Al Ries, the author (with Jack Trout) of such classics as The 22 Immutable Laws of Marketing and The New Positioning, argues that one of the big problems with companies today is a lack of focus upon a core product or service. According to Ries, many enterprises have got caught in what he calls the 'line extension' or 'diversification' traps in an effort to grow their business. These strategies have failed: in example after example, Ries shows how focused companies make greater profits and have higher share values than unfocused companies.
The line extension trap occurs when a company takes a successful brand positioning for one product or service and tries to extend it to other related (or sometimes unrelated) products or services. The result in this case is confusion in the mind of the consumer, which can be detrimental to the positioning of the product or service. And, as Ries has argued in other books, it is this positioning of the product or service in the mind of the consumer the brand 'owning a word' in the mind of the prospect that is critical to success in market leadership.
"Leaders own their categories...literally. By that I mean that a leader owns the word that defines the category in the mind of the prospect.
Owning a word in the mind is a leader's fundamental strength, more valuable than its offices, its factories, its warehouses, its distribution systems. You can always replace a physical facility that burns down, but you can't easily replace somebody else's word in the prospectıs mind.
If you're not the leader, you tend to see the problem as trying to produce a better product than the leader. Iıve worked with many number two, three, and four companies and invariable they see products or services as either better than the leader's product or service or at least comparable to it, but at a lower price.
Yet they seldom make much progress against the leader, and they rarely, if ever, overtake the leader.
Itıs not enough to produce a better product or a cheaper one than the leader offers. It's helpful, but it's not enough. What you must do is develop a corporate strategy that allows you to cope with that powerful position in the mind.
That's what focusing is all about. If someone else "owns the category" your only viable strategy is to narrow your own focus and own a piece of the category." (pp. 100, 101)
The diversification trap occurs when management acquires or develops other businesses that are related to the core product or services, in an effort to 'tap synergies' or 'exploit convergence opportunities'. Here the problem lies in the management of the company becoming concerned with two or more essentially separate business operations, rather than the core business:
"It always happens. The minute management takes its eyes off the core business and starts chasing synergies and secondary opportunities, the company starts to go downhill. It may not be immediately obvious. Problems usually fester for some time before they become obvious." (p.179. 180)
It is possible for companies to develop what Ries calls a 'multistep focus', offering several different product or services to the consumer. This is essentially the strategy that was pursued by Albert Sloan in the early days at GM, or the approach to the market that is currently being taken by Darden Restaurants, the IDG publishing company, and many others. Here the key to success is to establish several different products, each of which has its own separate brand identity, and each of which appeals to a different (and distinct) market segment. Furthermore, each has its own management structure, which is solely focused on the success of that particular brand. The brands may be related to each other in terms of a sales progression in the mind of the consumer (e.g. a car buyer starting with a Chevrolet, then moving up to a Pontiac, then a Buick, Oldsmobile and eventually a Cadillac, as each becomes successively affordable) but each is perceived to have a distinct identity.
In the retail sector, focus is clearly the route to success that has been taken by some of today's retail giants such as Best Buy, Circuit City, Barnes and Noble, Home Depot, Staples (Business Depot in Canada) and many others. Ries analyzes the steps that these operations have taken in becoming retail 'category killers' as follows:
Ultimately, what is important to become dominant in the category of business that you are in is to develop a perception of quality in the mind of the consumer. Ries points out that this perception is quite unrelated to the actual quality of the product or service. He identifies four ways in which focus can improve the perception of quality:
Ries ends the book by presenting fifteen keys to an effective focus; tips and pointers on the notion of focus that should be considered by any company that wants to develop a more effective focus:
what a focus is:
"Managers have been taught to aim for growth, to expand their product lines, to get into new areas, to take advantage of synergy. Conventional thinking is totally oriented toward growth. Bigger is better. Growth can do no wrong.
The fact that these expansionist theories don't usually work has not stopped their adoption. If you believe that something should work and it doesn't then the fault lies in the execution, not the theory. It should work, goes the theory, therefore we have to find a way to make it work.
If you believe that growth is good, then you will resist any attempt to focus a corporation. The truth is, focus does restrict growth outside a selected area, much like pruning a plant forces it to grow only in a specific direction. If you want to focus a corporation, youıre going to have to be prepared to break a few GAMPs.
A GAMP is a Generally Accepted Management Practice. At the heart of GAMP thinking is the demand for growth. Not just growth in sales, but growth in profits, growth in return on investment. When viewed from a growth platform, any attempt to focus a company is considered reactionary. To make an omelette, you have to break a few eggs. To focus a corporation, you have to break a few GAMPs." (p. 275)
8. a focus is what the country needs - "Countries shouldn't fight the focusing process. Let competition dictate which countries make which products and services. Let's all end trade barriers, which only protect the inefficient producer and do nothing for the customer and, in the long run, nothing for the employee either" (p.283)
what a focus is not:
This is another very thought-provoking book from Al Ries, a short read but a very useful one.
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