Recently I attended a marketing training course, this time on Developing Innovative Products and Solutions with Dean Dipak C. Jain, of Kellogg School of Management at Northwestern University.
You start designing effective new product strategies by anticipating customer needs, understanding customer value perceptions and preferences, to then develop your marketing plan with a focus on segmentation, targeting and positioning. However, one critical area many companies encounter is how do you develop a strategy to attack a strong or entrenched competitor to capture market share and profits? One approach is to use these four key steps;
- Redefine the market
- Resegment the market
- Utilize a sandwich strategy
- Develop new products for these segments
To develop your sandwich strategy you further segment the market into premium and non-premium customer segments. Next, develop new products to meet these segments needs. The objective is to make these new products ‘customer centric’ so the value perceived by the consumer is ≥ price paid for the product, because this equation creates desire and aspirations for your product at the right price.
Three parameters you need to factor into your strategy are (M) market definition, (Q) Quality Perception, (P) Pricing Policy.
When US Post entered the market for express overnight delivery their $8.95 service was designed to directly compete and steal share from the FedEx $12 overnight service. In response FedEx resegmented the market and created a premium product –Guaranteed Overnight Delivery by 10am –pricing this service at $13. FedEx then created a Standard 3pm –Next Day Service –for $9. FedEx nullified the new entrant and improved margins since legal firms or financial services companies traded up to the new service since they required urgent client paperwork before the courts and markets opened respectively. Thus the FedEx strategy and new products got the customer value equation right and achieved all the three essential parameters –next day delivery service (M), reliability (Q), and premium pricing (P).
I’ve seen examples of this strategy work in many different industries such as automobiles, electronics, pharmaceuticals and consumer goods. Sometimes you need a strong competitor to drive innovation and make you think different about your marketing strategy.
