[MUSIC]So, in this section, what I want to focuson is an introduction of a, aframework that I think you'll find veryuseful for figuring outhow to think competitively to become aleader in your market.And what I'm going to go over is based ona, abook that was written by Tracy andWiersema it's called Market Leadership.And its based off of their framework,although I've adaptedit some.And, the framework or the, well I'm goingto think of it as kindof the graph or the strategic tool, isbased on a set of principles.These principles have to be true and youhave tobelieve in them in order for thisframework to work.And they're very strong principles.They're very strong assumptions.I don't think they're that controversial,but they'renot vague, they really are very strong,andin order for this technique to work, youreally need to abide by them.And the first one is; that you have toknow your markets.Now before I mentioned a lot of, mostbusinessesare now in customer fosed market, customerfocused marketing.That is the type of marketing mostbusinesses are doing.because most businesses are verycompetitive, they're global.There's a lot of competition out there andthe onlyway they're going to win in their marketplace is tofocus on the customer.So, that's a very important principal inthis framework, it says, in order touse this framework, we are going to assumethat you know what your customers want.And furthermore, you know how yourcompetitors are likely to react.And so what you are trying to dois what I mentioned that principle ofdifferentiation.You're trying to find a way toprovide customer value, better than thecompetition.And the onlyway you can really deliver this.Is to know your market.So you.And you can't just guess.You have to do market research and youhave to reallyunderstand what your customers want andhow your competition's likely to react.So that's the first principle.The second principle and this is whereit's pretty, it's apretty defined and pretty It's a definiteassumption that's being made.And the assumption says andwhat I've written here is customers havethe final say.And what that means is the customers aregoing to choose what they want.But the assumption is a strong assumptionbecausewe assume the customers go through thisdecision process.They look at all the data and all thevaluesand all the attributes and all theproducts in the market.And, there's so much information outthere.That they can't consider everything.And, so what they do is theykind of chunk a bunch of different thingstogether into kind of three bundles.And the three bundles are.One is all sorts of operations factors.Which includes price and cost.But delivery, service, reliability, those,all ofthose kinds of things are consideredoperational things.The other bundle is product features ordesigns, so product attributes style,innovation, technology and they put thatin another bundle.And the third bundle is.Whether or not it meets my needs, so is itcustomized to meet my needs?And what the customers have the final saysays,is that customers look at these three,they kind of classifythe products into these three bundles andthey kind of givethem a score in each one of these threedimensions.And then they decide which oneof those dimensions is the most importantto them and they pick the productthat's the best on one of those dimensionsand good enough on the other two.So, it's says, you can't be pretty good inall three of them.Because then the customer won't pick youbut the customers going topick something not that's kind, if theycare about price they'renot going to pick something that's kind ofa good price theygoing to go for the lowest price or ifthey care aboutdesign it's not going to be somethingthat's kind of good design, they'regoing to go for the very best design thatthey like the most.Or if they care about how much it meetstheir own needs, they're going to go forsomething that meetstheir needs the best, as long as theproductdelivers satisfactorily or good enough onthe other two dimensions.So, that's a very strong assumption.But if you think about it, itkind of approximates the way customersmake decisions.If you believe that assumption, that thecustomers have the finalsay and they choose the product thatdelivers the best on thebundle of attributes they care the mostabout, that suggests thatif you want to be the first in the marketsthat you serve.You better be the best at something andgood enough at the other two things.And that should be your market strategyand once you decide on whichtype of thing you going to be the best at,the market leaderat, then that have indications for the wayyou structure your business, the way youprioritize resources, the way you allocateresources, thetype of people you hire into your company.It has all sorts of implications for yourbusiness organization so that you candeliver total value and total quality andguarantee the customer satisfaction onthis dimension.So, those are the assumptions.Now, before I show you the framework Ihave to introduceone other concept and this concept is whatI'm going to call, fair value.And what I have on the screen here is avalue map.And you have on the vertical axis,relative costs to the customer.And on the horizontal axis, relativebenefits.And what the map says is that if you offermore benefits, customers are willing topay a higher price.If you charge a lower price,customers will expect fewer benefits, aslong as what you offer appears to be fair.If you offer something inferior and it'snot fair value, then customers won't buythat.So it, you won't make it in the market.You'll be, it'll be cancelled out of themarket because you're not offering a fairvalue.And what the framework says is that youneed to offer fair valueon two of those bundles, but offersomething better than fair value on oneof the bundles, on the bundle you aregoing to be the leader on.So if you can imagine a marketplace whereeverybody is tryingto deliver fair value and somebody isdelivering something of superior value.Think about what's going to happen in thatmarketplace, in a very competitive market.Somebody comes out, let's say Apple comesout with a better design and so the iPadcomes out and it's a much better design.It, it fair price on these other axis, butthere are, their tablet is better thaneverything else.What happens in the marketplace?And what happens is everybody tries tocopy and mitigate the advantage.And so what happens is what's perceived tobe fairvalue, that fair value line is not astatic line.It's constantly moving up, moving to thelowerright as the market gets more and morecompetitive.So what's fair value is constantlychanging over time.So although I say what you need to doin this framework is to deliver the bestof somethingand state fair value on the other twobundles,the problem is fair value's not a staticconstant concept.It's constantly changing as a function ofcompetitive reaction.So, with that said as background, here'sthe framework.And here are the three bundles; one ofthem is operational excellence, theother's performance superiority, that'sthe bundlethat delivers on product design and style.And the third is customer intimacy, whichsays give the customers what they want.And, you're intimate with customer needsand youtry to deliver something that's responsiveto their needs.And so the three crosshatches hereare fair value lines.Now I had them drawn symmetrically on thisaxis, but it doesn't have to be symmetric.What you need to do is, if you want to usethis framework.Is in your marketplace, figure out, whatare theproduct attributes that relate tooperational excellence in your market.And define that dimension.So that you understand what operationalexcellence is in your market.You have to do the same thing, orwhat are the product attributes thatmatter to the customer?Are they design, technology, whatever itis,what are those attributes and define thatdimension.And then you have to figure out how muchcustomization is there in your market anddefine that dimension.That's the first thing you do.The second thing you do with thisframework, is anticipate where fair valueis.This is the trickiest part of thisframework.What are customers expectations on each.Think of theseas axis.Like an x, y, and z axis.And where is the reference point or thefair value line on each of these axispoints.Sometimes people think about fair values,the average of what everybody offers.Sometimes fair value, nobody offers.Like for example, I would say in theairlinebusiness, people expect an operationalexcellence, constant on time arrival.And we know very few airlinesdeliver to that fair value.But that is.What I think people expect and I wouldsay, mostof the competitors in the market are belowfair value.Sometimes, everybody's above fair value.In some mature markets, people don't careaboutsome of the bells and whistles that comeout.And everybody's delivering at least whatthey need.And some people more.But people didn't even care about that.So figuring out exactly where fair valueis and each of these axis isa very tricky thing and you need marketresearch to do that.Once you figure out where your value is,on these, the next part is to plot, whereyour company is delivering, on each ofthese axes relative to fair value.Are you above fair value in operations?Are you meeting fair value or below fairvalue on each one of these axes?Then you figure out where you competitionis on each one of these axes andthen you start playing the market strategygame.You think about a short-term strategy, along-term strategy and you figure outWhat should you be doing right now inorder to beat the competition?And what you're ultimately looking for ina long term strategy is tobe the best at one dimension and goodenough on the other two.That's the long term strategy.In the short term it might be thatlet's say your long term strategy is to becustomer intimate, but you're not at fairvalue in operations.So in the short term you might be lookingto hit fair value inoperations, but in the long term you'relooking to be the leader in customerintimacy.And once you decide what your leadershipstrategy is thenthat has implications for everything youdo in your firm.So for example if you are an operationalcompany andthat's what you want to be your leadershipstrategy, that tends to be avery hierarchical strategy that, withallocation ofresources prioritized to informationtechnology et cetera.If you are a performance superioritycompany, that tendsto be more of an R and D company.You tend to hire kinds of people that are.Very innovative, they don't likestructure, they don'tlike top-down organization, you reallyneed to givethem a lot of free reign.And in a customer intimacy, youreally have to focus on prioritizingmarket research, customerknowledge and you kind of have aconsulting, a yes culture.You have to let the customer come first.So each, once you decide on yourleadership strategy has a lot ofimplications for the rest of the firm.[MUSIC].