Creating value outside of products

When you walk into those ambitious companies and talk to their senior executives, they say how much they invested heavily in innovation, how much they extended their new product line, how much they developed How many patented technologies have been developed, and what are their ongoing efforts to shorten the time to market.

But they also admit that these efforts have not changed the competitive landscape of the market. Although the company's business has expanded than before, competitors are holding on to it, and the rivals are competing on new products. They copy the entire production system and process, and they go hand in hand on the same battlefield. The result is that the new product is still profitable when it first hits the market, but the advantage is fleeting. As a result, the competitors have become world-class sprinters.

Now, companies like Handspring can pop up within a few months of making handhelds that rival the Palm Pilot in design, functionality, and performance. Because the market and product standards are open, Palm's designers and manufacturers are also readily available to Handspring.

This is not an exception, and it raises a profound question about sustainable competitive advantage: If product homogeneity is inevitable, consumers will use new criteria when making purchasing decisions. One of the challenges companies face today is: "Why do consumers have to use our product instead of a competitor's product?"

While managers know it's important to pay more attention to the cost and risk factors that influence consumers' purchasing decisions, However, the survey shows that many companies are still at a loss when it comes to practical use. The good news is that, after all, companies are using these five strategies to build competitive advantage. These strategies are not easy to design and implement and require creativity, imagination, hard work and a willingness to take risks. But for different industries, these strategies can almost have a go.

Interaction creates value

All companies know the power of "economies of scale" and "economies of scope," and they also have experience producing better or cheaper products. However, they should also recognize that these forces are also at play when interacting with consumers.

Consider three different scenarios: suppliers have the same interactions with different customers (economies of scale), they have different interactions with the same customers (economies of scope), and when serving a particular customer, Information (Experience Economy). In order for customers to experience more benefit from a transaction, companies should restructure their business activities to reduce buyer interaction costs and perceived risk. For example, a supplier can identify the common requirements of different customers, and then take steps to complete these tasks as quickly and efficiently as possible, saving customers money and time, and effectively targeting them.

Consider the example of the MasterTrac system developed by Master Builders. Master Builders is a company that produces chemical admixtures that help improve the quality of concrete. Master Builders' clients include concrete producers located in various regions. Before the new system is put into use, these concrete producers individually place orders and each store admixtures suitable for local requirements. For Master Builders, the geographical presence of customers means that the company handles many small, irregular orders with special requirements for doping agents. The company has to ship to these customers all over the world, and small batches are not cost-effective, not to mention that the company often receives urgent orders, usually because customers can't correctly predict their own needs.

To overcome these challenges, Master Builders has developed a remote task monitoring system that accurately and timely reflects customers' inventory levels, the MasterTrac system. The system installs wireless sensors in the customer's warehouse. When the customer's demand arises, the sensor can transmit the customer's information to Master Builders and the client synchronously through the network. With this system in place, Master Builders can effectively manage the inventory levels of its customers around the world, with almost zero inventory. Customers feel the huge savings from reduced inventory management time, and so do competitors: they now have a bigger challenge to win customers.

Helping customers reduce risk is another magic weapon for suppliers. ABB (Asea Brown Boveri) company has found such a magic weapon, this company provides drilling pipelines for oil / gas drilling rigs around the world. The operating process of the drilling pipeline industry is: when the well is drilled, the pipeline must be connected and embedded in the pipeline well immediately.

ABB managers know that the biggest obstacle preventing pipelines from reaching the rig site on time is customs clearance in the country where the rig is located. The special positioning of ABB's business includes this task. ABB's business in more than 100 countries around the world gives it rich experience in this field, and its oil/gas department is familiar with the customs procedures of various countries. For some key customers, ABB promises when signing the drilling pipeline contract: to ensure that the pipeline arrives at the site on time. To this end, ABB has to charge more, but because it bears the risk of customs clearance and import procedures for the customer, reducing the risk is equivalent to adding value to the customer, which is of great significance.

ABB has long been a leader in this field because other competitors do not have the global experience and skills that ABB has. ABB's success is that it has identified an area in its interactions with customers where it can reduce customer risk. And neither customers nor competitors can do it.

Simplify your path to monetization

It goes without saying that a company needs a high-quality product if it is to be successful. Likewise, any product, no matter how good the quality, cannot satisfy all the wishes of the customer. Before the customer realizes all the value of the product, these values must be combined with some other elements. The secret is for companies to redefine what they offer their customers so that it's not hard for them to discover that it's what they want.

A division of ICI Explosives in Australia has taken an ingenious approach to helping its customers feel the value of one of the most inconspicuous products - the rock. ICI has a long history of supplying quarries with commercial explosives. The quarry uses dynamite to break up the rock, breaking it up into small boulders of similar shape. The problem they encountered was that in the process of turning the stone into a product, if the blasting was not sufficient, the rock would be blasted into some large boulders, which were difficult to break down again. As such, well-designed blasting requires great skill and can have a considerable impact on a company's profitability. Up to 20 indicators can detect the effects of blasting, including the shape of the rock surface, the depth and diameter of the holes drilled, and weather conditions.

Recognizing the client's risk, ICI embarked on a project to quantify what was previously considered art. ICI engineers also used computer models and experiments to narrow down the uncertainties that could affect the blasting. ICI does not sell its new skills as added value to customers, but helps customers blast it. ICI clearly states "the number of blasted stones" in the contract, and the customer pays for these blasted stones, and the size of the stones is specified in the contract.

This new contract significantly reduces client risk in two ways. First, the fixed costs (labor costs of the quarry, drilling costs) are turned into variable costs; second, the minimum acceptable standard for the effect of blasting is set. Clients only pay for the end result, not the process. In this way, ICI not only acts as a supplier of commercial explosives, but also becomes an integral part of the client's business. The repositioning of ICI's business not only brought huge benefits to the enterprise, but also consolidated ICI's competitive position.

In order to create value beyond the product, companies should also recognize that physical products are nothing but immutable packaging that creates opportunity costs. Premier Auto Group (PAG) is the name of Ford's luxury division, which includes brands such as Jaguar, Land Cruiser and Volvo. PAG recognizes that the products it offers limit customer choices. As a result, it began to provide products according to customers' usage habits. What the customer buys from them is not a car, but a "movement contract", the customer enjoys a sedan, a luxury bus, a sports car or a convertible, whatever the customer wants. The repositioning doesn't change the fact that Ford makes cars, it changes how customers buy cars and the benefits they experience from them.

By shortening the path that customers take to seek benefits, companies can systematically reset their products and services. If a company can absorb the risks and costs of customers better than its competitors, while providing the same benefits to customers, it can certainly find new competitive advantages.

Integrate business activities

Of course, companies don't always chain together specific customer tasks. The company should avoid taking full responsibility for integrating the company's different businesses with the activities of the customer, although this reduces the risk and cost to the customer. The Internet can accomplish this possible and fundamental task. What suppliers need to do is demonstrate and provide a range of capabilities and resources that customers can request on demand. Both supply and demand sides must be willing to exchange information and form cross-company project teams.

As a small Italian manufacturer recently demonstrated, the advantages of having a process that is transparent to customers can be gained. AXIS specialises in the manufacture of machinery for electric motors and is known for its product quality and technology. But in a mature and competitive industry, that's not enough. For customers like Black&Decker and Philips, they are more concerned about how to shorten the time to market and how to catch up with the peak season of product demand, so they are very picky about suppliers. In response to client needs, AXIS drastically overhauled its project management, opening up all processes to its clients.

Following this change, a power tool manufacturer signed a contract with AXIS. The contract stipulates that AXIS will supply a new production line for the production of a non-standardized electric motor for the new product. The first challenge AXIS encountered was how to match the new production line with the customer's facility. Production space is an issue, and labor costs are a headache. Thus, the production line needs to be compressed and highly automated.

After using a web-based 3D CAD system, AXIS worked with the client's engineers to optimize the design concept and help the client develop performance standards under different operating environments and configurations. After the basic concept was finalized, AXIS engineers designed the graphics for the production line, and along the way, they worked with the client's engineers to compose, formulate parameters, and share data.

AXIS's information sharing and process integration with customers has always been in the process of customers' successful development of new products. Customers experience their own design and control over a new product line for the first time. If there is an opportunity in the future, the customer is also willing to cooperate with AXIS.

Contacting customers and sellers

A reliable supplier can develop itself into a "market maker" for products and services: not providing products and services itself, but Make money in the process of forming. By creating a bridge between customers and sellers, suppliers can help buyers save on search costs by only offering buyers qualified objects. At the same time, suppliers can also increase the number of touch points with many customers, so that customer loyalty can be expected.

NTT DoCoMo serves many suppliers and customers who manufacture and use mobile network products and services. The company's I-mode is considered the most successful Internet service in the world. Fundamental to the success of I-mode is that NTT DoCoMo brings together all aspects of the mobile network experience to deliver to customers: hardware, access, service and payment. This combination reduces customer costs and risks, allowing customers to enjoy more convenient and reliable service.

On the hardware side, DoCoMo works closely with suppliers such as Sony, Panasonic and Fujitsu to launch standardized I-mode mobile phones. DoCoMo's service revolves around a single web portal through mobile phones with built-in I-mode drivers. Users only need to log in to this portal to roam 1,600 DoCoMo-authorized websites, which greatly simplifies login procedures and frequent operations. For those authorized websites, they are also happy to be supported by DoCoMo and provide services according to DoCoMo's requirements, so that their services can reach millions of users, and correspondingly, these users can quickly access the vast amount of services provided by the website. Content and Services.

With I-mode, payments are also easy. Users receive a detailed list of fees each month, and since they get an invoice from a reliable service provider, they are more willing to try new services. In the fixed telephone network access provider, each time you log on to a different website, you need to pay once and check your identity once, and the procedures are very cumbersome. Earning trust is important in the age of mobile networks, and DoCoMo does just that, delivering value to hardware vendors, content providers and the millions of users who use I-mode. In the process, it has also established an incomparable competitive advantage.

Fighting for the future

To fight for the future, partnering with other companies is also a powerful tool. "Fighting for the future," in other words, outlines products and businesses that can change the status quo. This is especially significant for new technologies in the network economy era. Rarely is a company that makes only one product. Companies today recognize that there is no so-called risk to customers than the large amount of capital invested in new technology. It is imperative for any company developing a new product to look for ways to reduce risk and cost early in product development, even when the product is ready to debut. Sometimes, as we'll see with the example of SAMSys Technologies, sometimes it's even a decision to give up on your core product.

SAMSys is a small company with a big technical idea for the future of "Radio frequency identification" (RFID). The principle of this technology is that objects loaded with semiconductors can "communicate" with each other and with people because the semiconductors can emit radio frequency signals. The prospects for the use of this technology are astonishing. For example, with the push of a button, RFID can manage an entire warehouse. In addition, with RFID, you can know all the contents of trucks and containers without opening the box. A recent survey by Accenture showed that once companies adopt RFID technology, the entire supply chain management can save 70 billion US dollars.

SAMSys is the first company to enter this field, it has developed a complete set of hardware systems. Companies know that once customers fully appreciate the value of tag readers, they can invest in RFID without worrying about system mismatches. To prevent technological obsolescence, readers must also be easy to upgrade. SAMSys has developed this compliant reader, but the company knows that to be successful, it must also convince its big customers: identification suppliers, packers and users of RFID systems.

Texas Instruments, Philips and Motorola are all logo suppliers, and SAMSys positions itself as a partner rather than a potential competitor. To that end, the company took a bold step: exiting the familiar sign production industry and focusing on producing readers. While the big sign vendors also have their own reader businesses, they are willing to see the SAMSys concept as a separate sign and reader that could enhance their sign business. Now, both Texas Instruments and Philips are SAMSys partners rather than competitors.

SAMSys' next focus is on packaging suppliers that provide the outer packaging for the RFID readers. For some time, SAMSys has been persuading International Paper, one of the world's largest paper packaging companies, to join its strategic alliance. Today, International Paper has turned to SAMSys' FRID solution as a means of adding value to paper packaging. This alliance makes SAMSys the industry's standard setter and research center. More importantly, it provides a reliable platform on which SAMSys can communicate with potential clients, including Procter & Gamble, Revlon and Dell, among others.

As product homogeneity becomes more common, so does the competition to win customers over different tricks. To be different, the strategy must first consider how to reduce the cost and risk of customer interaction. This requires a systematic approach to developing new resources that bring customer value.

Shifting a company's focus from product centricity to customer engagement centricity can easily be underestimated. Some marketing tactics are ineffective because they are often counterproductive: they complicate interactions with customers. In fact, there are plenty of opportunities for companies to create value and build long-term advantage that are enough to convince company executives that a customer-centric mindset is better than a product-centric mindset.

Reproduced with permission from the Summer 2002 issue of the MIT Sloan Management Review, published by Tribune Media Service International. Copyright MIT Registered 2003. Translated by Yang Tong.

Mark Vandenbosch is a teaching assistant at the Richard Ivey School of Business at the University of Western Ontario, Canada, and a visiting professor of marketing at the IMD Institute in Lausanne, Switzerland. Niraj Dawar is the Nabisco Chair Professor at the Ivey School of Business.

Creating value outside of products

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