Selling Treadmills for Dogs
In business strategy, the positional view holds that value is derived from two critical factors, 1) where a firm chooses to compete in a given marketplace, and 2) the defensibility of that position.
To choose where to compete a business should start by segmenting the marketplace. This involves identifying key differences among products and customers within a given industry. As a business you’re looking for an area of opportunity where your unique value proposition will allow you to capture market share.
As Porter notes, there are three major strategies a business can employ to position themselves. These include overall cost leadership, differentiation, and focus.
- A cost advantage often stems from capabilities that are difficult to replicate, such as Amazon’s hyper-efficient warehouse system.
- Successful differentiation results in customers paying a premium for your product (or service) because it is different in some meaningful way. Apple has differentiated itself with its attention to privacy.
- And finally, focus involves taking a customer-centric view and honing in on those with the pains & gains that match your value proposition. For example, Leica doesn’t try to be for everyone, instead they are hyper focused on delivering a luxury product to affluent photographers.
Using one or all of these strategies will enable you to effectively position your business in an area of the market where you can be most successful.
Once you’ve identified a white space on the map and planted your flag, how well can you defend your position from competitors? It may seem counterintuitive, but competition is a good thing.
If you’re the only one selling a treadmill for dogs you’ve either discovered a totally unserved customer (which is rare) or there is no market there.
That’s why effective positioning often means you’re bumping up against competitors. The question is, how well are you able to hold your ground? If Peloton sees your success and decides it wants to get into the treadmill for dogs game, how will you fend them off? What’s special about your company or product that makes it not easily replicable or substitutable? Answering these questions is the key to defensibility.
The value of effective positioning is evident in the extent to which a business is able to garner significant traction and retain customers, all while remaining profitable.
There are three metrics you can use to measure the effectiveness of your strategic positioning.
- Traction: Traction is all about whether your value proposition is connecting with the customer group you’re targeting. Are people paying you for your product or service? Essentially, did you pick the right customer to go after? No traction means you have not effectively positioned your business.
- Retention: Are your customers loyal? Are there similar products on the market but they still buy from you again and again? If so, you’re offering a value proposition that competitors have not been able to easily replicate, which means your position is defensible.
- Profitability: Is your business geared to serve this customer segment effectively? Do you have specific resources and capabilities that allow you to serve this customer segment in a profitable manner? For example, if you’ve created a boutique hotel experience, but are targeting Motel 6 customers you’re likely going to be unable to do so profitably. An effectively positioned business carves out a niche where its unique resources and capabilities can generate the most profit.