Beyond cost and quality: no product positioning advantage is sustainable

Sometimes, when this point of ultimate value is reached, firms may tum to one of two strategies that abandon the market because the market seems too competitive to be profitable.

  1. Product-line extensions: Just as service can enhance product quality, companies can also add new products to fill in excess distribution ca­pacity. For example, McDonald’s has gone into related items, such as breakfasts, chicken, and salads, and is experimenting with ribs and other items. Anheuser-Busch added Eagle Snacks to fill its beer-distri­bution capacity, and P&G continues to add new personal-care prod­ucts to its product line so that it can serve its supermarket customers with a broader line. Thus, product variety becomes a new form of quality in the firm’s overall offerings by providing customers more choices and options. A customer who perceives a high-quality meal as a salad rather than a burger is offered high quality by this increase in variety.
  2. Flight: When the going gets tough, one option is to move into a com­pletely new industry or niche that is not so far down on the cost-qual­ity competitive cycle. This option, which we will discuss in greater detail in the next chapter, gives the company more maneuvering room.

Ultimately, no cost-based price and quality advantage is sustainable. No matter how one defines quality (even if it contains a servicelike custom design or micromarketing methods), the cost-quality cycle will re­peat itself. Each dynamic strategic interaction provides a firm with a tem­porary advantage, but it also forces the rest of the market to become more competitive. To break from the cycle of price wars, companies move to­ward price-quality competition. They then move toward covering all niches, which leads to outflanking and niching strategies by competitors. These dynamic strategic interactions push the industry toward providing products of ultimate value to the customer, making the industry more price competitive. Then new definitions of the product and quality ap­pear, setting off a new cycle of dynamic strategic interactions (see Figure 1-13).

Although we portray this cycle as sequential, it may also be parallel. Two or three definitions of quality may be used at the same time. Also, some companies may skip steps along this ladder or be frozen at one rung temporarily. Firms proceed up the ladder at different speeds, depending upon the aggressiveness and quirks of the competitors in the industry and the potential for finding new types of quality and improving on old levels of quality and market characteristics. Nevertheless, this escalation ladder (illustrated in Figure 1-13) defines the rungs in the process and shows how one dynamic strategic interaction leads to the next. But competitors will climb up this ladder in many different ways.

Source: D’aveni Richard A. (1994), Hypercompetition, Free Press.

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