Insights on Strategy

Business Makeovers

A Monthly Newsletter published by Strategy Development Group, Inc.                     June 2003

What Business Are You Really In?

Why do customers buy from you?  Is it more features, better service, or greater value? Or is it an incredible reputation or a technological advantage? We call that reason your "value proposition", and the list of reasons is endless. Your value proposition is also the reason you are in business; or put another way, your value proposition is the business you are in.  For example, if your value proposition is more product features, you better be in the business of having the best features.  If it's service, you better be in the business of providing the best service.  And if it's reputation, you better be in the business of developing a great reputation. 

 Understanding why customers buy from you and using that value proposition to define "what business you are in" plays a central role in managing the resources in your business. If you want your customers to continue buying from you, you better keep improving whatever it was that they liked about you in the first place.  Simply put: "Be true to the business you are in".

 This concept on the surface seems very simple and straightforward; and yet most companies have a difficult time following it. Here are three hypothetical examples how businesses can easily get off track. These examples mirror similar real life experiences.

 A fish distributor, selling to restaurants and independent food markets and known for its product freshness, decides to expand its sales to existing customers by entering the frozen fish business. This product extension requires that the company invest in large freezers and upgrade its refrigerated trucks.  On the surface, selling more products to existing customers sounds like a "sure fire" way of growing the business. However, if this company is in the "fresh fish" business, does expanding into frozen products leverage its core competency of freshness?  How will these investments affect future resources required to maintain and improve its freshness advantage?

 A private label apparel manufacturer, known for producing quality product from Indonesia, decides to establish manufacturing facilities in India in order to develop an alternative source of supply in case the U.S. restricts Indonesian imports.  Again, this sounds reasonable on the surface; but if their business is producing quality product out of Indonesia, how does shifting resources to another country impact its ability to remain competitive in Indonesia? Should this manufacturer be considering an alliance in India, which represents a smaller resource drain, or should they be considering other strategies that leverage their Indonesia competence? For example one such strategy might be to sell to the global market instead of focusing solely on the U.S. market.

 A successful credit jewelry store chain, known for catering to the Asian market, plans to open a similar type of retail jewelry operation that will cater to the Hispanic market. With the Asian customer moving towards more mainstream purchasing, the company believes it must find a higher growth market. Their instInc.ts may be correct but what is their value proposition?  Is it responding to the needs of the lower-middleclass Asian consumer or selling jewelry on credit?  If they are in the Asian market business, how does entering the Hispanic market leverage this core competency?

 These examples point out how important it is to understand what business you are in before allocating resources.  Product or market extensions make sense only if they leverage your value proposition.  These three hypothetical businesses lacked clarity in defining what business they were in and as a consequence made significant investments that did not leverage their value propositions. By diluting their resources, they risked a loss of competitiveness, market share and ultimately survival.

 In summary:

1. Understand why you are in business and identity your value proposition

2. Understand what drives that value proposition (Is it expertise, customer responsiveness, efficiency, a special resource, dominance, method of sale, method of distribution, or technology?).

3. Continue to assess the validity of that value proposition given the dynamics of today's market and competitive environment; and change or strengthen it as required

4. Be true to that value proposition in allocating business resources.

 In a world of limited resources, focusing on developing your value proposition is your surest path to success. If you would like to discuss your business' value proposition or assess its role in maintaining a competitive advantage, please give me call at (714) 572-3131 or e-mail me at paul@strategydevelopmentgroup.com.