I can’t leave this hallowed place of learning without bemoaning the lure of twenty-four hour snacking. The idea that you have to carb up to work out, academically speaking, has caused much international debate. Clutching his new paunch, one athletic scholar complained he’d eaten so much food he now looks like a racing snake that’s swallowed a cat.
To be fair to the Kellogg School, the menu – six times a day – is impressive and there‘s always a healthy option. Yet, I must ask, who amongst us is strong enough to turn away from the crème caramel with raspberry and chocolate coulis and embrace the melon?
Today’s lecture, scheduled between the coconut king prawns and the mini chocolate crepes, was about sandwich strategies…
In these challenging times, global competition is getting hot, hot, hot…more choices, fewer perceived differences, new low cost entrants from China and India… It’s easy to think about reducing your costs and competing on price, especially if your competitors are lowering their prices.
Kellogg research shows that competing on price may be precisely the wrong approach. We’re seeing an international march towards commoditization, which means our customers are finding it increasingly difficult to choose between seemingly identical offerings. Can you really differentiate the value of a cup of coffee, or a wireless internet provider from the next best alternative? When customers no longer feel they can choose they’ll almost always default to price.
The trick then, is to lower and raise your prices, sandwiching the competition and so increasing your market share. I’m talking about locking the competition into the middle ground by offering a premium and a standard service or product. This can work as a proactive or a reactive strategy.
When the United States Post Office, (USPO), introduced a cheaper alternative to FedEx’s air courier service, FedEx could have matched or lowered its prices, but what would this have signaled to its customers? That it’d been overcharging all this time? That the competition was legitimately the same? It could have done nothing of course, and then watched its price sensitive market share flow to USPO.
Instead it executed the sandwich strategy. It launched a brand + service, FedEx Priority delivery by 10am next business day and re-launched its current service as a brand – FedEx Standard delivery by 3pm next business day. It raised the price of the premium service and lowered the price of the standard service. At the same time it focused its advertising on its reputation for reliability with the message “FedEx. When it absolutely, positively has to be there overnight!”
The effects were amazing. The customer drain to USPO stopped because there was no longer a price advantage. The 10am deadline enforced accountability and pushed internal improvements to the overall service. Many customers migrated to the Priority service to signal to their own customers that they valued them. FedEx maintained its position as a lead innovator, differentiating its service on dimensions of speed and reliability. Eventually USPO was compelled to outsource its back office operations to FedEx and form a strategic alliance which yields over $6 billion in revenue for FedEx.
OK, FedEx has the global resources to do this, but it’s not a uniquely big business strategy, it’s a smart strategy to take on international competition.
UK business still has a great reputation around the world, sure it gets tarnished by political nonsense every so often but, to use a good Northern phrase, “we scrub up well”. I believe that almost every UK small business has the potential to compete internationally, supported by good UK brand values, after all, we invented the sandwich!