Patterns: Identifying Profitable Strategies
to the mid-1980s the product was king, with profitability directly
linked because of the functionality that was important or unique.
Recently, however, profit and value have begun to migrate away from
the product along several dimensions via different patterns. The
common denominator across these patterns is that the value that
had existed in the product has now moved to new assets such as brands,
blockbusters and solutions.
Product to Blockbuster
Profit Multiplier Product
Product to Solution
more consumer advertising there is, the smaller the window of exposure
per product. Time is scarce. People want to find a product that
they know will satisfy their purchasing goals and they want to find
it immediately. This combination of too many options and absence
of differentiation creates levels of buyer frustration and triggers
the brand pattern.
provide an answer by providing differentiation and the promise of
customer satisfaction. In many categories, customers pay less attention
to the product than to the brand that has been built around it.
As the brand becomes a proxy for the product, decision time is reduced
from several days or hours to a few seconds. As a result, profit
and value have started to migrate away from individual products
toward the brands themselves, which provide customers with a perceived
guarantee of quality. Manaufacturers and retailers, aware of this,
realize they are selling an image, a message and a promise rather
than a product. The sale is not just a transaction, it's part of
the migration of value away from products, countless branding opportunities
remain untapped. Many companies are simply afraid to make the investment.
Others believe they own a brand, based on high awareness. Awareness,
however, is just the first metric. More important are: unique position
and preference that is powerful enough to drive behavior. Most important
is the ability to achieve and protect a meaningful price premium.
biggest barrier to exploiting the shift from product to brand lies
in not really understanding the customer and therefore not being
able to create a brand that has high meaning and motivational power
for the buyer. Three rapid changes in the marketplace the
advent of new technology, the formation of networks and user groups,
and new modes of buyer behavior all triggered by the Internet,
have dramatically changed the competitive landscape for the brand-building
process. As a result of these conditions, it is now possible to
construct a brand in ways that were unavailable just a decade ago.
It's not only how much you spend that counts, it's the whole system
you build around whatever amount you spend.
do you do to move from a Product to Brand strategy?
that customers want and need valuable brands.
Bite the bullet. Build the brand.
many industries, profit migrates from a balanced portfolio of products
to a few blockbusters. This usually is brought about by two conditions:
economics of development and production, which make the "average"
product a money loser.
variability in the outcomes for any product.
results in the profit that used to be in a portfolio now being concentrated
in blockbusters. The key issue is how to create a system that consistently
delivers blockbuster results.
do you do to move from a Product to Blockbuster strategy?
on the system.
It's impossible to produce a consistent series of blockbusters
without a carefully developed and nurtured system.
profit multiplier pattern is a shift from single product focus to
a system that reuses that product many times, creating multiple
revenue streams from a single source. The pattern is triggered by
businesses that successfully recognize their customers' perception
of their "winning asset" relative to their competitors,
and successfully reuse the asset to generate tremendous value.
profit multiplier strategy is in its essence a platform strategy.
Platforms are assets that have been created or designed specifically
for multiple uses. The platform multiplier is complementary to the
blockbuster. Each has the same goal in mind to amortize the
increasingly high cost of developing proprietary assets. They just
approach the problem differently:
blockbuster aims to amortize fixed costs all at once through a
giant commercial success.
platform aims to reuse an asset several times to generate multiple,
moderate commercial victories. Is is a blockbuster on an installment
your company's assets from a profit-multiplier perspective. There
are likely to be several unexpected opportunities for your assets,
tangible or intangible, to do more for your customers and your company.
Someone once articulated the spirit of the profit multiplier as
"making the company's assets sweat from exertion."
do you do to create a Profit Multiplier?
your organization to identify all the possible vehicles through
which your product, brand, or skill can be sold.
Pick the best seven. Build a system that puts them to work.
product pyramid consists of multiple product levels with different
price points, brands, styles, designs, functionality and performance
attributes. All of these levels are managed as a systems, to maximize
and protect profitability.
product pyramid pattern can be triggered when markets experience
increasing customer ssophistication and income stratification. The
goal of the pyramid is to have a company use its knowledge and experience
to serve both the low end and the high end of its customer spectrum
in very different ways. Channel relationships, operations experience,
component volumes, and brand names can sometimes be leveraged to
compete in both segments. On the high end, the pyramid provides
profits. On the low end, it serves as a firewall to build strategic
control and keep the competition away. Some pyramids take the form
of product-line extentions at different levels. Others are constructed
of different brands that work together to give a company a system
that protects its profits.
do you do to move from a Product to Pyramid strategy?
a firewall at the bottom. Build the profit maximizers at the
If necessary, create the key layers in between.
product to solution pattern is triggered as customers begin to understand
their systems economics and as suppliers struggle to differentiate
themselves. Great product functionality is no longer enough to solve
customers' problems. Innovative providers develop bundled offerings
of products, services and financing which create more value for
both the customers and the suppliers than merely selling "boxes."
This shift to solutions demands a new language, a new set of metrics,
and a new way of thinking.
are often difficult to develop. They require learning customers'
economics, and going beyond the product, to create services and
systems that add value far beyond the functionality of the object
itself. Value is measured not only in functionality terms but in
economic terms. By anticipating the evolving systems economics of
its customers, a company can exploit the solutions pattern, create
a unique offering and achieve strategic control in the marketplace.
their value to customers, solutions are not "forever."
Like products, they will commoditize. Moreover, customer needs will
continue to evolve, rendering today's solutions incomplete in tomorrow's
do you do to move from a Product to Solution orientation?
your customers' systems.
Know their systems economics better than they do.
Create unique solutions to improve their systems.
is based upon Profit Patterns, written by Slywotzky, Morrison, Moser, Mundt
and Quella, published by Times Business, Random House, copyright © 1999 Mercer
Management Consulting, Inc.