The Art of ‘Ware [version 2.0] by Bruce F. Webster
[Copyright 1995, 2008 by Bruce F. Webster. All rights reserved. Last updated: 04/30/08]
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A customer is an individual or firm who is able and may be willing to exchange resources (usually, though not always, money) for your products. A market is a collection of customers who have needs or desires that they may believe can be satisfied by your product — or a competing equivalent. The question is, if the customer is willing to spend money, will it be for your product or for someone else’s? That is the essence of competing within the marketplace.
Note that a new market can be a simple refinement of an old one: color TVs over B&W. It can be a new solution to an existing need: compact discs over vinyl records. Or it can be an entirely new technology: Internet access and presence on the World Wide Web. By controlling how markets are defined, you can sidestep or outflank competing firms.
The best, yet hardest, way to capture a market is to define a new one and flood it with a successful product. The next best way is to let someone else try to define it, learn from their mistakes, and then flood the market with a successful product. The worst, yet safest, way is to take on an entrenched, successful product in a mature market.
The focus of Sun Tzu’s third chapter is that the best victory is one without fighting — but if you do have to fight, make sure you can win.
The best strategy is to capture a market without directly competing; it’s far more difficult to wrest market share away from another company.
Customers are slow to change. They have made investments in their current solutions: money, time, training, skills required, media. In order to get them to risk money, you must convince them that it’s worth the risk. So you need to make those risks as low as possible. You do that by keeping price low, preserving prior investments, and minimizing other resource requirements (again, time, training, skills required, and so on). If they see your product as complementing or working side-by-side with their current solutions, you lower those risks. If you try to make them give up the familiar for the unknown, you’re in for a fight. If you can provide a compelling function, capability, or result that their current solutions does not provide, you’ll have a better chance, but success is by no means guaranteed.
Customers can be a pain in the butt. They are by turns capricious, illogical, self-defeating, and quite often confused about what they want vs. what they need. Of course, those who develop products often exhibit identical symptoms, so the customers can hardly be faulted for their behavior.
It’s better to absorb a company than to drive it out of business. It’s better to purchase a division, product, or technology than to cause it to fail. It’s better to hire good developers from the competition than to make them unemployed.
By acquiring a competitor, you gain its technology, its people, its customers, and its market share. If you drive it out of business, you may gain none of these. Of course, if you’re too successful, the U.S. Justice Department may raise anti-trust concerns, but in that case you know that you’ve already succeeded.
If you acquire a competing product, you can enhance your own, and you can woo over the customers who use the old one. If you simply cause the competing product to fail, the customers will be slow to adopt yours and may actually resent you for making their lives more difficult.
If you cause the competition’s best developers to lose their jobs, they will hate you and work against your company at every turn. If you recruit them away and give them good jobs, they will help you beat their old firms.
The height of skill isn’t winning head-to-head competition: it’s convincing other firms not to compete at all.
Yeah, there’s an ego boost in taking away market share in direct competition, but it tends to have two side effects. First, the competition most likely will pour even more resources into winning back that share, which in turn will force you to devote more resources to countering them, and so on. Second, the customers you’re vying for will see what’s going on, and they’ll play you and your competition off of each other, driving up product requirements. That, of course, is the whole point of the free market; but don’t forget that the free market also requires that companies fail. Your responsibility is to be sure that yours isn’t one of them.
If you’re a small company, position your product so that other firms see it as non-threatening, or as enhancing their sales. If you’re big, stake out market position preemptively so that other firms stay away. In either case, a lack of competition can mean higher margins and better profits.
The best approach is to disrupt your competitors’ plans.
By coming out with an advanced, successful product, you can cause competing firms to change their own business and development plans before they even get started. Hiring away key management or development personnel can slow down or redirect other companies. And preemptive announcements or displays of technology can cause competitors to rethink their own strategy.
The next best approach is to undermine, usurp, or join alliances between competitors.
If you see two or more firms combining to compete against you, seek ways to blunt the impact of that alliance. You can do this by forming your own competing alliance with other firms; by establishing relationships with individual firms in the competing alliance; or by joining the alliance yourself, then directing it on a course that coincides with your interests.
The constantly shifting alliances of the past decade or so, particularly in the convergence industries, aren’t necessarily a sign of confusion or chaos. They often reflect the sharp competition and market collisions of the major players in the industry. On the other hand, they sometimes are a sign of confusion and chaos, and it’s not always easy to tell the difference.
The next best approach is to beat a competing development effort to market.
Success can often depend as much upon timing as upon quality or functionality. Often, the first application aimed at a given market will have a major advantage over latecomers, all other things being more or less equal. Thus, Microsoft Word for Windows captured a larger market share than WordPerfect for Windows, even though WordPerfect/DOS had a tremendous market share advantage over Microsoft Word/DOS — which is why most people today write documents using MS Word instead of WordPerfect.
Even so, this is a more difficult approach, since you will end up with head-to-head competition. Worse yet, you may simply clear a path for competition to follow behind you with a better product, answering your customers’ needs better than you do.
The worst approach is to directly attack an established product: do this only when you have no other choice.
A direct attack means seeking to take customers away from an existing product they already use or that they might choose over yours to accomplish the same task. To convince customers to switch, you need to present an overwhelming advantage; otherwise, they will be unwilling to surrender their investment in money, skill, familiarity, and trust. That advantage usually takes the form of lower prices, which makes it harder for your firm to pour money back into marketing for improved sales and into R&D for new and better products.
If you’re attacking an established product, take sufficient time to prepare your product and your marketing.
A direct attack on an established product requires careful planning, while your own product must be well designed and of compelling interest. Much thought needs to be given as to how to best position your product (and the competition’s). Typically, this involves a combination of low cost, strong advantages for switching, and some degree of compatibility with existing solutions.
If you release the product into the market prematurely, spending money and revealing direction and technology without gaining significant market share, then you’ll have a disastrous product release.
A product that is rushed to market still having significant bugs or lacking important features, or that is pushed out into the market without an intelligent, coordinated marketing plan in place, will fail in the face of decent competition (including competition from earlier versions of the same product). While it’s hard to consider Windows Vista as “rushed to market”, it’s telling that Dell and other computer OEMs have gone back to offering Windows XP as an installation option.
An excellent CEO will leapfrog others’ development efforts, gain market share without direct competition, and quickly convince competing firms to go elsewhere.
Here, then, are the three keys to success:
– Introduce products that have a compelling advantage over competing products: price, performance, features, or a combination of the three.
– When possible, aim your product at those who have not yet adopted your competitors’ products, building market position in anticipation of drawing customers away from your competitors.
– Establish a position that compels your competitors to avoid direct competition with you can to seek other markets.
You must compete on all levers for complete success, so that your profits are maximized and your resources are not tied up. This is the art of capturing the market.
Market capture occurs when you best others by strategy, rather than by direct competition. You spend less money, reap greater profits, and better preserve the energy and enthusiasm of your developers and marketers.
Here are the rules for direct competition, based on how your product stacks up against the entrenched competition.
These rules are going to talk about how much “better” your product is than those which you’re competing. Let me say this loud and clear: “better” is entirely in the eye of the customer. It is absolutely critical that you base these rules on how actual live customers rate your product, not on what you think of it. Furthermore, that customer rating has to be based primarily on their willingness and ability to spend money, forego some or all of their investment in current solutions, and change their current way of doing things. That will depend on several factors: the product itself, how you position it, what the customers’ needs and wants are, what the costs of adoption are, and who else is using it (i.e., how “standard” it is). You may have the best product on the market, but unless the customers are willing to buy it, it doesn’t matter.
Do not fall into the trap of believing your own hype about your product, nor what reviewers say, nor even what customers say absent the commitment of a purchase order, a check, or a credit card. Yes, all those things can help keep up internal and external enthusiasm. But in the end, all that matters is whether people buy your product in quantities sufficient to warrant the original investment. If not, then your product wasn’t truly a “better” solution than what customers were already using.
If your product is ten times better, absorb the competing product’s market.
A vastly superior product — in the sense defined above — will be able to take over an inferior product’s market and customer base and, in fact, will draw in customers who never accepted the inferior product. You don’t even need to mention the inferior product in your ads; just tout your own advantages, and let the market do the rest.
If five times better, attack competing products directly.
With a five-fold advantage, you can capture significant market share with a direct campaign. Mention your benefits and the competition’s weaknesses. As you gain momentum and market share, you can set yourself up to absorb the competition’s market (see previous item).
If twice as good, carve out market segments.
If your product is only twice as good, then you need to create new market segments where your competition is weak. By building up market share in those segments, you can position yourself for a move into other segments occupied by your competition (see previous item). Why? Because installed base is itself a factor in making a product better; the more people who use your product, the “better” your product is (again, in the sense we’re using here).
If it’s just as good, look for empty market segments to go after.
See where your competition doesn’t sell, then go there. In the process, build a loyal customer base against the day when your competition comes into your segments. At the same time, use this as a base for carving out new market segments (see previous item).
If not quite as good, then avoid competing directly.
You must find areas your competition doesn’t want, such as low cost, and stay with them. If your competition starts to move in, then find new areas; unless you’ve built up enough of a loyal following to resist incursion (see previous item).
If much worse, then find another market (and another product).
There is seldom any point in seeking to market a product that is much worse than the competition. Your return on investment will usually be low, and your competition will be able to easily move in and take the market share away from you. Indeed, you will end up doing marketing for them by establishing the need without adequately fulfilling it.
If a small firm is stubborn and does not follow these guidelines, it will lose to the larger firm.
All things being equal, or when the larger firm has a better product, the larger firm will usually beat out the smaller firm. The flip side of this is that a large firm can bend or stretch these guidelines (cf. Microsoft), but not always.
The CEO leads and directs the company. When that leadership is complete, the company is strong: when it is defective or unsure, the company is weak.
The power and moral authority to lead the company must reside in the CEO. If the CEO does not exercise wise, just, and proper leadership, the whole company suffers, regardless of its other advantages.
There are three ways in which directors and investors can cause problems for the company:
If directors incorrectly force or hinder development of a given product, they damage the development process.
If the directors bypass the CEO and try to dictate the pace and aim of product development, they undermine the CEO’s leadership and may force the CEO into unwise development and marketing decisions.
If directors bypass the company leaders and attempt to manage the company, employees become confused.
Again, management must be left to the CEO and senior managers. Not only does such intervention by the board undermine the CEO, but directors seldom understand all the issues involved, nor do they have to live with the immediate consequences.
If directors don’t understand the development process, yet attempt to dictate development methodology and schedule, developers become frustrated and angry.
Perhaps the worst micromanagement that directors can be guilty of is trying to tell the developers how to develop the product. The directors will most likely be wrong, and they will drive the best developers away from the company.
There are five ways of knowing which CEOs will lead their company to success.
Those who know when and when not to compete will succeed.
The CEO needs to be able to assess the competition and to judge their relative strengths and weaknesses. From this, the CEO can judge whether or not to compete.
Those who know whether to allocate many or a few marketing resources to given product will succeed.
Not all products are of equal value. Some will yield an acceptable return for a small investment; others will require a large investment, but will yield a great return.
Those whose managers and developers share the same vision will succeed.
The wise CEO anticipates both markets and competition and then plans accordingly; if the competition is not as prepared, then the company will succeed.
Those who are skilled and not micro-managed by the directors will succeed.
The CEO must know to run the company according to the principles above, yet must be able to keep the directors happy with the progress and direction of the company so that the directors don’t seek to micromanage.
If you understand the competition’s products and also your own, then you wont be at risk in most product releases.
By understanding the products from both firms, you know how to position yours according to its relative strengths and weaknesses, as described above, you can minimize the risk at each product release.
If you’re not familiar with the competition’s products, but you do understand your own products well, then you’ll succeed about half the time.
Failure to understand your competition’s products can lead you to misposition your own; however, understanding your own allows you to market it to its best advantage.
If you don’t understand either your products or those of the competition, then you’ll fail most of the time.
It’s hard to see how you could succeed in such a case, except because of brilliant subordinates or sheer dumb luck. Or course, both circumstances have been known to happen, but they’re not a proposition worth betting upon.
Direct competition, like direct combat, is painful, costly, destructive, and often yields a low return for all that is expended. It also produced ever-improving products at ever-decreasing prices. This is great for consumers but no so much fun for the companies involved. You should, then, seek to minimize head-to-head competition except when your advantage is overwhelming. The marketplace is littered with the husks of companies that one the Pyrrhic victories over their rivals.
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