Lesson 3 How small businesses can compete with giants

Glenn Carroll, Professor of Organizations and Senior Associate Dean of Academics at Stanford Graduate School of Business, gave four lectures on organizational innovation on May 23 in Beijing. He brought different ideas of organizational innovation according to different situations such as start-up enterprises, small enterprises, and mature industries. At the same time, he also brought new ideas for how Chinese manufacturing can compete internationally.

This is the first module of the "Stanford Graduate School of Business Executive Training Program" co-organized by CEConline and Stanford Graduate School of Business. Nearly 100 senior managers came from all over the country to study this course. This event is sponsored by Volkswagen.

Here are some of the key takeaways from Professor Carroll's lecture that day.

Lesson 2 How to Make Innovation Sustainable

Lesson 3 How Small Businesses Can Compete with Giants

We will answer this in this course The question is, how do small businesses compete and win against big giants in big markets.

Introduce a more specific business case, which is the development of Cocoa Pete`s chocolate. The U.S. premium chocolate market is growing very fast. The US chocolate market is controlled by three major companies. The first is Hershey, which accounts for 1/3 of the US chocolate market, and the second is MARS, whose chocolate also monopolizes 1/3 of the world's chocolate market. The third largest is Nestle.

Generally speaking, once such a large monopoly giant appears in a certain industry, the entry barrier to the market is relatively high, and it is very difficult for new companies to enter.

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However, in the process of the rapid expansion of the US chocolate market, are there a few monopoly companies that have benefited the most from the middle? Or has the rapid development of the market brought opportunities for some innovative small businesses to develop?

Let's start with some research I've done on the US beer market.

In the last two decades of the 20th century, the four major brewing companies accounted for 90% to 95% of the U.S. beer market. However, in the 1980s, countless small breweries and pure raw bars began to enter the market, gradually occupying some market share. . They are just family-run production, self-produced and sold on a very small scale. Will this differentiated market demand continue? This demand has stabilized and continues to do so. Demand for flavors other than mass-produced beer is 10% to 15% of the market, and we think it will grow further.

The niche market is gradually expanding, because the beer made by big companies is more and more like the taste, those small breweries and some self-produced bars use traditional craftsmanship of the 18th and 19th centuries to brew beer for this market. brought many diverse factors. These small makers brew a wide variety of beers with increasingly different flavors. While these small businesses only make up about 5% of the market, big breweries are starting to pay attention to the trend. The first reason is that the price of beer produced by small enterprises according to the traditional process is much higher, so the profit is higher than that of large enterprises. The second point is that wealthy people in the United States, including those who have the ability to taste beer, are increasingly drinking beer brewed by traditional craftsmanship. These people are taking their opinions to the media and getting more and more attention, people feel that the beer produced by the big companies is a bit outdated.

Not just the beer industry, every industry at some point in history or is facing such a change. For example, the company has become inert or the taste has changed. The inertia of large companies is actually common, and they may not be aware of the changes in the market, or because companies are very slow to respond, it is too late to reflect.

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So how do professional enterprises and later small enterprises seize the opportunities of market segments and niche markets to succeed?

Back to the chocolate case.

Cocoa Pete`s, a chocolate company, is different from all other chocolate manufacturers, including high-end chocolate manufacturers. They are pursuing chocolates of various interesting shapes and containing relatively high-end fillings. To a certain extent, it is a relatively differentiated product. At first, many people could not learn from them, but once this advantage is realized by competitors, it is likely to be affected.

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Cocoa Pete`s segmented the market with opportunity, targeting the high-end US market. At the same time they have a competitor Scharffen Berger. One thing they have in common is that they both target the upscale artisanal chocolate market. Cocoa Pete`s outsources its own production, while Scharffen Berger imports chocolate beans from South American countries and produces them themselves. At first, it was aimed at chefs in high-end hotels, who were more likely to perceive the difference between high-end chocolate and popular chocolate, and promote brand competitiveness through word of mouth. Cocoa Pete's approach is to build its own marketing team, dedicated to dealing with the grocery store. Scharffen Berger produces more dark chocolate, while Cocoa Pete`s produces small, drop-shaped pieces, often filled with filling. Scharffen Berger's chocolates are exquisitely crafted and emphasise the company's high-end and meticulous craftsmanship. It focuses more on the classic chocolate image, while Cocoa Pete's is relatively lively and fun.

Many analysts have compared these two companies. They believe that the capital of the newly established company is very limited, and the entire industry has excess production capacity, so why not use the excess capacity and spend their own limited funds What about building a factory? If you have money to build a factory, why not use it to promote products, increase marketing and sales, so as to enlarge the market share and even enlarge the market segment. From the financial point of view of financial people, the model of Cocoa Pete`s will definitely be chosen. But I don't think this is right, why, because a manufacturer's brand should have a story, which is what consumers are looking for. They are not buying ordinary chocolate, but whether the chocolate brand has its own characteristics. , like human personality. This is something that other companies cannot learn. We call it corporate character. This will also be cultivated by Chinese manufacturing companies in the next 15 to 20 years, that is, corporate character.

Cocoa Pete`s also hopes to bring some personality to its own products or to the company. But a more favorable or advantageous way to build a personality should be Scharffen Berger's approach, it feels like a craftsman, the factory is open, there are some very old equipment, and they roast their cocoa beans themselves. And once such an identity is established, people feel that you are the most authentic, and this identity becomes your talisman, and no one can take it away from you.

The opportunity brought by corporate identity (or personality) in the fourth class

Chinese exporters must learn to "tell stories" - live discussion and sharing of Stanford Business School Executive Training Course

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