Alibaba's Competitive Advantage Threatens to Eclipse eBay & Amazon

The Economist reported that Alibaba.com handled $170 billion in e-commerce sales last year - that's more than Amazon and eBay combined. The company is poised to become the world’s leading e-commerce business and inevitably the most valuable company… ever.

As it prepares to go public, it could easily eclipse Facebook, which at the time of its own IPO was valued at $104 billion. Estimates for Alibaba’s value an IPO range from $55 billion to as high as $120 billion.

The e-commerce market has exploded over the past decades, offering limitless opportunity for current and aspiring entrepreneurs. Dominating even a section of the nation's online business market would deem any company a global juggernaut - as has been demonstrated by U.S.-based e-commerce powerhouses eBay.com & Amazon.com.

However, the beginning concepts and formation of online business didn't flow so seamlessly. The original e-commerce markets were flooded with shoppers who simply didn’t trust the process of buying online. Although advances in technology have allowed businesses to largely rise above those fears in developed nations such as the U.S., online trust is still a major hurdle in emerging markets. This is especially apparent in economies such as China, home to 1.35 billion people or nearly 20% of the world's population, where trust rules all personal and business relationships. So how did Alibaba Group, a China-based e-commerce platform, manage to win the trust battle?

Let's explore the steps Alibaba took to overcome one of the trickiest e-commerce hurdles.

Alibaba Group began as a B2B platform connecting small Chinese manufacturers with business buyers around the world through Alibaba.com. Alibaba joined the race in 1999 when safety and trust topped the buying criteria for online shoppers.

Leadership guru Steven Covey highlights the importance of trust in business when he cites research that proves high-trust organizations outperform low-trust organizations by as much as three times. In a 2012 interview with Forbes, Covey noted that his notion of smart trust is clearly shown in companies like Google, Southwest Airlines, IBM and Whole Foods.

As Alibaba.com expanded into direct-to-consumer selling through sites such as Tmall (B2C) and Taobao (C2C), it became apparent that Chinese consumers, already reluctant to trust strangers, certainly weren’t going to trust buying anything online from complete strangers. One of the company's first employees noted, in an article found in The Economist, that they spent a lot of time reassuring potential buyers that they could trust the Alibaba process.
Early on, Alibaba took two important steps to build trust with buyers:

1. Independent verification services: Alibaba ensures that claims of sellers are vetted through third parties, with the service paid for by the seller.

2. Fully protect both the buyers and sellers: In 2005, Alibaba launched AliPay. This allows consumers to pay for products up-front, have funds held in an escrow account until item(s) are received and verified to have met expectations, then have the funds released to the seller.

Fast forward a decade - while other factors have added weight in importance, such as cheaper products, faster shipping and ease of returns - trust still dominates... and Alibaba's legwork seems to have gained them a competitive advantage. I know I'm not the only buyer that's decided to pay a dollar more for a product listed by a 'top-rated eBay seller' versus one void of a ranking. Price is not always the tie breaker!

Consumers want to be able to trust their suppliers - Alibaba establishes that trust.
While China's internet penetration is only at 43% - compared to 70%+ in higher developed nations - Alibaba has lots of room for growth, as the number of online shoppers has doubled to 250 million in just three years. But it’s not going to stop there. Alibaba's methods for building trust should work just as well in low-trust, emerging online markets around the world - this means it has the opportunity to become the e-commerce leader in Africa, Latin America and throughout the rest of Asia. While the rest of the world was barely paying attention, Alibaba may have hit upon what I think is the key to its relevant selling success: Trust.

Reflections

• How do you build confidence and trust by removing risk for your customers?

• Do you know the level of trust you currently have with your marketplace? How might it be impacting your bottom line?  

3 Secrets to Apple’s Enduring Competitive Advantage

Apple’s Macintosh desktop and laptop computers have enjoyed near-cult status among devoted users since the 1980s, but it wasn’t until the new millennium that the company began hitting a series of bona fide home runs with consecutive new product launches. It began in 2001 with the iTunes media player, which was followed later that year by the iPod digital music player and the online iTunes store in 2003. Then came the unveiling of the revolutionary smartphone in 2007 - the Apple iPhone, and then the iPad in 2010. Each product was hyped to the max, sleek in design and coveted by consumers around the world.  Apple stock prices began a steady climb, reaching a peak of $700 per share in the fall of 2012. Since then, however, Apple’s stock has been in decline and is now hovering in the humble (for Apple) $400s, causing many analysts to speculate: is Apple’s reign coming to an end?

I don't believe so. There’s more to Apple’s enduring competitive advantage than advanced product design, but many elements are not obvious to the untrained eye. Here’s what fosters Apple’s leading edge:

Highly Integrated Product Range. It's no secret that each of Apple’s individual product offerings are top-notch. But as the International Business Times recently highlighted, one of the secret elements aiding Apple's competitive advantage is the integration of different products into a suite that draws users into an entire ecosystem of consumer electronics that interface seamlessly onto one platform. Once a consumer has purchased one of Apple’s products they are much more inclined to try others that will complete their set. Example - following the viral success of Apple's iPhone, why wouldn't a consumer want a laptop computer that flawlessly migrates and stores the data kept on the handheld device that supports their everyday living? It almost seemed aberrant to consider a different brand. Ever wonder how Macintosh computers went from only being purchased by a devoted few to ranking third in personal computer sales?

Moreover, when it comes to adding new products, Apple is also a firm believer in saying "no" more often than "yes." Unless the company is fairly certain that the new product will fit nicely into their current mold and ensure a huge market disruption, it won’t grant the green light.

Effective Supply Chain Management. How does Apple manage to meet the staggering demand for its new products without a single hitch? By investing substantial sums of cash into ensuring its supply chain runs flawlessly. Tim Cook, who took over as CEO after Steve Jobs passed away, previously managed Apple’s supply chain and therefore understands its critical role in their competitive advantage.

As noted by MSN Money, Apple arranges very specific deals with suppliers to foster seamless operations. The details of which include purchasing necessary equipment for suppliers as long as they guarantee to meet Apple’s schedule and share any cost savings incurred from the new equipment by lowering component prices. Apple essentially removes or greatly minimizes the risk factors from the supplier side of the equation, and as long as both parties fulfill their roles, it is a win-win relationship.

Innovative Internal Organizational Structure. The Huffington Post pointed out that Apple's internal organization vastly differs from most consumer electronics companies. Competitors tend to organize their companies into distinct business unit silos, each with their own research and development (R&D) efforts as well as profit and loss (P&L) statements - essentially setting the pace for internal competition. Apple, on the other hand, encourages a positive workflow by employing a unified R&D effort that cuts across most of their products, and only looks at a single P&L statement. When one department succeeds, it is reflected throughout the entire organization rather than just a single unit. This organizational structure strongly supports the veritable fortress Apple has built around its highly integrated product offerings.

Apple has yet to release the type of ground-breaking product we’ve come to expect since Cook took over as CEO – and many wonder just how strong the tie was between Apple’s success and Jobs' leadership. However, as history has proven – a company that focuses on its competitive advantages ensures long term success rather than limited improvements to the bottom line. Case in point: if Cook can continue to improve the operational aspects that strengthen Apple's enduring competitive advantage, such as those outlined above, growth and success will keep the company at the forefront for years to come.

Reflections

• Does your company offer a range of products or services that integrate with one another? If so, how does that influence your company's competitive advantage?
• How does your company’s organizational structure help or hurt your overall competitive advantage?
• What improvements could your business make to ensure it better serves its customers needs?

Adios Brick and Mortar: Another Reason to Buy Online?

Is e-commerce "gaining ground" even in terms of convenience shopping?

I am not sure if this is a social issue or a business issue.  If you have read prior blogs, I have talked about how to make the purchasing experience not only pleasant, but at a bare minimum, easy. This seems to be a challenge in so many industries.  When done right, it can be a strong competitive advantage.  The new Fairways in New York City comes to mind - intense population in a very big grocery store but an abundance of checkout counters gets the shopper out of the store with minimal time and grief; this measure ensures a satisfied customer and shopping experience.

The Wall Street Journal presented an article on how long it takes to buy a car.  The time commitment to shop a new vehicle on the lot, do the finance and purchasing agreements, then learn the cars technology adds up to an average of 2.25 hours. Keep in mind this proceeds the 18 hours (on average) of Web research devoted to narrowing down vehicle candidates and which brick and mortar storefront to visit. Regardless, I personally think that less than 3 hours is understated. We might replace our older cars more often if we didn’t have to fork over thousands of dollars to endure the water torture.  The first dealer to figure out how to shorten this time investment will have a huge competitive advantage by engaging in relevant selling.  AutoNation is trying; it will sell on market data not sticker pricing.  New software will show customers buying and leasing options - cutting buying time in half.

It seems the buying experience at brick and mortars are getting worse not better. 

I went to Walgreens recently - simply to pick up some eye drops.  Much to my surprise all the products were in lockdown.  It used to be just the cough syrups that provided ingredients for illegally manufactured drugs were locked up.  Not now: In my local Walgreens, my theoretical convenience store, nearly every product in the symptom relief aisles were behind lock and key. This requires the customer to literally hunt down the elusive store employee, (it took me seven minutes to find someone) who would come unlock the product to allow me the honor of purchasing it.

I was puzzled.  We all live in time compressed worlds, and this was not a productive use of anyone’s time.  So when I asked the store about it, I was told “there is so much theft”, they have no choice. . . Really?

So my guess is 90% of us are honest. Even if a whopping 10% are stealing, do the rest of us have to pay the price of shopping for locked up goods?  I don’t know how much loss Walgreens experiences that justifies this approach, but for the business they will lose to folks who won’t tolerate inconvenient shopping at convenience store pricing and locations, wouldn’t it make more sense to invest in extra security guards? Better surveillance? This does not reflect a relevant selling approach to today’s shoppers and is likely tipping the scale in favor of the rise in e-commerce vs. traditional brick and mortar retail.
Creative solutions and all kinds of technology are emerging.  If retailers insist on insulting and punishing those of us who just want to make a simple purchase, then my guess is many of us will make our lists and shop online.  It will be more convenient, no waiting for the lock and key, no waiting in a cashier line and no feeling like I was being punished for being a loyal customer.

With all the business books, industry conferences, industry seminars on how to run better businesses in these changing times, is this the takeaway for the drug store chain giant?  Have they gotten arrogant?  Or will they go the way of Best Buy, Borders and other brick and mortar stores who are fading from our landscape?  Today requires relevant selling more than ever, so those who drift from it are at risk.

Reflections:

• What products do you shop for online, that you used to shop for in traditional brick and mortar storefronts? Why did you make the switch?

• Are there policies in place that may be driving customers out of your own storefront? If so, does the benefit of the procedure outweigh the cost of dissatisfied customers?

Irrelevant Selling Hall of Shame: Top 3 Product Flops of 2012

When it comes to figuring out what makes for the most relevant selling to customers, you have to consider more than just price. There are endless beliefs, opinions, needs and wants that customers factor into the relevancy equation. Rather than presenting long lists of how to use information that you should be collecting from customers, I thought it might be interesting to present the latest examples of products that failed due to irrelevance. I call it the "Irrelevant Selling Hall of Shame," and this first edition will cover three of the top product flops from 2012, originally identified by 24/7 Wall Street.

1. Apple Maps. Apple may be the envy of both the tech and business worlds, but even an iconic giant like Apple can come up with a flop, and Apple Maps was a flop in spades. Mislabeled buildings, images of melting bridges, missing national capitals, utterly wrong directions –  the list of flaws that accompanied this app seemed never-ending. From a relevant selling perspective, if you’re going to invest the time to create a product and hype up its relevance, which Apple did quite aggressively, you’d better make sure you're delivering what your customers actually want...not to mention that it actually lives up to the promised excitement. Instead, Apple Maps was voted three times more likely to get you lost then Google Maps, and had a stunning 30% error rate in the UK, compared to less than 5% for its competitors (for more information comparing Apple Maps to other mapping services, visit Digital Trends).

Fallout from this flop:

• An apology letter from Tim Cook, Apple's CEO, that pointed customers towards competitor products
• Senior Vice President of iOS software, Scott Forstall, losing his job
• According to Forbes, a $30 billion loss in stock market value.

2. Dodge Dart. With continued volatility in gas prices, fuel-efficient smaller cars have become top sellers in the auto industry. Chrysler wanted to get in on the trend by offering Dodge’s first compact car since the Neon. Over 18 months, the company spent $1 billion to develop the Dart and spent a fortune on the ads constantly airing on television. Unfortunately, the Dart appears to be missing the bull’s-eye by a rather wide margin. Initial sales were as low as 200 cars in some months, and although it rallied to sell 4,500 in November, rival cars such as Honda Civics and Toyota Corollas sold more than 30,000 and  22,000 in the same month, respectively.

Notable irrelevant selling points:

• Most Darts have manual transmissions, clearly not so appealing to the smartphone-addicted generation-Y crowd that generally makes up the market for cars of this caliber.
• The Dart failed to achieve the most influential recommendation for the American car-buying public – Consumer Reports – who cited power train deficiencies in its reviews.

3. John Carter. When Disney films hit their mark (and they often do), they spawn huge supplementary revenue streams in merchandising and themed rides in their amusement parks. Have you seen John Carter in theaters? How about commercials? Me neither. Don’t expect to see any John Carter rides the next time you head to the nearest Magic Kingdom. My guess is that irrelevant selling contributed to the $350 million flop of this 2012 Disney film. Part of the problem here is that the material comes from a classic science fiction epic, an 11-volume series of novels by Edgar Rice Burroughs in the early part of the 20^th century. Disney’s film is based largely on the first book of the series, A Princess of Mars - but who has ever even heard of that? Disney foolishly let director Andrew Stanton run up a $250 million budget and spent $100 million on publicity, all to have the film essentially pronounced as dead on arrival. The opening weekend box office for John Carter racked in an anemic $30.6 million, and Disney took a $200 million write-down, making the film the biggest box office flop in history.
An app, a car and a film – widely divergent products that all marched into the "Irrelevant Selling Hall of Shame" because they failed to discern what customers really wanted.

Key Takeaway: Before wasting valuable time and resources on a new product, make sure it will ignite the same excitement in your customer base as it does in top management.

Reflections

• What product flops have you seen that you think should be included in the "Irrelevant Selling Hall of Shame?"
• Have you been involved in any product flops that you felt could have been prevented if companies would have just called on the customers voice prior to production?
• How does your company engage its customers to learn what will be most relevant to them?

Please share your own answers to these questions in the comments area below.

 

Capitalizing on the Potential 'Made in USA' Competitive Advantage

Recently I was interviewed by New York Times journalist Elizabeth Olson who asked what my thoughts were on “Made in America.” This past week, USA Today published a similar article titled Made in USA Making a Comeback as a marketing tool.  

And Barron’s just featured "Made in America" as a cover story for their January 28^th issue.  Barron’s cites that cheap natural gas in the U.S., paired with increasing competitive labor are bringing manufacturing back to the U.S. So to capitalize on these up-in-coming national competitive advantages, companies must be prepared to spell out, specifically why Made in the USA is better for their customers.

Throughout the country, I am asked whether or not USA-made products should be touted as a competitive advantage in marketing strategies.  This is a complicated question to answer due to varying factors that can cause this strategy to tip either way.

Clearly, patriotic Americans want to help our flailing economy by creating more jobs in the United States. But there are other factors. Quality is often perceived as much better when made in the US, even though many appreciate good Italian leather, or German cars, or Spanish clementines.... so the answer is 'it depends.' 

In trying to gain retail sales for Made in USA products, companies still have to compete with cheaper labor elsewhere and get hammered on pricing.  Big-box stores like Costco, Target and Wal-Mart are known for beating up on their vendors for low prices - thus commoditizing their products every day.  Their marketing strategies encompass offering the consumer a low price, however they need to maintain their own healthy margins.  This effort is daunting and therefore, the lower-labor, lower-cost products from abroad can make Made in the USA a hard sell.  But, it is not an impossible sale. 

Further research for midsized to large corporations reflects that most marketing strategies don't include teaching sales people to sell what moves their product away from commodity status - the top buying criteria of their customers.  Sometimes it’s obvious while other times not so much: if two companies selling the same product to a customer such as a Costco - Company A's products are Made in USA, but Company B's are Made in China, Malaysia, Korea (you name it) and are less expensive - who wins?  It's easy to say the lower cost item wins. But we have proven again and again that if you deliver what your customer wants most, price is not always the tiebreaker. 

Sometimes, a more important reason is that USA-produced may provide for better delivery. Years of research reveals that in B2B selling, “on time delivery” is a top buying criteria.  If the products are made here, we don’t have to worry about long shipping delays and we can quickly go to the source when there is an issue. 

If the Costco buyer said “I‘d like to buy USA made but I need to go with lower price” they will go that way if not given a reason not to. But if research shows that the buyer wants quick sell-through, low return rate and accurate invoices, and Company A can claim the following competitive advantages, then they will win most of the time:

• Our item provides 3 times more sell through turns than competing products
• Our brand has less than 1.3% return rate each quarter for the past 22 quarters
• We issues over 600 invoices last year; only 5 credit memos for invoice errors

If the buyer values these criteria, he/she will be willing to pay more because the benefits on high sell-through and low return rate more than account for the price differential. A top salesperson will assume a strategy that includes working out the math to show the buyer how the slightly higher price provides a much better margin for the buyer's store.

Few companies take the time to learn what a true value proposition is for their customers and hence don’t deliver accordingly.  Clearly there will always be price buyers, but if you close just 20% to 40% more without lowering price, your bottom line will be much stronger. 

Reflections:

• What do you measure today - or what should you BEGIN to measure - that might give your sales people a competitive advantage in a commoditized marketplace?

• How closely do your marketing strategies - website, brochures, tradeshow banners and swag, newsletter - align with the selling strategies of your top salespeople?

5 Steps to Take in Response to Shifting Target Market Trends

Market Trends Are Predicted to Shift… Are you Ignoring Your Biggest Potential Customer?

There is great umbrage over the fact that women may still earn less than men for equal work in many areas. Market changes are worth noting:  women currently control $12 trillion in assets with an expectation that number will almost double in the coming years, according to a report issued by Wells Fargo’s First Clearing brokerage and the Cannon Financial Institute (New York Post, December 12, 2012.)  This may be one of the most notable target market shifts in this decade.

Women are no longer a niche market:  the NY Post article reports that in 2010: 60 percent of master’s degrees, 52 percent of doctorate degrees, and 48 percent of MD degrees were earned by females.  Women will outlive their spouses and will be the recipients of spousal and parental inheritance.  This represents a changing customer base which will require changes in sales and marketing approaches.

The Wells Fargo study revealed wealth advisors often did not know how to sell differently to women, in this shifting market trend.  Women may need more time to develop the relationship with the advisor than a man would expect.  Many organizations miss shifting trends that cause them to miss opportunities and lose market share. 

As pointed out by Wells Fargo, women and men require different approaches.  In fact, a different sales and marketing message is required for each target market that buys your products or services. If you sell a food product to grocery stores, cruise lines and country clubs, most likely each of those target markets has a different hierarchy of buying criteria; yet research reveals there is a 90% chance that you are in the pool of companies using one broad brush to market to all three. Ignoring the differing needs of different target markets equates to lost opportunity and lost revenue.

Along these same lines, the Post also reported a story about how Madison Avenue may be missing the boat on their marketing.  For a very long time, ads and TV shows have been geared to the younger generation - the 18 to 49 audience.  Yet Boomers account for nearly half of the consumer packaged goods sales, according a Nielsen report.  The Post reports a further Nielsen finding that, “…in five years, the post 50 crowd will make up half of the country’s population and control 70 percent of its disposable income.”  And Madison Avenue is ignoring them except for ads touting Depends and Viagra?

This may be a very costly mistake because marketers don’t know who their target markets are and where the money is for purchasing power. Every business must stay in touch with customer trends and changing target markets if they want to focus on relevant selling in order to maximize profitability.

Steps should your business take in response to shifting markets trends

1. Keep an eye out for articles and industry reports that indicate a shift in market trends.
2. Ask yourself if your business’s target market is included in these shifts.
3. If so, work with your marketing team to make sure you tailor your existing message to these new trends – or create new messages that align with what new customers want.
4. If not, use this as an opportunity. A shifting or new target market means new demand … why not be the supplier?
5. Share this information with your employees – especially your salesforce! Arming them with this new data and messaging can lead to higher sales close rates and more business.

Run through these five steps. See what you can come up with and put it to the test.

Reflections:

• How well do you know who your target market is?  Should be? 
• What opportunities should you now pursue that you haven’t before because of new trends?

 

Car Shopping - More Painful than Water Torture

Do you make your customers buying experience easy or difficult?

While I have never experienced water torture I have had the unpleasant experience of car shopping, car buying, and car purchase negotiation.  I keep a car much longer than I would like. I procrastinate buying a new car to avoid the agony of the experience. 

How many companies, knowingly or unknowingly, make the purchasing process more difficult than it need be?  How often is the buying experience geared towards meeting the needs of the seller first and the needs of the customers second?

Case in Point:

I broke down and went car shopping last weekend.  I started at an Infiniti dealer. I asked the salesman if I might test drive the vehicle of my choice. I let him know I had limited time but the test drive would help me get to my short list of cars.  The salesman asked me to fill out a form, hand over my license, and allow him to make a copy of it.  I was flabbergasted.  I said, “With identify theft what it is I am not comfortable with a copy of my driver’s license lying around a dealership.”  I understand his need to know I was a licensed driver but that’s all that made sense.  After all, I wasn’t going to test drive the car without the sales guy, so why did he need a copy?  He puffed out his chest and said “that’s our policy.”  I said, “No thanks, you are now out of the running.”  I went next door to Volvo; same story.  Neither salesperson cared that a qualified lead walked out the door.  They just knew it was “their policy,” and if I didn’t like it, “too bad.”

I was now curious to learn if this ID check with a copy on file is truly required, by law or some higher power I was not aware of, in order to test drive a car.  The next closest dealership up the road was Toyota. I pulled in to test my question. A salesman was immediately at my door. I asked to test drive an Avalon; he said, “Sure, let me get the keys.  I will be right back.”  No copy of my license, no form to fill out. He made test driving easy and pleasant. While I was not originally considering an Avalon, I was suddenly feeling very positive about the car. Much to my surprise, how my car shopping experience was handled by this dealership had a surprising shadow effect on my choice. I began to seriously consider the Avalon as an option.

Still undecided, I went to Lexus.  Same as Toyota: you can test drive anything you want.  No form to fill out, no copy of my license. This felt so much better. 

All kinds of businesses forget they are not the only game in town. I have written before about how a corporate policy may hinder sales. Sometimes the sales person becomes so rigidly compliant to a policy, there is no room to accommodate a customer’s request.  

Businesses must remember, more often than not, it’s not what you sell but How You Sell.  How relevant are you in meeting the needs of the customer, not just in providing the product or service they need, but how relevant are you in meeting their purchasing experience needs. 

Reflections:

• What can you do to streamline the purchasing experience for your customers and prospects?  Do you have too many forms to fill out?  If you provide on line ordering, is it easy?  I have aborted many an online sale simply because the site and purchase process was too complicated.

• Are your salespeople given any “policy” leeway to save a customer’s experience, or have your needs to acquire customer data become so important you have lost sight of speed and ease for your customers?

These questions can provide your company with either a competitive advantage or competitive disadvantage.  The former will close more sales every time.

 

How Delta Uses Cost Advantages to Soar Above Competition

Richard Anderson had his work cut out for him when he took over as Delta’s CEO in 2007. Gas prices were soaring, the economy was on the verge of crumbling, and operating costs were nearly suffocating the multi-billion-dollar airline. Smaller, more flexible airlines were pouring salt in the wounds of industry giants by picking up domestic routes and capturing shares of the market which others were leaving behind.

These days, however, Delta is showing signs of promise.

Enjoying its third consecutive year of profitability, and slashing debt like a ninja - from $17 billion in 2009, to $10 billion in 2013, if it stays on projected track – Delta is definitely making a habit of doing things differently, states Susan Carey’s recent piece in The Wall Street Journal. Sara Rouf, a Fitch analyst, said she believes Delta to currently be “the strongest player in the much improved airline industry in the U.S., as it continues to march ahead of its peers on many fronts."

So how did Anderson turn Delta around? He reevaluated the company’s operations and focused on repaving the path that was originally set when Delta was first started. Anderson monopolized on previously-neglected economic advantages to create competitive advantages that would allow the airline to climb out of the red and surpass their highest growth point. Let’s take a look at a few examples.

 

How Delta Created a Competitive Advantage to Thrive, Not Just Survive

• Oil. It’s no secret that volatile fuel prices wreak havoc on the airline industry. Delta was the first airline to buy its own oil refinery. According to Carey’s article, “Delta figures it can save at least $300 million a year, supply 80% of its domestic fleet's fuel needs and avoid the punishing refining margins it is paying today.”

  Delta was able to get a jump on the competition by paying off debt, investing in more planes and expanding international routes. Michael Porter, refers to these kinds of moves as cost advantages.

• Older planes.  While most airlines are investing in new planes, Delta flew the opposite route and purchased 49 used McDonnell Douglas MD-90s from other airlines that were happy to get rid of them. The MD-90s were rehabbed for use and Carey reports that Delta believes it is saving a minimum of $1 billion on the MD-90 purchases, when comparing the cost to buying brand new. 

With the money Delta saved, it commissioned Boeing to supply 100 new 737-900s to replace those it was retiring. But true to Delta fashion - it didn't purchase the newest version.

• Owning Vs. Leasing. Anderson prefers Delta own, rather than lease its planes. Currently, Delta owns 75% of its fleet. Anderson explains the advantage of owning; “when you hit softness or an economic downturn, you don't (have to) fly empty planes with high monthly payments.”

• Labor Agreement. Delta is the only major U.S. airline that is mostly nonunionized. Its near non-union-status facilitates higher flexibility in negotiating with workers. With their new cost-cutting savings, Delta gained the support of its 12,000 pilots and reached a new labor agreement last summer; according to Carey’s WSJ piece, Delta pays most workers more than competitors for equivalent jobs. Planes will be flown by Delta pilots, not pilots that fly on Delta’s behalf, and Delta cockpit crews will enjoy the opportunity for greater upward mobility.

• Maintenance. Most major airlines have outsourced maintenance. Delta realized it wouldn’t be able to cut costs by flying second-hand aircraft without sufficient support to upkeep the fleets. The company ensures cost-savings and additional revenue streams by employing its own maintenance division of 10,000+ workers - this department repairs, paints, and modifies their own aircrafts as well as those of other clients. They solved a need and created a profit center. Delta’s maintenance business took in $650 million in revenue last year, up from $25 million in 1995.

How Cost Advantages can foster Competitive Advantages

• New ownership strategy facilitated a relevant selling tactic – Delta was able to better tailor flight schedules to demands of customers versus demands of leasing companies.
• Purchasing second-hand planes helps to prevent Delta from having to charge customers higher prices to pay off new aircrafts.
• With greater opportunities for advancement, crewmembers are more likely to be satisfied in their positions. Satisfied employees often result in satisfied customers.
• An in-house division that saves money as well as brings in additional revenue fosters growth.

Financial smarts helps Delta thrive - Delta is dominating the airline industry. Companies need both - clearly defined differentiation the customer values and meaningful cost advantages that don’t hinder the product/service delivery to their customers – but enhance them.  

Reflection:

• What cost advantages can you consider that would not detract, but add benefit to your customers?

• In what ways might smart cost-cutting advantages translate into competitive advantages for your company?

What Businesses Can Learn from Hollywood’s New Trend

Reality stars, TV stars, YouTube sensations, radio personalities, theater standouts – if you’re a director looking to find talent, you’ve got more choices than ever before.  So, how do directors determine which stars are most likely to bring an audience to the movie?

How Actors are using Social Media to Foster their Competitive Advantages

The National Association of Theater Owners reported that the number of theaters operating in the U.S. has declined from 7,798 in 1996, to 5,687 in 2011 – that’s over a 25% decrease in theater operations in just 15 years. According to a recent New York Times article by Brooks Barnes, summer movie attendance hit a 20-year low in 2012, causing a substantial decrease in entertainment salaries. With studio budgets tightening and box office demands intensifying, pressures to fill empty seats are escalating and competition for viewers is savage-like.

These changes have altered the buying criteria for studio executives when deciding on which actors to hire or ‘buy’ to star in their movies. It has reached the point where actors with the most experience or recognition are no longer the most coveted … Today, actors with a substantial following are being considered more valuable.

Studios Recognize the New Social Media Trend as a Competitive Advantage & Relevant Selling Point

What counts as a ‘substantial following’ these days? You guessed it… an extensive social media fan base. The more friends, followers, tweets, likes, shares, or comments an artist has…the better!  Fans love when they feel like their favorite celebrities actually recognize and cherish their loyalty. Facebook, Twitter, Instagram, Pinterest and other social media outlets are providing actors with the opportunity to engage with their fans on a personal level, fostering a loyal following.

Agents are increasing emphasis on the social media movement as they are recognizing that a client with a huge social following has a competitive advantage over those with less of a presence. There’s a growing trend amongst agents to hire companies such as theAudience to direct the social media efforts of their clients. The larger a social following, the greater value perceived by studio execs; this is a relevant selling point that helps an artist land the role and command a higher salary.

Ever wonder how Rihanna went from singer to actress overnight? Something tells me that her 59.6 million Facebook fans and 23.8 million Twitter followers may have had something to do with it. Studio executives are realizing that hiring an artist with a massive social media following leads potential movie-goers right to the front steps of the theater – an attribute that now tops their newly evolved buying criteria.

Is There a Lesson for Other Companies in this Newly Emerging Hollywood Trend?

Consider the following scenario: Your company is choosing between two vendors which offer a relatively commoditized product, equal in quality and price. In an additional attempt to earn your business, both vendors offer to run a month-long advertisement on their website featuring your company; the only difference lies in the fact that one vendor has accumulated an extensive social media presence - posting daily updates about their industry, company and website to social media accounts - while the other has not. Which vendor do you choose? 

 

 

Reflection:

-How might you improve the effectiveness of your social media?

-How might you use social media to grow a competitive advantage for your business?
 

Read more about how companies can utilize free resources to grow their businesses

 

How a Competitive Advantage Led Netflix to Dominate Their Market

Follow these Steps to Dominate Your Market

Movie megastar Netflix hit on an amazingly profitable competitive advantage shortly after its founding in 1997, by offering DVD rentals via mail at a flat monthly subscription rate. Their well known business model: subscribers enjoyed unlimited rentals, without the added worry of late fees or shipping & handling. Netflix quickly developed a reputation for revolutionizing the movie rental market. As a result, Netflix dominated the market and enjoyed minimal direct competition.

Fast forward to 2010. Netflix discovered another way to maintain their market positioning and outstanding competitive advantage by offering an app for the Apple iPad, iPhone and iTouch. In 2011, book store giant, Barnes and Noble, began pre-installing the Netflix app on its Nook tablets. Just last month, Netflix added a "Just for Kids" section to its app for the iPad family, offering movies and TV shows for those aged 12 and younger.

Netflix entered the mobile movie market in its infancy, effectively capturing the ‘first to market’ competitive advantage. The conglomerate didn’t sit on its laurels in terms of maintaining their competitive advantage, and its numbers prove it. Netflix now has a total of 27.6 million subscribers, in domestic and international markets combined. Smart, sharp, and evolving competitive advantages have contributed to their success, and may very well have saved the company from an early demise (remember Blockbuster?). There’s a lot you can learn from Netflix about the importance of competitive advantages.

What Netflix Has Done Right, and What You Can Do Right Too

1. Identify a Strong Competitive Advantage.

• Netflix recognized that late fees were bringing in big bucks for Blockbuster - roughly $300 million annually - but the fees were alienating its customers.
• Netflix understood that convenience is near the top of consumers’ hierarchy of purchasing criteria and used that knowledge to identify its winning competitive advantage: DVDs mailed right to your door, no limit on rental time, no late fees.

2. Evaluate Your Competitive Advantage.

• Netflix realized that to remain competitive, and retain its leadership role in the market, it must reevaluate and evolve its competitive advantage as trends and technology transform.
• When Netflix saw a competitive advantage weakening, it identified a new competitive advantage. Netflix monitored its competitive advantage to be sure it didn’t become obsolete.

3. Listen and Respond to Customers.

• Netflix adjusted its business model to meet customers’ changing needs and wants. Convenience was still at the top of their customers’ buying criteria, so they focused their efforts on offering movies via phone and tablet.

4. Don’t Compete on Price Alone.

• Instead of lowering price when faced with competition from Amazon, Hulu and HBOGo, Netflix raised the price of its combined streaming and DVD rental subscriptions by a whopping 60%.
• Netflix didn’t have to compete on price because it had long established and communicated its competitive advantage – solidifying its position as a leader in the industry.

Despite increased competition and prices, Netflix’s usage numbers are higher than they were last year. Peter Kafka, Of All ThingsD, reported Sandvine’s research findings which link Netflix to over a third of all “downstream” traffic in North America. No single company comes close to that number. Sandvine’s CEO Dave Caputo said, "I thought the competitive threat would've been more significant against Netflix, but they seem to be holding their own.” Adding, “The rising popularity (of Netflix) underscores the strategic advantage Netflix has gained with its online service and efforts to make streaming accessible on everything from televisions and game consoles to mobile devices.”

All companies need to consistently monitor and evaluate their competitive advantages. A well defined, articulated and communicated relevant competitive advantage helps companies retain current customers, attract new prospects, and minimize the need to compete on price.

 

Reflections:

• Have you considered how advancements in technology may threaten your competitive advantage?
• How do you monitor your customers’ and prospects’ changing needs and wants?