Page 69 - Marketing the Basics 2nd

segMentation, targeting and positioning 61
MORE FOR THE SAME
Offering more benefits for the same price is a competition-killer. Once customers recognize they receive more value at the same cost, they choose the product that offers the highest value. Due to the dramatic effects the more for the same strategy can produce, companies protect their products by patenting critical processes or parts, creating a brand name or employ other defensive strategies to reduce the erosion in market share.
MORE FOR LESS
Positioning a product to offer more benefits at a price lower than the competition is another winning strategy. Firms can offer more for less when they discover a new breakthrough that radically changes the standard business model. Dell Computers was one such company. The computer industry is very competitive and because of the ubiquity of computers, it has many of the characteristics of a commodity market. Because margins are extremely thin, cost savings have a dramatic effect on the bottom line.
Dell was one of the first companies to pioneer the idea of mass customization, where the manufacturer offers a basic skeleton and the customer selects the parts. Customers could order their custom-made computer either on the Internet or on the telephone, the entire process taking a few minutes. Furthermore, on the cost side of the business, Dell was also one of the first companies to use just-in-time (JIT) delivery systems. With JIT, they never held a component in inventory for longer than a week. Low inventory costs enabled Dell to have lower prices and offer customers a product that provides high value.
Unfortunately a more for less strategy cannot be sustained in the long-term. Competitors adapt their business models to match or better the offered benefits. Prices will fall because consumers in the long-term have grown accustomed to a lower price for the product.