This was one of the optional readings assigned by my professor in one of the business strategy classes back in grad school. I read business books, but I’d never put my emotions in. To me, reading in another sense is like dating. I meet with the authors and the characters, get to know them, and live their memories along with them. Needless to say, some of the business books are really useful with tools enclosed, while the tones of most of them are just cold.
In this sense, this book is also cold. However, I would still recommend it as it was not a dull read. The book had some good perspectives on competition and customer retention enriched by interesting real world examples. The book was also not too thick so it can be positioned as something we can casually flip through and get something out of it.
The key essence of the book is that in the business world, the competitors can also be your complementors. Don’t treat them as pure enemy, as their existence and the potential collaboration opportunities can be beneficial to our business.
Some good learnings:
- It’s a perception game: the world is built upon perceptions of perceptions of perceptions. Whatever business decision we make, we should think about how they perceive the game, and how they would perceive how we perceive the game.
- Understand our value add to the market is essential: What value did we add by entering the game? We will be able to get a sense by picturing a market with and without the existence of our business.
- To a potential market entrant who may enter the market with undifferentiated products – get paid to play.
- With an undifferentiated product, the entrant doesn’t bring additional value to the market but dividing the pie. However, the entrance creates competition, breaks the monopoly, and hence may cause price fluctuations (usually towards a downward trend), which is good for the consumers since they will pay a lower price for the same good stuff.
- As a result, this entrant, knowing that entering the market may not do much good to themselves in the short run, should try to pursue some “get paid to play” opportunities with the business customers who will benefit from the competition.
- The “get paid to play” option can be a win-win strategy for both the entrant and the customers if the negotiation goes well. To make it practical enough to operate, the book listed out some types of upfront payment (both monetary and non-monetary) the entrant can negotiate for:
- Bidding preparation cost
- Up-front capital cost
- Guaranteed sales contract
- Better access to the information or some important people
- “As long as we match the price, you should choose us”
- Possibility to bid on other pieces of business
- Don’t try to win the bid only through low price – it doesn’t do good to our business
- The customers that are won through low-price bidding are those who are extremely price-sensitive with a lack of loyalty. And they are highly likely to turn to other business partners once they find a lower price elsewhere.
- In the end, this type of customers may not be the type we want to work with. They may be demanding, constantly bargaining, and not paying bills regularly.
- Strategize through the supply power.
- Form coalitions to attract more suppliers to bid. This creates competition on the supply side, and our business will benefit as a customer along this value chain.
- Undersupply when necessary. Even though sometimes there are abundant natural supply, we (as supplier) can just pile up the inventory and release the supplies in a restricted way to bump up the demand and price.
- However, we should be cautious to use the “undersupply” strategy because it may ruin our relationship with the business partners, and the undersupply situation may invite other potential suppliers to enter the market.
- There’s always a battle between higher quality and lower cost. Base the decisions on the marginal increase/decrease of the two.
- If a littler bit more cost can significantly bring up quality, do it. If by lowering a little bit of the quality, we get a significant cost-cut, do it.
- (Well, I personally don’t agree to the latter point for ethical reasons)
- Some tips on building customer loyalty (e.g., how to say thank you to the customers from a business perspective):
- Don’t simply say “thank you” in cash because people have different value system towards non-monetary gifts (e.g., free air ticket to Hawaii) and there is a lot of arbitrage the business can do to maximize the value while minimizing costs.
- Save the best “thank you” for our best customers not the newest customers.
- Say “thank you” in a way that build our business. For example, it can be a referral program, cross-sale product/service promotion, etc.
- Set up a mechanism so that the customers know what to expect when we say “thank you”. Customers don’t like surprises.
- Don’t forget to say “thank you” even if we are in monopoly. First of all, the monopoly stage may not last long and we will face competition sooner or later. Secondly, being at monopoly is the best timing to say “thank you” to the customers because we are able to access the largest possible customer base and build loyalty early on.
- Also, don’t forget to say “thank you” to our suppliers. We need to make sure that our suppliers will stick around and give us the best product and price.
- One important and effective way to shape the perception is to send signals.
- An employee who is willing to take on a low-base high-bonus salary structure indicates that he performs.
- Giving service guarantee signals that the company’s service is good.
- Spending significant amount of money on marketing indicates the company’s confidence on its new product launch.
- Remember, what we don’t do sends a signal to the market too.
SweetS 