The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market

Electronic News, June 12, 1995 by Robert Sobel

Freshman economics students are soon introduced to the notion of elasticities of demand. It is obvious enough; for some products and services, demand is strong and urgent, there are few or no satisfactory substitutes, and so the supplier can raise his price to the consumer. Likewise, products and services with less demand and many substitutes have elastic demands, and are price-sensitive.

Every supplier knows it serves his interests to make the demand for his product as inelastic as possible. This familiar concept is the reason Harvard University charges three times the tuition than a lesser known school that nonetheless provides a decent education, and why Barbara Streisand concert tickets sell for astronomical prices. The demand for these products are relatively inelastic. Likewise, it explains why gasoline, mouthwash, and packaged breads advertise. They are trying to convince consumers their products differ from those of competitors, and if this effort succeeds, they will create a more inelastic demand, and be able to boost prices.

This basic notion is the key to successful merchandising. Variations on the theme have provided the grist for scores of books dealing with promotion and sales. Benjamin Schneider and David Bowen in Winning the Service Game, which recently was reviewed in this space (EN, May 8), offers a variation of the ideas discussed in Discipline of Market Leaders. This current best seller is from the same people who brought you Reengineering the Corporation--last year's version.

Although authors Treacy and Wiersema don't utilize the terminology, Discipline of Market Leaders deals with how several successful companies go about dealing with the matter of elasticities. One might have expected this might be accomplished by providing the best product obtainable at a competitive price, but as the authors indicated, it isn't that simple. They write that producers and suppliers need not excel in every area, but only in those in which consumer hopes have been raised to create the inelasticities.

Broadly speaking, there are three such companies. The first concentrate on developing and image of uniqueness of product or service, for which price is a secondary consideration. In this group the authors place 3M and Nike, and I suspect they might include fashionable restaurants as well. The second group stresses service and hand-holding, and aspire to create relationships with the customer that will make him or her feel they are "special." These include Airborne Express and Nordstrom, and the authors devote a chapter to AT&T's Universal credit card, which they believe has succeeded in so doing. Finally, there are those companies who emphasize the lowest total cost through the combination of price and dependability. McDonald's and Federal Express fill the bill here, and you probably could come up with many others.

Treacy and Wiersema write that companies must provide value by excelling in one of these three categories, and then maintain threshold standards in the others. One without the other can result in failure. They note the Yugo was a low priced car that failed in the service area, and so is no longer with us. Likewise, Apple and Compaq did fine with their technologies and innovation, but faltered when trying to extract an extra premium in the price area. Clearly, the effective company has to dominate its market by constantly improving value.

All of these ideas are presented in the first two dozen pages of this book. The rest may be described as commentary and variations upon the theme. This analysis seems sensible enough. Managers are told to fight the urge to be all things to all customers, and even to forego possible customers to concentrate on their core constituencies. McDonald's will never get the upscale diner, so why bother? You don't expect to pay a knockdown price to see a basketball payoff game.

Concentrate instead on providing an acceptable, uniform product, efficiently and in such a way as to meet or exceed expectations. Southwest Airlines doesn't offer meals and baggage handling, but is the low cost leader, and that makes up for the supposed deficiencies, which that carrier has managed to transform into positives. Intel focuses on leadership in technology, while Cott has developed a highly successful program of educating sales clerks in the superior value offered by its soft drinks. All reject temptations to be all things to all customers.

The trouble with all of this is that the essential matters of marketing and production are scanted. We are told the strategies, but receive little by way of implementation. Also, insufficient attention is paid to competitors, who one may presume know just about everything that informs the actions of the market leaders but somehow aren't up to grade. Is this because their strategies are flawed, or is it do to the translation of strategies into tactics? We never discover the answer.

Take the matter of Intel, clearly an admirable company that manages to stay a generation ahead of the competition. When the 386 chip was peaking the company came out with the 486, and this was repeated with the Pentium. All of this is familiar, so why don't Intel's competitors simply attempt to jump ahead and take the lead? The answer ostensibly is that they are trying to do so, but can not? Why? This isn't explored.