In reviewing a client’s Competitive Edge Profile, I was interested to see a common challenge: how customers’ perceived lack of differentiation was impacting my client’s pricing power. In reading up on the subject of commoditization, one article resonated with me. Here’s an excerpt.
“Rivalry among existing competitors takes the form of jockeying for position-using tactics like price competition. Competitors are numerous or are roughly equal in size and power. Industry growth is slow, precipitating fights for market share.
The product or service lacks differentiation; fixed costs are high creating a strong template to cut prices. Capacity is augmented in large increments and leads to periods of over-capacity and price-cutting.
Exit barriers are high … this keeps companies competing even though they may be earning low or even negative returns on investment. Excess capacity remains functioning, and the profitability of healthy competitors suffers while the sick ones hang on.
Rivals differ in strategies, origins, and “personalities.” They have different ideas about how to compete and continually run head-on into each other in the process."
If these observations seem familiar, that’s no surprise. What may surprise you is this: they are taken from an article titled “How Competitive Forces Shape Strategy” by Michael Porter. This classic first appeared in the Harvard Business Review in the March-April issue ... in 1979!
It is safe to say that the greatest thought leaders of our generation are that because of the timelessness of their thinking. So here we are, more than 40 years after that article was written and some industries continue to be challenged by the inability to create differentiation and unique value. This impacts pricing power and the ability to operate at a level of profitability needed to innovate and grow.
It may well be that few of us were thinking about the importance of strategic planning and differentiation in 1979. As we work our way through COVID-19 and try to make sense of what is next, the time for careful, structured, and disciplined thinking and planning has never been greater.
For examples of how a high-level strategic planning process can move your business to the head of the pack, contact me at truncalephd@gmail.com.
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