In an article in Harvard Business Review (HBR), April 2013 edition, Michael Raynor and Mumtaz Ahmed described their findings of their research what makes a company truly great. They had studied statistical data of about 25,000 companies from hundreds of industries that had been quoted at the American stock exchange between 1966 and 2010. Raynor and Ahmed identified 344 companies that produced statistically exceptional results.
In that HBR article it is stated that “their strategic choices over decades of success have been consistent with three elementary rules:
Better before cheaper (it’s best to compete on differentiators other than price).
Revenue before cost (prioritize increasing revenue over reducing costs).
There are no other rules (change anything you must to follow the first two).”
Although these rules are coming across as quite simple, you can see them being violated again and again in the corporate world. How often are managers discussing about lowering the price of a product/service rather than focusing on a clear quality- or performance-related positioning of the product/service at an adequate price?
Going for a “lowest price” – positioning is one of the most difficult positioning strategies, because by the time a competitor is offering a lower price than you, he will typically take away massive market share from you. This is because the customers whose purchase decisions is mainly based on lowest price will switch the product /the supplier fast and easily.
The other big mistake companies often make is a focus on cutting costs rather than focusing on growing revenue. I recall numerous discussions in my previous company with controllers whose focus always was on cost cutting. They ignored the importance of a sales growth – mindset. In the long run, companies always benefit more from driving up sales rather than by driving down costs.
I encourage you to keep the above three elementary rules in mind when you think next time about your company’s strategy. After all, the rules are based on research data of thousands of companies over a number of decades.