To be successful—and stay successful—your business must carefully adapt its products or services in response to the market. For some businesses, this means highlighting different benefits of the product or service to the market. For others, this necessitates modifications to existing products or services. Sometimes it means developing new products or services.
New Belgium Brewing Company® founder Jeff Lebesch says, “From the beginning, we have had a strategy to innovate continually when it came to our specialty beers.” New Belgium works hard at developing new beers to satisfy the thirst of its market—specialty beer drinkers.
Bill and Marilyn Moss, founders of Moss Tent Works in Camden, Maine, produced high-tech tents for backpacking. They knew their core competencies were designing and manufacturing strong, lightweight, frame-and-fabric structures and saw the potential to use these strengths for a new product line of exhibit structures for the trade show industry. They were so successful in this new market that they sold their tent division to focus on their trade-show business.
Lebesch, who continues to sell to the same market, and the Mosses, who targeted a new market, both have a common denominator: they understand their core competencies and respond to changing market needs.
You’ll increase your chance of success if you emulate these companies by knowing your strengths and limitations, developing and refining your strategy, understanding customer needs, and strengthening your product and service offerings by aligning your strategy and customer needs.
What this module asks you to do is tricky: balance your vision and goals with the day-to-day tug of your customers. It’s difficult to draw these two forces together, but the entrepreneurs who pull this off—the ones who align their product and service offerings with their strategy and customers—are the ones who grow the strongest businesses and maintain their success in the long run.
In the example below, you’ll read how Wayne Hampton was caught in a price war and how he chose to respond.
Changing the Game to Beat the Competition
When Wayne Hampton launched Waco Composites, Ltd., four other companies were making bullet-resistant and bulletproof panels for the construction industry. Hampton carefully researched those firms to decide how he would compete against them. Since customers would view his product as similar to the others in the market, he decided to match prices of the industry leader. A similar product with similar prices made sense to Hampton.
“We didn’t want to come in with lower prices, for fear that would spark a price war,” Hampton explains. “No one wins a price war—except perhaps the customer.” Unfortunately, his major rival didn’t see things the same way. As Waco Composites gained market share, the competitor began to slice prices, moving from about $15 to $13 per square foot on its bestselling panels.
In response, Hampton lowered his prices and watched his gross profit margin plunge from 28 percent to 18 percent. A few months later, the competitor slashed prices again, moving to $10.50 per square foot. Hampton followed suit but knew he couldn’t survive further decreases. Instead, he began to find ways to differentiate his product, such as:
- Offering free cutting for all custom orders—something no one else was doing.
- Offering same-day shipping on all orders received before 2 p.m.
- Implementing a new manufacturing process to fireproof panels.
- Securing approval from Underwriters Laboratories (UL) in eight areas.
Determining ratings for specific product characteristics such as acoustical quality, tensile strength, and heat resistance.
Becoming UL-listed was the biggest expense—about $20,000—and it cost another $10,000 to determine product ratings. “Yet this data was very important to engineers and architects—the people who specify our products for projects,” Hampton says. “Since no one else was offering this information, we became the industry benchmark.”
Differentiating itself in both product and service enabled Waco Composites to raise prices, restore its profit margin, and continue growth, generating $4.5 million in revenue.
Granted, some of the changes were about perceived value rather than tangible value. “Yet perception is as important as real value in the mind of the customer,” Hampton says. “And, unlike competitors’ pricing, your company’s perceived value is something you do have control over.”
What was at the core of Hampton’s success? He changed his strategy when his original “do-what-everybody-else-is-doing strategy” didn’t work. What helped Waco Composites survive and thrive was Hampton’s push to strengthen both his product and service offerings. Most importantly, he did the hard work to find out what his customers wanted and then strengthened his product by catering to their needs and wants. He gave them benefits they valued that were not offered by his competitors.
Wayne Hampton considered his company’s offerings as a total package. The most successful entrepreneurs do the same. In this module, you’ll have a chance to consider ways to strengthen your products or services by:
- Improving your products/services based on market needs.
- Protecting your products/services from competitors and regulatory
- Pricing your products/services to gain strategic advantages.
© 2007 Ewing Marion Kauffman Foundation. All rights reserved.
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