Simply Management: Effective Methods to Plan, Manage, and Improve Businesses. Warwick J Thompson

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СКАЧАТЬ failed its objectives. Adverse public reaction and comment was so strong that the existing competitors had not needed to respond to the pricing offering. The assertions and commitments given by call-centre customer service representatives (based as they were on policy-set targets) proved hollow and were not delivered. Huge delays with number portability and registration meant newly purchased SIM-cards did not work. The target market demographic, not known for its patience, understanding or tolerance, inundated the website and the call centre with queries and complaints, causing crashes and further delays. Even a blog was started by furious customers and attracted hundreds of angry comments and frustrating experiences.

      The competitors’ pricing response is still to come and hit the struggling new entrant. Having spent several hundred million dollars on their set-up, it could cost the new entrant at least that again just to secure a toe-hold in the market after such a disastrous start. Yet it was mostly predictable.

      Case D

      The talented food-technologist owner of a small food manufacturing business had developed a cluster of new sauce products. These were fresh products attractively and innovatively packaged in a clear soft-plastic pyramid-shaped container displaying the company brand prominently, followed by a description of the product and use-instructions. Because they were fresh, the sauces had a limited shelf-life and had to be stored, displayed and sold from a chiller. Retail distribution was thru the major supermarket chains.

      The supermarket chains agreed to stock the products, given that they were innovative and potentially a new niche category of fresh sauces, and launched them in all stores throughout the country. However, within a few months, the products were delisted and withdrawn from retail display.

      There were a number of weaknesses here, both strategic and operational - that resulted in failure.

      There was as assumed competitive advantage that a fresh and ready-to-use sauce was better than one that had to be made up from packeted dry ingredients, or alternatives. There was an assumption that the products satisfied a consumer need. Neither of these assumptions had been market-tested. The innovative packaging, though novel and attractive, could quickly and easily be copied by competitors and therefore delivered only a momentary competitive advantage.

      Given the small size of the business and the small volume of product, the production costs were quite high. The resulting price of the product, although not very high per unit, represented an expensive addition just as a complement to a meal. Not only did this price-point not appeal to consumers, it was highly vulnerable to being undercut by larger competitors if the new category proved successful. So the cost/price strategy was not sustainable.

      Chilled shelf space in supermarkets is limited, expensive and aggressively competed for. Any new product or brand needing such specialised retail distribution must attend to its fundamental success factors, irrespective of the strengths of its strategy, in order to be granted the space and even more importantly, to retain it. In this case, there was virtually no advertising or promotion to create consumer awareness of the new product. There were no in-store tastings or promotions to generate a demand for the products. There were no ‘taste-tests’ conducted prior to launching the products to ensure consumer acceptance of the flavours offered and there was no alignment of the products with commonly-prepared meals to ensure a volume-end-use for each.

      The lack of consumer awareness, the tenuous alignment with a volume end-use and the high price of an elective addition to a meal, all resulted in the products lack of movement off the shelf. Not only did the low consumer off-take not meet the retailers’ objectives for chilled shelf space, but the products low turnover meant they reached their ‘use-by’ date and had to be removed.

      The innovative packaging has now been utilised by large food companies for other high-volume lines such as soups.

      4. BARRIERS TO ENTRY

      Creating or building barriers to entry – ( a cost, technology or market hurdle that a competitor must surmount just to become a competing participant in the market) – is rarely a successful strategy. Unfortunately, having low barriers to entry (e.g. low cost, short timeframe, any location, low or easily-copied technology) means it is easy for many new competitors to enter the market when they see your success. This often fragments the market so it is uneconomic for all of the participants and trading at low/prices/low profits or even losses leads to the collapse of all their businesses.

      Having patents to protect a product or process can be a temporary barrier to competitive entry, but:

      •Pursuing a patent is a distraction from other management activity

      •Patents are time-consuming and expensive to establish

      •There can be long delays before the patent is issued

      •They may need to be registered in many separate countries, thus escalating cost

      •They need maintenance payments to remain in place

      •They are unenforceable in many developing countries

      •Proliferation of copiers makes enforcement impossible

      •They are published, thus giving information to potential copiers

      •They have a fixed-term life

      •They can be contested or ignored

      •Enforcement action is hugely costly

      •Constant vigilance (another expense) is required to detect infringement

      •Minor changes to product or process by competitors can obviate the patent

      •They create an illusion of security that can be by-passed by innovation.

      It is possible to use secrecy to create a short-term barrier to entry, for example, by keeping the technology or process secret, or holding source codes to software. Eventually, either the secrecy is broken or the product/process is superceded by something better or providing a completely different solution.

      It is also possible to secure exclusivity to the source of supply of a key material or input. Vertical integration by acquiring the source of supply can build a competitive barrier. Again, that is usually a short-lived barrier to entry as other supply-sources can appear.

      A more effective barrier to entry is market coverage and positioning. Getting your product, process or service quickly established in the marketplace, accessing the widest possible customer base in a short timeframe, dominating the market, and getting a high or saturation level of brand recognition and brand positioning can make market entry very difficult for new competitors.

      Not only does that raise a marketing barrier for new entrants but it can also create a significant cost-barrier. A new participant will have low or no volume-sales on entry, but will simultaneously incur high marketing expenses just to compete against the dominant participant. If a manufacturer, the new participant will also have very high unit costs because of no or low volume sales on entry.

      Prompt market saturation in both promotion and distribution, combined with strong brand-positioning has been used as a very successful barrier to entry by the Japanese consumer-electronics industry, mobile phone manufacturers, U.S. consumer-software companies, and many others.

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