Businesses caught in a 'me too' paradigm, without product or service differentiation, are unlikely to thrive in an environment of price competition with low margins and little ability to invest in growth. These businesses may be subject to scale competition from low-cost markets riding the wave of free trade and on-going logistics and sales channel refinement.
Escaping this paradigm is not easy – it requires an understanding of customer needs and purchasing behaviour, and a realistic assessment of what the business can offer above and beyond the price-based competition.
The good news is that only a small portion of the business’ overall product or service range needs to achieve a truly differentiated status in order to inform the rest of the product line, raising reputation and therefore price realisation for the entire portfolio. Firms with sufficient discipline to create a 'tip of the pyramid' can be richly rewarded – we call this a 'high performance strategy'.
The power of edge-centric thinking
The first step towards a high performance strategy is a willingness to innovate – from the outside-in. Where traditional companies may look internally or to high-volume customers to identify how products and services might be improved, high performance organisations understand that to survive they need to create market-leading products and services.
In Steve Jobs’ famous words: “Here’s to the crazy ones....The ones who see things differently. While some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do”.
What Apple did differently was to integrate those ‘crazy’ perspectives into its vision of the future. The result? From 1999 to 2008, Apple was the only global incumbent to create entire new markets, repeatedly, from disruptive innovation.
Thinking beyond mass-market
So, to drive innovation, why isn’t it enough to meet and understand the evolving needs of the average (and thus mass-market) customer? Because almost by definition the “average customer” is mostly satisfied and rarely pushes a product to its limits.
Therefore to create market-defining products, high performance companies identify their “lead user” customers – those who operate in the most demanding application environment, and work with them to push their products’ performance boundaries.
Take for example the highest selling footwear model of all time – Nike’s ‘Air Jordans’. As Nike founder Phil Knight noted “we got to know the players at the top of the game and did everything we could to understand what they needed, both from a technical and a design perspective...functionally and aesthetically.” This placed the product in the most demanding environment with increasing intensity of use and technical demand, forcing the company to innovate to maintain athletic integrity.
The benefits of this approach were fourfold:
Higher demands necessitated the development of a functionally superior product. The development process resulted in a higher quality, more durable, more reliable product capable of performing at the highest level.
Air Jordans gained a reputation for quality and performance excellence from stakeholders in the field of the product’s application.
Nike’s product was seen operating at an elite level by a large audience, increasing their perceived value that the mass market goods would be informed by the most current technology.
Nike’s customers aspired to use the same brand and replicate the experience of the NBA professionals.
Translating product performance into brand leadership
This chain of value creation introduces the second step in creating a high performance strategy – leveraging performance for lead customers into broader awareness of the brand. This likely means allocating marketing spend towards awareness of the high performance experience of the brand, and perhaps towards the recognisable spokespeople who personify the legitimacy of application.
Awareness channels include passive media coverage of event-based applications, public relations, social media, traditional advertising and trade and consumer events where product and service are reviewed by decision influencers. Performance in highly demanding circumstances underpins legitimacy of the brand, and the opportunity for a “buzz” of awareness not experienced at the base of the product or service pyramid. Awareness efforts must be prioritised in order to create the brand pull for the balance of the product or service portfolio.
The High performance pyramid
These benefits form the central tenant to the “high performance pyramid” approach.
Commercially, the benefits lie in the trickledown effect. Whilst the lead product is often costly with high specifications but minimal revenue, the average consumer model will only pragmatically require a fraction of the performance capability at a significantly lower cost, provided aspirational aesthetics are maintained. Consumer products of average durability and performance are gradually improved through the high quality, durable and reliable features developed for the high performance product.
The line of sight to high-performance characteristics allows companies to introduce elements of these enhancements to their products slightly ahead of copy-cat competitors – this temporary advantage adds to the brand’s perceived value in the marketplace and ensures longevity as the ‘go-to’ brand.
Examples of the high performance pyramid in action can be found in all industries. Take for example the wine industry. It takes only 1% of grapes from a premium wine to create an award winning entry level wine. This has driven the creation of wine portfolios where iconic premium wines increasingly achieve higher price points for the lower tier wines within their brand vertical, than their competitors can achieve with comparable products.
Similarly in the auto industry F1 supplier Pirelli tyres reported a 28% growth in market share (2012), which they attributed to their investment in F1 technology and the trickle-down return on image and innovation in the “highway tyre” market.
The creation of a technically superior product that has already drawn the attention of a significant proportion of the target market allows the brand to either increase selling prices or gain market share.
So what does this mean for you?
We advocate the high performance strategy approach to keep our clients consistently at the top of their game. This focus makes innovation affordable at the top of their pyramid, which is then leveragable across their product and service portfolio.
We strongly believe that innovation and edge-centric thinking allows companies to escape the gravity of price-based competition, and can keep high-performance companies continually at the top. Just as the rock band U2 has a high performance pyramid from concerts to t-shirts to downloads, so too does your industry.
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Please provide thoughts and reactions to this work, or share examples of how you see the high performance pyramid working in your organisation. Write to: firstname.lastname@example.org