Put All Your Eggs In One Basket, And Then Watch That Bask

Entrepreneurs are defined by their willingness to bear risk particularly the risk of business failure. This is especially true for those starting new companies, because more than half of start-ups fail within the first five years. Lesser risks in established businesses include the possible failure of new products, or damage to the brand or a manager’s reputation. Whatever the level or type, however, risk is something that all businesses need to be aware of and manage carefully. US businessman Andrew Carnegie was pondering these issues when he suggested that in terms of managing risk, it might be best to put all your eggs in one basket, then watch that basket.

From the collapse of Lehman Brothers (2008), to BP’s Deepwater Horizon disaster (2010), events of the early 21st century fundamentally changed how organizations perceive risk. Companies now think in terms of two factors: oversight and management. “Risk oversight” is how a company’s owners govern the processes for identifying, prioritizing, and managing critical risks, and for ensuring that these processes are continually reviewed. “Risk management” refers to the detailed procedures and policies for avoiding or reducing risks..

Inherent risks

Risk is inherent in all business activity. Start-ups, for example, face the risk of too few customers, and therefore insufficient revenue to cover costs. There is also the risk that a competitor will copy the company’s idea, and perhaps offer a better alternative. When a company has borrowed money from a bank  there is a risk that interest rates will rise, and repayments will become too burdensome to afford. Start-ups that rely on overseas trade are also exposed to exchange rate risk. 

Moreover, new businesses in particular may be exposed to the risk of operating in only one market. Whereas large companies often diversify their operations to spread risk, the success of small companies is often linked to the success of one idea (the original genesis for the start-up) or one geographic region, such as the local area. A decline in that market or area can lead to failure. It is essential that new businesses are mindful of market changes, and position themselves to adapt to those changes.

The Instagram image-sharing social-media application, for example, started life as a location-based service called Burbn. Faced with competition, the business changed track into image-sharing. Had Instagram not reacted to the risks, and been savvy enough to diversify its offering (regularly adding new features), it may not have survived.

At its heart, risk is a strategic issue. Business owners must carefully weigh the operational risk of start-up, or the risks of a new product or new project, against potential profits or losses—in other words, the strategic consequences of action vs. inaction. Risk must be quantified and managed; and it poses a constant strategic challenge. Fortune favors the brave, but with people’s lives and the success of the business at stake, caution cannot simply be thrown to the wind.

In deep water

Even large and diverse organizations can find it hard to successfully balance risk against potential financial reward. On April 20, 2010, Deepwater Horizon, an offshore oil rig chartered by British Petroleum (BP), exploded, killing 11 workers and spilling tens of thousands of barrels of crude oil into the Gulf of Mexico.  

The incident was blamed on management failure to adequately quantify and manage risk; the official hearing cited a culture of “every dollar counts.” Analysts  who examined the disaster claimed that BP had prioritized financial return over operational risk. Chief executive Tony Hayward, who took the post in 2007, had suggested that the organization’s poor performance at the time was due to excessive caution. Coupled with increasing pressure from shareholders for better returns, the bullish approach that followed led to significant cost cutting and, eventually, riskmanagement failures. 

BP’s Deepwater Horizon incident led to huge fines and US government monitoring of its safety practices and ethics for four years. 

 

Be First Or Be Better Gaining An Edge

I f you need to buy a book online, which website do you visit first? If you want to research the author of the book, which search engine do you use? The answers, most probably, are Amazon and Google, respectively. Such is the dominance of these two Internet giants that their names define their respective markets.

Both organizations have a significant edge in the markets they lead, but they achieved that dominance by different means. Amazon, launched in 1995, gained its advantage by being the first  business to enter the online retail market, establishing its brand name, and building a loyal customer base. Google, by contrast, was by no means first. When Google launched in 1998, the market was already dominated by several large players; Google’s edge came from offering a superior product not only was it faster, but it produced more accurate search results than any of its competitors.

Getting into a market first has significant advantages, but there are also benefits to being second. The key is that in order to gain a competitive edge in the market, a business needs either to be first, or it needs to be better.  

Market pioneers 

The benefits of being first into a market are known as “first mover advantage,” a term popularized in 1988 by Stanford Business School professor David Montgomery and his co author, Marvin Lieberman. Although introduced a decade previously, Montgomery and Lieberman’s idea took particular hold during the dot com bubble between 1997 and 2000. Spurred on by the example of Amazon, businesses spent millions pitching themselves headlong into new online markets. Conventional wisdom was that being first ensured that the company’s brand name became synonymous with that segment, and that early market dominance would create barriers to entry for subsequent competition.

In the end, however, overspending, overhype, and overreaching into markets where little demand existed was the downfall of many fledgling dot-coms. With notable exceptions, businesses found that promised returns were not being realized and funds quickly ran short and for many of these first movers, failure followed.

Amazon.com was a first-mover in the online retail market. It has dominated the industry since its launch in 1995, creating strong brand recognition and a loyal customer base.

First mover advantage 

Being first out of the block undoubtedly has its advantages, and in the case of the dot-coms, those advantages were exaggerated to the extreme. First-movers often enjoy premium prices, capture significant market share, and have a brand name strongly linked to the market itself. First-movers also have more time than later entrants to perfect processes and systems, and to accumulate market knowledge. They can also secure advantageous physical locations (a prime location on a main street of a city, for example), secure the employment of talented staff, or  access beneficial terms with key suppliers (who may also be eager to enter the new market). Additionally, first-movers may be able to build switching costs into their product, making it expensive or inconvenient for customers to switch to a rival offering once an initial purchase has been made. Gillette, for example, having invented the safety razor in 1901, has consistently leveraged its first-mover advantage to create new products, such as a “shaving system” that combines cheap handles with expensive razor blades.

Market strategies

In the case of Amazon.com, firstmover advantage consisted of a combination of factors. In the newly emerging e-commerce market, customers were eager to try online purchasing, and Amazon was well placed to exploit this growing curiosity. Books represented a small and safe initial purchase, and Amazon’s simple web design made buying easy and enjoyable. Early sales enabled the organization to adapt and perfect its systems, and to adjust its website to match customer needs adding, for example, its OneClick ordering system to enable purchases without entering payment details.

Amazon was also able to build distribution systems that ensured quick and reliable delivery of its products. Although competitors could replicate these systems, customers already trusted Amazon, and the brand loyalty the organization enjoyed created significant emotional switching costs; even today, Amazon enjoys the benefits of this trust and loyalty, and almost a third of all US book sales are made via Amazon.com.

A recent example of how important first-mover advantage remains are the “patent wars” contested between most of the leading smartphone makers (including Apple, Samsung, and HTC). Patents help a company to defend technological advantage. In the hypercompetitive smartphone industry, being first to market with a new technological feature offers critical, albeit short-term, advantage. In an industry in which consumers’ switching costs are high, even short-term advantages can have a significant impact on revenue.

Since the publication of Montgomery and Lieberman’s original paper in 1988, academic   research has indicated that significant advantages accrue to market pioneers, which can be directly attributable to the timing of entry. The irony is that in a retrospective paper that appeared in 1998, “First-Mover (Dis) Advantages,” Montgomery and Lieberman themselves backed off their original claims concerning the benefits of being the first to enter a market.

Building on the work of, among others, US academics Peter Golder and Gerard Tellis in 1993, Montgomery and Lieberman’s 1998 paper questioned the entire notion of first-mover advantage. In their research, Golder and Tellis had found that almost half the firstmovers in their sample of 500 brands, in 50 product categories, failed. Moreover, they found that there were few cases where later entrants had not become profitable or even dominant players in fact, their research identified that the failure rate for first-movers was 47 percent, compared to only 8 percent for fast followers.

Gillette invented the safety razor in 1901 and later consolidated its first-mover advantage by developing a “shaving system” that made it difficult for customers to switch brands.

Learning from mistakes

The challenge for first-movers is that the market is often unproven; industry pioneers leap into the dark without fully understanding customer needs or market dynamics. First-movers often launch untried products onto unsuspecting customers; and it is rare that they get it right first time. Large companies may be able to take the losses of such early-market entry mistakes; small companies, on the other hand, may soon find that their cash is running out and their tenuous business models are collapsing.

Later entrants have the advantage of learning from the mistakes of the first-movers, and from entering a proven market. They are also able to avoid costly investment in risky and potentially flawed processes or technologies; first-movers, by contrast, may have accrued significant “sunk costs” (past investment) in old, lessefficient technologies, and may be less able to adapt as the industry matures. Followers can enter at the point at which technology and processes are relatively well established, with both cost and risks being lower.

Followers may have to fight to overcome the first-movers’ brand loyalty, but simply offering a superior product that better addresses customer needs is often sufficient to secure a market. Brand recognition is one thing, but technical and product superiority can give that all-important competitive edge. Moreover, with investment costs being much lower, followers often have surplus cash to use on marketing, thereby offsetting the branding advantages of the first mover.

When Google, for example, entered the Internet search business in 1998, the market was dominated by the likes of Yahoo, Lycos, and AltaVista, all of whom had established customer bases and brand recognition. However, Google was able to learn from the mistakes of these earlier entrants and, quite simply, build a better product. The organization realized that with so much information on the Internet people wanted search results that were comprehensive and relevant; the various market incumbents offered a variety of systems for filtering search results, but Google was able to take the best of these systems and build its own unique algorithm that led to market dominance.

First mover failures 

There are numerous examples in corporate history of first-movers that were unable to achieve or maintain a competitive advantage. Famous failures in the online sphere include Friends Reunited and MySpace. Although both companies still exist, their firstmover advantage was not sufficient to offset the might (and product superiority) of Facebook. Similarly, eToys.com, launched in 1999, was one of a new breed of online retailers, but first-mover advantage was not enough to sustain the business and the company declared bankruptcy in 2001 by coincidence, the same year that Amazon started to sell toys. (Resurrected some years later, etoys.com is now owned by Toys R  Us.) The online clothing retailer boo.com is an example of a firstmover that had technological superiority, but was ahead of its time—the site was too resourceheavy for most consumers’ slow Internet connections. Launched in 1999, boo.com went into receivership the following year being first is not a guarantee of success if the basic business model is flawed.

Despite the evidence presented by Golder and Tellis, and examples such as Google, it remains the case that first-mover advantage has captured corporate imagination. Mirroring the earlier dot-com gold rush, the recent boom in the market for web-based smartphone- and tablet-accessed applications (the “app” market) is fueled by a desire to be first. Thousands of apps have launched in the hope of staking their claims on lucrative segments of this new market. But success is not guaranteed a 2012 study revealed that on average, 65 percent of users delete apps within 90 days of installing them.

Timing is everything

The reason a first-mover does not always yield its promised advantages is that much depends on timing, and therefore luck. In their 2005 paper, “The Half-Truth of First-Mover Advantage,” US business scholars Fernando Suarez and Gianvito Lanzolla identified technological innovation and the speed at which the market is developing as crucial in determining whether or not being a first-mover is advantageous.

Their findings suggest that when a market is slow-moving and technological evolution is limited, first-mover advantage can be significant. They give the example of the market for vacuum cleaners, and, in particular, of the long term market leader, Hoover. Until the relatively recent introduction of Dyson cleaners, the market was benign and technological advancement slow. Having been first to market in 1908, Hoover enjoyed several decades of advantage an advantage that was (and, in some places, still is) reflected in the widespread use of the company’s brand name as the verb “to hoover.”

In other industries, however, where technological change or market evolution is rapid, firstmovers are often at a disadvantage. The first search engines are examples of businesses that had too much invested in early iterations of a technology to keep up with the rapid pace of change Early advantage quickly becomes obsolete in changeable markets. As the market evolves, later entrants are those that seem to be cutting edge, offering innovative features that build on the market-knowledge as well as learning from the mistakes of the first-mover. The first mover may have enjoyed short-lived advantage but in dynamic markets such an advantage is rarely durable. Even Apple, who enjoyed significant early entrant advantage in the smartphone market with the iPhone, is not immune from firstmover disadvantage. Competitors, Samsung in particular, were able to listen to customer complaints about iPhones, analyze customer needs, and produce products with features and functionality welcomed by the market. Apple, locked into previous technology iterations, took time to react and iPhone sales suffered as a result.

Customer needs

To gain an edge, therefore, you do not always need to be first. Indeed, US multinational Procter & Gamble, for example, prefers only to enter those markets in which it can establish a strong number one or number two position over the longterm rarely is this achieved in a blind rush to be first.

Procter & Gamble seeks markets that are demographically and structurally attractive, with lower capital requirements, and higher margins. But most importantly, the organization insists on a deep understanding of customer needs in any market they enter. In other words, they would rather enter mature markets than be first into new ones.

The company values long-term relationships with its customers and suppliers; its view of innovation is different from small companies who, in attempting to capture market share, strive to gain an edge through the introduction of disruptive technology innovative technology that seeks to destabilize the existing market. Procter & Gamble, perhaps heeding the research, considers such strategies to be short-lived. They realize that overly rapid innovation runs the risk of cannibalizing their own sales and reducing the returns on new product investment. In the market for disposable baby diapers, for example, Procter & Gamble was more than ten years behind the first mover. The company’s now famous Pampers brand was launched in 1961, following some way behind Johnson & Johnson’s Chux brand which was launched in 1949. At the time, disposable diapers were a new innovation, and customers were wary of their use. Procter & Gamble waited until customers had come to accept the product before entering the market. Moreover, they spent nearly five years researching and addressing each of the major problems with Chux and developed a product that was more absorbent, had lower leakage, was more comfortable for the baby, offered two sizes, and could be produced at a significantly lower cost. Today, Forbes magazine lists Pampers as one of the world’s most powerful brands, valued at over $8.5 billion, with the diapers being purchased by 25 million consumers in over 100 countries. By contrast, Chux was phased out by Johnson & Johnson in the 1970s due to shrinking sales.

The PalmPilot, launched in 1997, was a successful fast-follower product. It followed Apple’s unsuccessful Newton, which was the first personal digital assistant (PDA) to enter the market.

Securing a foothold

In reality, then, while it is readily assumed that speed is good when entering a market, gaining an edge might depend less on timing than it does on appropriateness. Whether a company is first, second, or last to market is important; but it is less important than the suitability of a company’s products or services to that market, and its ability to deliver on brand promises. Both these factors can have a profound impact on long term viability and business success.

Amazon may have enjoyed lasting first-mover advantage, but that alone is insufficient to account for its phenomenal success. Amazon leverages its first-mover advantage into a sustainable competitive edge; its website is continually made easier to use, it offers a range of complimentary products, and it continues to drive down costs, enabling it to offer market-beating prices. Most notably, Amazon did not return a profit until 2001 the company spent its earlier years building a better product. The foundations of success may have been laid by first-mover advantage, but Amazon’s edge has been built on long term good business practice.

First movers undoubtedly have a natural competitive edge. Whether it is a lasting impression on customers, strong brand recognition, high switching costs, control of scarce resources, or the advantages of experience, that edge can help to secure a strong, and long-term, foothold in the market. But as research shows, second-movers, and their followers, may sometimes be in an advantageous position. Learning from the mistakes of early entrants, they frequently offer superior products at lower prices. With the aid of skillful marketing, these benefits can be leveraged to offset the advantages enjoyed by first-movers. To become a market leader, a business needs either to be first, and impressive, or it needs to be better. The companies we remember, the Amazons and the Googles, are those that were either first or better the ones we forget are those that had no edge at all.

Born on January 12, 1964 in Albuquerque, New Mexico, US, Jeff Bezos had an early love of science and computers. He studied computer science and electrical engineering at Princeton University, and graduated summa cum laude in 1986.

Bezos started his career on Wall Street, and by 1990 had become the youngest senior vice-president at the investment company D. E. Shaw. Four years later, in 1994, he quit his lucrative job to open Amazon.com, the online book retailer he was barely 30 years old at the time.

As with many Internet startups, Bezos, with just a handful of employees, created the new business in his garage; but as operations grew, they moved into a small house. The Amazon. com site was launched officially on July 16, 1995. Amazon became a public limited company in 1997; the company’s first year of profit was 2001. Today, Bezos is listed by Forbes magazine as one of the wealthiest people in the US; and Amazon stands as one of the biggest global success stories in the history of the Internet.

 

The Secret Of Business Is To Know Something That Nobody Else Knows Stand Out In The Market

Few businesses enjoy the privileges of monopoly power in their chosen fields of operation. Most markets are increasingly global, increasingly crowded and, therefore, increasingly competitive. In order to achieve commercial success companies need to do something different as Greek shipping magnate Aristotle Onassis recommended, they need to “know something that nobody else knows” in order to stand out from the competition.

Unique Selling Propositions

Faced with competition, the strategy for most companies is to differentiate. This involves offering customers something that the competition cannot or does not offer a Unique Selling Proposition (USP). The concept was developed by US advertising executive Rosser Reeves in the 1940s to represent the key point of dramatic difference that makes a product salable at a price higher than rival products. Tangible USPs are hard to acquire and hard to copy, which is what makes them unique.

Companies must distinguish their product or service from the competition at every stage of production from raw material extraction to after-sales service. Products such as Nespresso coffeemakers and Crocs footwear, and service providers such as majority Asian-owned hotel group Tune Hotels, are all heavily differentiated, each having a strong USP.

The primary benefit of uniqueness, however it is achieved, is greater customer loyalty and increased flexibility in pricing. Differentiation guards products and services from low-priced competition; it justifies higher prices and protects profitability; and it can give businesses the competitive advantage needed to stand out in the market.

The challenge of difference

By definition, not all products can be unique. Differentiation is costly, time consuming, and difficult to achieve, and functional differences are quickly copied “me too” strategies are commonplace. Touchscreen technology was introduced to the cell phone market as a point of differentiation for Apple’s iPhone, but is now a feature of most smartphones.

Differentiation often does not remain a point of difference for long. With functional uniqueness being so elusive, marketing guru Philip Kotler suggested that companies focus instead on an Emotional Selling Proposition (ESP). In other words, that the task of marketing is to generate an emotional connection to the brand that is so strong that customers perceive difference from the competition. For example, while the design and functionality of Nike and Adidas sneakers are distinct, the differences are so small that they amount to only a marginal difference in performance. The products’ differences are, however, magnified in the perception of the consumer through marketing and the power of branding uniqueness is achieved through brand imagery, promotion, and sponsorship. 

Apple achieved differentiation in the fledgling digital music market by combining easy to use software with well designed hardware and a user interface that integrated the two. The product itself the iPod portable music device was functionally little different than existing MP3 players, but combined with the iTunes software to create a unique customer experience. This experience is Apple’s ESP, which the company promoted with its “Think Different” advertising campaign  

Standing out

One company that has achieved uniqueness is the British fashion label Superdry, which has grown to include more than 300 stores in Europe, Asia, North and South America, and South Africa. Drawing a novel, international influence from Japanese graphics and vintage Americana, combined with the values of British tailoring, Superdry quickly established a strong position in the hypercompetitive clothing market from its launch in 2004. The business started life in university towns across the UK, a positioning that gave the brand a youthful appeal. Despite limited advertising and abstaining from celebrity endorsements, Superdry’s popularity rapidly grew. The company’s distinctive look quickly caught the eye of celebrities (a jacket worn by soccer player David Beckham became one of its best-selling products, and Beckham himself became an unoffical talisman of the brand), providing free publicity.

Superdry focused on offering clothing with a fashionably tailored fit and attention to detail (even down to garment stitching). Worn by offduty office workers, students, sports stars, and celebrities alike, the brand was able to appeal to a broad customer base. Most differentiation strategies involve targeting one segment of the market; Superdry chose to target them all. The brand’s unique blend of fashion with ease of wear, comfort with style, and the presence of mysterious but meaningless Japanese writing, has proved a difficult mix for competitors to replicate.

As many companies discover, popularity can be the enemy of difference. While Superdry clothing has become increasingly ubiquitous around the world, its uniqueness and difference have declined. The challenge for Superdry, like all companies, is to protect its uniqueness while also  expanding its reach to stand out from the crowd, while welcoming those crowds into its stores.

Differentiation can occur at any point in the value chain. Standing out is not limited to products or services it can occur in any number of internal processes that translate into an improved customer experience. Swedish furniture retailer IKEA, for example, differentiates itself not only through contemporary design and low prices, but through the entire customer retail experience. The company’s low prices are achieved, in part, through its selfpicking and self-assembly retail model the customer experience involves picking products from the company’s vast showrooms and warehouses and then, once they have transported the goods home, assembling the furniture.

Even the way IKEA “guides” shoppers on a one-way, defined route through its showrooms is unique. While this tactic encourages spontaneous purchases, it also helps to reinforce IKEA’s points of difference customers are exposed to predesigned rooms and furniture layouts that emphasize the brand’s contemporary style. Price is kept low since fewer store assistants are required to direct customers around the store. 

Different but the same 

Paradoxically, familiarity can also be a source of differentiation. The entire McDonald’s organization revolves around providing almost identical fast-food products, with the same service, in identical restaurants the world over. This familiarity differentiates McDonald’s from unknown local offerings, and from other global competitors who cannot maintain the same degree of consistency across their operating territories.

In a market in which rival companies promote the uniqueness of their products in ever-louder and more complex ways, consumers have become increasingly savvy when it comes to distinguishing reality from rhetoric. While differences do not have to be tangible the evidence shows that an Emotional Selling Proposition (ESP) is often enough the challenge for businesses is that points of differentiation do have to be genuine and believable. Developing an emotional connection with the customer requires that the differentiation is understood and consistently delivered throughout the organization. Well defined core principles that celebrate a company’s uniqueness should inform the customer experience a every point of contact difference has to be believable, and it is only believable if it is dependable.

Sustaining differentiation 

Once established, uniqueness whether functional or emotional requires nurturing and protecting. Standing out from the crowd is a constant battle that is fought in the hearts and minds of the company’s staff, as well as customers. As legal clashes between rivals such as Apple and Samsung demonstrate, uniqueness might also have to be contested in the courtroom. 

ontested in the courtroom. Every industry has leaders and followers what separates them is that the leaders are usually those with the most defensible points of differentiation. Whether in features and functionality, brand image, service, process, speed, or convenience, uniqueness must be established and communicated for a company and its offerings to stand out in the market. The key to longlasting success is making that differentiation sustainable.

You Can Learn All You Need To Know About The Competition's Opperation By Looking In His Garbage Cans

Whether a company is long established or in its start up phase, a key strategic issue is its competitive advantage the factor that gives it an edge over its competitors. The only way to establish, understand, and protect competitive advantage is to study the competition. Who is competing with the company for its customers’ time and money? Do they sell competitive products or potential substitutes? What are their strengths and weaknesses? How are they perceived in the market? 

For Ray Kroc, the US entrepreneur behind the success of fast-food chain McDonalds, this reportedly involved inspecting competitors’  trash. But there is a range of more conventional tools to help companies to understand themselves, their markets, and their competition.

SWOT analysis The most popular such tool is SWOT analysis. Created by US management consultant Albert Humphrey in 1966, it is used to identify internal strengths (S) and weaknesses (W), and to analyze external opportunities (O) and threats (T). Internal factors that can be considered as either strengths or weaknesses include: the experience and expertise of management; the skill of a work force; product quality; the company’s financial health; and the strength of its brand. External factors that might be opportunities or threats include market growth; new technologies; barriers to entering markets; overseas sales potential; and changing customer demographics and preferences.

SWOT analysis is widely used by businesses of all types, and it is a staple of business management  courses. It is a creative tool that allows managers to assess a company’s current position, and to imagine possible future positions.

A practical tool When well-executed, a SWOT analysis should inform strategic planning and decision-making. It allows a company to identify what it does better than rivals (or vice versa), what changes it may need to make to minimize threats, and what opportunities may give the company competitive advantage. The key to strategic fit is to make sure that the company’s internal and external environments match: its internal strengths must be aligned with the external opportunities. Any internal weaknesses should be addressed so as to minimize the extent of external threat.

When undertaking a SWOT analysis, the views of staff and even customers can be included  it should provide an opportunity to solicit views from all stakeholders. The greater the number of views included, the deeper the analysis and the more useful the findings. However, there are limitations. While a company may be able to judge its internal weaknesses and strengths accurately, projections about future events and trends (which will affect opportunities and threats) are always subject to error. Different stakeholders will also be privy to different levels of information about a company’s activities, and therefore its current position. Balance is key, senior managers may have a full view of the company, but their perspective needs to be informed by alternative views from all levels of the organization.

As with all business tools, the factor that governs the success of SWOT analysis is whether or not it leads to action. Even the most comprehensive analysis is useless unless its findings are translated into well conceived plans, new processes, and better performance. 

Market mapping A slightly narrower but more sophisticated tool for analyzing a company’s position and competition is “market mapping” (also known as “perceptual mapping”). Market maps are diagrams that represent a market and the placement of products within that market, providing a visual means of studying the competition. The process is useful both internally (to help an organization understand its own products) and externally (to chart how consumers perceive the brand in relation to the competition).

To draw up a market map, a company identifies several consumer purchase decision factors that stand in opposition to one another. In the fashion market, an example might include “technology” vs. “fashion,” and “performance” vs. “leisure.” Additional factors could include the item’s price (high vs. low), quality of production (high vs. low), stylish vs. conservative, or durable vs. disposable. Two of these dimensions, or opposing pairs, are then plotted onto a horizontal or vertical axis.

Based on market research or the knowledge of managers, all of the products within a particular market can be plotted onto the map. The market share of each product can be represented by the size of its corresponding image on the map, but more often, analysts choose to simply make a rough sketch of the market, ignoring market size.

A company may choose to compile several market maps, each of which depicts a different set of variables, and then analyze them individually and in combination to gain an overall view of the company’s position in the market.

Market mapping 

plots opposing qualities of products along two axes. By identifying the two main oppositional factors for any product, it is easy to see gaps in the market.

Finding the gap 

The goal of market mapping is to identify opportunities where a company can differentiate itself from its competitors. These are areas where the company offers unique value, and they can be used to inform marketing messages. The map will also reveal overcrowded segments, which signify heightened competitive threat.  

For a new start up, a market map can be used to identify a viable gap in the market a good place to position a company when it is struggling to establish itself. Established businesses can use market mapping combined with SWOT analysis to discover opportunities and decide whether the company has the strengths to exploit one of those opportunities. The market map helps to inform the strategy (the need to reposition LEISURE a product away from competitors’offerings, for example) and the tactics (moving from conservative to sporty, for example) that will help the company to achieve that strategic goal.

Market analysis such as this may, for example, have helped luxury Singaporean tea shop TWG Tea to identify an opportunity in the market. Launched in 2008, TWG targets a slightly older, wealthier customer base than coffee shops and other “lifestyle” cafés. TWG has opened new locations across the world, based on studying the competition, identifying a market gap, and designing its products and services to fill that gap. 

Internal focus As a company grows it might choose to draw up a map including just its own products. Analysis of the results can help identify any overlap between different products (informing decisions about which products to drop, and which to concentrate research and development and marketing spend, for example). It can also be used to ensure that the company’s marketing message stays on track, helping to avoid strategic drift.

Perceived as a technical performance product, Speedo, for example, needs to ensure that its marketing reflects that view; a campaign that promotes Speedo as a fashionable label would risk confusing customers and could damage the brand.

The key to successful market mapping is market research. While it can be useful to compare internal and external perceptions of a product, and the products of the competition, it is the customers’ views that matter most. When based on such data, even though managers may disagree, the market map cannot be “wrong” it simply represents, for better or worse, how the brand is perceived. The challenge for management is to use the map, and knowledge of internal strengths and weaknesses, to plan the appropriate strategic response.

Both SWOT analysis and market mapping allow a company to better understand itself, its market, and, most importantly, the competition. Equally, being aware of weaknesses can help avoid costly strategic mistakes, such as producing overly ambitious products or making an entry into a crowded market position. An appreciation of the opportunities and threats of the market, and the relative and shifting positions of competing products, is essential to long-term successful strategic planning. To plan where you are going, it helps to know where you are and where your competitors are too.