
What business are you in? What you should be known for? Are you ready to stop the activities that would not add value to the core capability you should be known for?
References: Pour Your Heart Into It by Howard Schultz, Grinding It Out by Ray Kroc.
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