Marketing folklore has it that years ago, a new manager took over Parker Pens. His first action was to assemble the management board and ask them a very simple question: who is our major competitor?
One by one the board members began to educate the boss with what they thought the answer was. One answered Shaeffer, since Schaeffer was in the ball pen business as they were. The boss shook his head, it was not Schaeffer. Shaeffer produced a pen very similar to the Parker. It had a good reputation for quality, had a similar stylish finish and quite expensive like Parker. The boss explained that although they compete to an extent with Shaeffer, they were not their main competitor.
Another stepped forward and offered his opinion, ‘it is Biro’. Although Biro Swan was not marketing at the top of the market like Parker, this person thought that they both served the same purpose, which is writing and that way can be seen as their direct competitor. So now the market definition has now moved from quality fountain pens to writing implements. Under this consideration makers of pencils might also be considered as part of the competition. The new director was impressed. His people were beginning to think out of the box. But, no, Biro Swan was not.
The board members became confused. Minutes passed, the room was filled with much silence you could hear a pin drop. Another man summoned courage and stood up. Every eye was set on him. ‘Its the telephone! We are in the communication business. The telephone is fast gaining more wide spread use in recent years. People can either write with their pen or make a call.’ Everyone nodded, this must be it.
The director looked up and smiled, apparently happy that his people were making use of their mind. Under this new model, typewriters and word processors form part of the competition. But again, it was not the telephone.
Then the director offered his view of who their major competitor is. His answer will shock you. It was Ronson cigarette lighter! His explanation was that Parker was in the quality gift business rather than writing implement business. An analysis of the Parker sales revealed that people purchased the pens primarily as gift to other people. When they considered what to buy often a major alternative was a quality cigarette lighter and hence the definition of the market.
The definition was the controlling factor in everything Parker did and how they did it. Packaging assumes a more important role, as does the development and maintenance of a superior quality image. Price is perhaps less important than might have been thought under alternative market definitions. Distribution (through the outlets where potential customers buy gifts) also becomes more important.
The most important element of a marketing strategy is the definition of the market in which a business is. If you miss this, your business is going to be a matter of trial and error. There are three basic questions every business leader must find the accurate answers to if strategy must be done right. These are; who are we? What defines us? What do we call ourselves? This is the starting point. Clearly all high performing businesses have an accurate definition of themselves. It is the purpose of your business that defines your business. First you have to understand what business you are into and why you are in that business. This purpose is what is called mission, often summarized in a mission statement.
But the mission itself is defined by the business you are into in the first place. The definition of the business you are in is what defines your whole strategic direction. You have to get this right if you are going to build a high performing business. The clearer your view of what business you are in, the wider your chances of building that business into a global giant.
Consider Google (now officially Alphabet), in the beginning they set out to ‘organize the world’s information and make it universally assessable.’ By this definition Google could not consider Yahoo, Ask or AOL as its major competitor. They did not define themselves a search company and that has seen them go from the core search business to the android operating system to nascent businesses like self-driving cars. That also defined how they pursued their mission which is what is called strategy.
In all situations and under all circumstances in any environment, any business can thrive. When businesses fail, it is an indication that the leaders of that business have disconnected from what they should be about. As we recite the mantra of change in the business world every day, it is important we understand that there are things which cannot change after all. The basic drivers of business success are timeless. They are not affected by disruption or business uncertainties. In fact, it is the understanding of these basic principles that empowers a business to conquer the challenges in its environment and win as it ought to.
So before you pay for another TV advert, before you bring in another business consultant or roll out a new product, sit down and ask yourself, ‘what business are we in?’ And think this through. Don’t be in haste. You cannot get any strategy right, and neither can you know who your competitors really are nor how to draw your strategic map except you have the accurate answer to this.
The book Profit from the Core by Chris Zook and James Allen revealed that between 1988 and 1998, seven out of eight companies in a global sample of 1,854 large corporations failed to achieve profitable growth. This means that these companies were unable to deliver 5.5% annual real growth in revenues and earnings while earning their cost of capital. Yet 90% of the companies in the study had developed detailed strategic plans with much higher targets. Is it any surprise to know why business leaders have a problem with executing strategies? Forming strategies is not as important as defining your business in the first place. Interestingly no one else can do this for you. This is what you sit down with your board and resolve once and for all. No matter how long it takes to figure it out, it will always be worth the while.