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Are You Product or Market Driven?
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Are You Product or Market Driven?

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This title is one of Henry Ford's most quoted statements. He actually said, "Any customer can have a car painted any color that he wants so long as it is black”. I use it to introduce my real …

This title is one of Henry Ford's most quoted statements. He actually said, "Any customer can have a car painted any color that he wants so long as it is black”. I use it to introduce my real subject, product driven versus market driven companies. Henry obviously believed in a product driven strategy.
Let's define your strategy!

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  • 1. YOU CAN HAVE ANY COLORYOU WANT, AS LONG AS YOUW A N T BL A C KARE YOU PRODUCT OR MARKET DRIVEN?In this article, I get to incorporate two of my favorite topics, history and old cars, into anarticle. In fact, Im showing off my old 54 MG in the above picture.The title is one of Henry Fords most quoted statements. He actually said, "Anycustomer can have a car painted any color that he wants so long as it is black”. He said itin 1909, ironically at a time when black was not available.The Model T originally came in grey, green, blue and red. He did not implement his allblack policy until 1914. However, He could have accurately said customers can have anymodel they want so long as it is a 2 door. But his quote sounds better, so Im throwing 2-door.journalistic accuracy to the wind and going with it!I use it to introduce my real subject, product driven versus market driven companies. companiesHenry obviously believed in a product driven s strategy.My first goal is simply to understand the difference between the two strategies and thecorporate cultures that define them at the most basic level.If you were involved in Fords marketing efforts back then, your job was to convincepotential buyers they needed a black Model T, period! Your marketing approach was yerssomething like, "Here is what I have to sell, and this is why you need it."Contrast that to a market driven strategy that asks, "What do you need, and how can Ibest meet that need?"The cultural differences between product and market driven companies run deep. eProduct driven companies will spend relatively more resources on productdevelopment. Their primary goal is to achieve and maintain technical superiority. Inextreme examples, they believe their products are so good they simply sell themselves. yEngineers will always outrank marketing in the corporate pecking order.
  • 2. Market driven companies will devote more resources to brand their company andproducts, and on customer communications. Technical superiority is secondary tounderstanding customer needs and anticipating market changes. Product developmentis less mission critical than advertising, since the marketing department rules the roost.My second point is that if you are going to sell a limited product or service line, youneed to be very good at it. Ford was fanatical about producing cheap, dependable cars.He managed to reduce the original $850 sticker price to $290 by the 1920s. At thatprice, he owned the working family automotive market. He was so confident that thecars features and low cost could generate sufficient sales that he did no corporateadvertising from 1917 to 1923.Unfortunately, being first to market with a technically superior product offered at anaffordable price is no guarantee of long-term success. As Ford Motor Companysubsequently learned, competitors (increasingly on a global basis) have a long history ofunseating early market leaders who grow complacent about ever-changing customerneeds and wants.Being a product driven company is certainly easier if you exercise some degree ofcontrol in your relevant market, and if consumer tastes are stable and predictable.Perhaps Ford was lulled into a false sense of security by assuming past marketconditions, under which they flourished for decades, would continue indefinitely.Car buyers in the 1920s were unsophisticated by todays standards. They could not haveimaged, let alone demanded the range of choices, options and features currentlyavailable. Ford was not the first company to replace dangerous hand cranks with electricstarters. Cadillac beat them to market by seven years. However, when the worldslargest car manufacturer finally made the change in 1919, consumers and the rest of theindustry fell in line. Ford defined the new standard, not Cadillac.My next point is that companies and industries sometimes attempt to adapt theirmarketing strategy in response to changing competition and other market forces. Forexample, conditions slowly but dramatically changed for the entire Americanautomotive industry over the next 50 years. Detroits response to the 1973 oil embargowas a textbook case of a failed attempt to adapt. Faced with the first ever non-wartimelimit on the availability of cheap gasoline, the American consumer suddenly becamevery conscious of gas mileage.At the time, Japanese and European companies dominated the market for fuel-efficientsub-compacts. American manufacturers knee-jerk response was to jump headfirst intoa market they had ignored until recently. They stepped up production of the notoriously 2
  • 3. undependable Ford Pinto (voted the worst car of all time), the Chevrolet Vega and theAMC Gremlin.Detroits failure took a personal toll on an entire generation of consumers. My first carwas a red, white and blue Pinto. It was a cornucopia of expensive mechanical problems,unrelenting frustration on a 94-inch wheelbase. I sold it just before a massive recall foran exploding gas tank problem that would eventually cost Ford millions of dollars inlegal settlements.My next car, a Toyota, sparked a love affair with foreign cars that continues today. Itwas 30 years before I bought another Ford, a pickup truck for my son. It took almost aslong for American manufacturers to overcome the image of producing inferior cars. Itremains to be seen whether they will ever regain the world market share they onceenjoyed.How have things changed since I bought that damn Pinto?A national chain of mens discount stores advertised, "An educated consumer is our bestcustomer." For a product driven company in 2011, an educated consumer might bemore aptly described as their worst nightmare. Service industry executive and strategicplanning expert Michael OLoughlin recently summarized the reason. He said, "Thanksto the Internet, the consumer has come to believe that no concessions are evernecessary. They expect unlimited choices in meeting their needs."Potential customers are only a few clicks away from a myriad of rival goods and services.A consumer with a smartphone can compare competitors prices on the spot. Anybusiness, even the smallest local operation, ignores those powerful market realities attheir own peril. Broadening your product line or services can help fend off competitionby better addressing market needs, and improve customer retention in the process.The mens store chain recently filed for Chapter 7 bankruptcy. One analyst said they hadfailed to keep up with the increasingly competitive off-priced clothing market.My final point is that few successful companies employ an entirely one-sided strategy.They operate along a moving spectrum on which there are few absolutes, and nostrategy guaranteed to bring success or failure.Consider Ford one last time. Product limitations notwithstanding, they still managed tosell over 15 million units between 1908 and 1927. At one point, half of all the cars in theworld were Model Ts. That production record stood until the Volkswagen Beetle finallysurpassed it in 1972. 3
  • 4. The correct strategy for your business is the one that is executable within theconstraints of your cost structure and marketing budget, and that produces the highestnet cash flow given all the relevant factors at work in your market and your competition.I began this article with an old quote. I end with another. A marketing adage says, "Youhave to sell from your own wagon." It refers to a bygone era when merchants plied theirtrade by pushing handcarts up and down urban streets. The adage may be true.However, today you get to decide how big your wagon is, and what products or servicesit carries.Go forth and sell! © 2012 by Dale R. SchmeltzleAbout the author: Dale R. Schmeltzle, CPA is a founding partner of CFO America, professionalconsultants dedicated to helping business owners define, implement and monitor the strategic andtactical elements necessary to achieve long-term financial and operational success. CFO Americaprovides fractional or part-time executive management expertise not available on an in-house basis.Dale has been a frequent author and speaker for numerous professional, civic and non-profit groups. Hewrote Highly Visible Marketing, 115 Low-cost Ways to avoid Market Obscurity. He has also taughtcollege level accounting and financial courses to non-business audiences. For more information, pleasevisit http://www.CFOAmerica.biz or follow us on Facebook at http://www.facebook.com/CFOAmerica. Consulting CFOs & Executive Managers 4

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