Search Results

Some industry observers claim that the steady increase in trade promotion expenditures in the packaged goods industry is symptomatic of a shift in power toward retailers and away from manufacturers. As firms sell more goods on deal, managers complain that promotions are eroding the power of brands. More preferable, they say, are "everyday low prices" (EDLP) rather than strategies that involve price discounts and other allowances. Trade promotion is a prime cause of the "bullwhip effect" in channels, and EDLP is perceived as a solution. However, the authors point out that EDLP may cause its own unexpected side effects. Because certain incentives and trade deals may perform important functions, managers must consider the second- and third-order effects of discontinuing them. The same logic applies to channels, so managers must assess how channel members are likely to react to various pricing strategies. In this article, the authors discuss the underappreciated role of well-designed trade promotions. Using the example of a single manufacturer selling to and through a retailer, they show how certain promotions increase total channel profits and the manufacturer's share of those profits beyond levels achievable with a single price and without promotions. Furthermore, they believe that firms can implement these promotions in ways that avoid many issues associated with retailer forward-buying and gray markets. In fact, certain trade promotions may benefit the manufacturer as much as the retailer -- if not more. Although some trade promotions create more problems than they solve, not all forms of trade promotion are bad. Manufacturers can effectively influence a retailer's selling activity and coordinate the distribution channel by using price-up and deal-down strategies that link manufacturer prices to the price featured by the retailer. However, manufacturers and retailers must set margins in a sustainable way, which requires a combination of margin and volume that produces acceptable profits for both channel partners.

Dynamic pricing, in which prices respond to supply and demand pressures in real time or near-real time, has long been used by airlines and hotels. Now dynamic pricing is making inroads in many different sectors including apparel, automobiles, consumer electronics, personal services, telecommunications and second- hand goods. These companies are making use of new findings on dynamic pricing and of increases in data-processing power to raise their average realized prices, thereby increasing revenues and profits. There are two mechanisms for dynamic pricing: posted prices that customers can see; and price-discovery mechanisms, in which customers determine prices through their own actions. These two mechanisms are employed in seven different forms: yield management (commonly used by airlines), demandbased pricing, three types of auctions, group buying and negotiations. The article describes eight situations for using the various forms of dynamic pricing. An important constraint in employing dynamic pricing is consumers' Latitude of Price Acceptance, which varies for different products and situations and which can be discovered through observation, surveys or analysis of demand elasticities. Customer participation in the pricing process decreases the chances of a consumer backlash. Customers also tend to embrace dynamic pricing in the following situations: where the price reflects intensity of demand for the product, there is communication between the seller and the consumer, and the price difference is explained by a difference in perceived value across channels through which the transaction occurred. The more the seller understands the buying cycles and habits of the customer, the more he is able to manage price margins to the rhythm of the customer's shopping, to segment customers and to develop price discrimination.

Managing intellectual property rights used to be straightforward. A company produced great innovations, obtained as many patents as possible and exploited those patents in the marketplace. But the intellectual property world has changed argue the authors. Today, leading companies are focusing on securing only the essential protections they need to exploit their innovations. Most businesses, though, continue to pursue the old "more is better" strategy. In effect, they're flying blind when it comes to managing their IP portfolio. The authors identify three key areas where leading companies drive profits and effectively manage their intellectual property. First, they have a strong market focus, which provides them a clear sense of the "freedom of action." Second, the leaders can articulate how they will derive value from each potential patent and ruthlessly prune patents that cannot generate an attractive overall return. Finally, top-tier organizations hire only the best talent to lead their IP efforts. Following this blueprint will allow companies to successfully manage a more complicated IP landscape.

Whereas companies once focused primarily on outplaying competitors at a fixed game, now their central focus is on understanding the relationship between an environment's turbulence and their choice of strategy. By doing so, managers can develop better strategies that lead to and maintain strategic supremacy. This process begins with analysis of a firm's current competitive environment, followed by an understanding of the rules of the game in that industry. If a firm lacks the capabilities to succeed in the environment or wishes to challenge the status quo to improve its position, it might consider changing the rules. The ability to establish the rules of the game to control evolution is one facet of strategic supremacy. The player with strategic supremacy shapes the field and basis of competition for its rivals. Studies of hypercompetitive environments provide insight into the inextricably intertwined relationships among disruption, patterns of turbulence, the rules of competition, and definition of the playing field. Why is changing the environment important? Some strategies may work well in one environment but not in another. For example, strategies that are successful in fairly stable environments may be a liability in unstable ones. Whereas profits previously depended on stability and lack of rivalry, profits in hypercompetitive environments like those of the 1990s result from increased rivalry that focuses on defining a new basis of competition for customers. Extending the insights gained from hypercompetitive markets, D'Aveni suggests that turbulence creates competitive environments characterized by distinct patterns of disruption determined by frequency and their competence-destroying or competence-enhancing nature. The four competitive environments (equilibrium, fluctuating equilibrium, punctuated equilibrium, and disequilibrium) require different strategies. The goal of incumbent leaders and challengers in each environment is to achieve strategic supremacy by controlling the degree and pattern of turbulence. But, because rivals and customers are never content with the status quo, the battle for strategic supremacy is continuous.

Many companies find that it's not enough to "increase customer satisfaction" or "raise product quality." They must know conclusively how such departmental pursuits affect the profitability of the company as a whole. Typically, this requires some kind of profitability modeling, in which links are established between specific actions and the resulting profit to the organization. Although the concept is not new, profitability modeling, to date, has been limited to individual departments or business functions. Although firms develop models that are more comprehensive and cross-functional, these efforts are sporadic, relatively expensive and time-consuming. More companies might attempt this kind of modeling if they had an explicit framework and procedure for establishing links to guide them. Marc Epstein and Robert Westbrook, professors at Rice University's Jones Graduate School of Management, have studied companies' efforts to develop models that link action to profit and have devised a general model that managers can use to link any departmental action to overall corporate profitability. By customizing their general model, firms can more quickly arrive at specific links between an action and its impact on profitability. The action-profit linkage model helps managers identify and measure key drivers of business success and profit, develop causal links among them and estimate the impact of actions to bring them about. This process forces managers to narrow their strategies to the areas with the highest payoff. Attention shifts from a preoccupation with individual performance metrics to an awareness of how those metrics work as a system and how they lead to increased profit and more shareholder value. The process of getting to the final model is valuable because managers gain tremendous insight into how their organizations' various metrics interrelate. The model also fosters a common management focus on the variables that matter most in achieving success. More importantly, it helps develop disciplined thinking about profit drivers by tracing them through the customer, product offering and ultimately the company's actions. Focusing the management team on a common thought process is among the most important things a CEO can do to improve management decision making in both strategy and its implementation.

Four examples highlight the pivotal role that corporate social responsibility can play during a national crisis.

The Internet has created new markets, customers, products and modes of conducting business. But it also has given currency to some dangerous half-truths. Admonishing Internet businesses to “stop grabbing the land and start cultivating it,” Subramanian Rangan and Ron Adner, professors of management and strategy at INSEAD in France, explain why seven popular strategies are not the path to profitable growth. First-mover advantage, for example, gets too much credit for e-business success. Companies believe that they can lock in customers and trigger a winner-take-all dynamic, but there is no guarantee that those benefits will go to first movers. The allure of reach & #8212; increasing the number of customer segments & #8212; causes many companies to ignore fit, the coherence with which their activities reinforce one another. Digital Equipment Corp. paid the price when it sacrificed fit to reach, attempting to make PCs, workstations, minicomputers and mainframes under one roof. Another tempting growth strategy is to provide customer solutions, offering products or services that complement a company’s core offering. But offering solutions can dilute a company’s focus. Targeting the right Internet sector is one way to maintain focus. When companies view the Internet as undifferentiated landscape, they are less able to distinguish the drivers of customer value and performance & #8212; or the metrics to measure them. Some companies see best-of-breed-partner leverage as the secret of profitable growth. But although the Internet makes it easier and cheaper to align activities across company boundaries, it does not do much to align interests & #8212; a requirement for the creation of joint value. Another misconception is the belief that an Internet business will automatically be successful abroad. As MTV, Wal-Mart and Honda discovered, companies first must be successful at home and then move outward in a way that accommodates local differences. The last, and perhaps most dangerous, misconception is managers’ belief that technology can substitute for strategy. Technology and strategy are strong complements. Companies that understand their technology better than they understand their customers and competition won’t succeed in any economy, old or new. The authors provide thoughtful guidelines for avoiding misconceptions and taking a sensible approach to business on the Internet.

When you just don’t get along with a colleague, reset the relationship by focusing on trust.

Externally focused x-teams can drive innovation, performance, and distributed leadership but require a shift in mindset.

Many companies see customers’ product returns as a major inconvenience and an eroder of profits. But recent studies have begun illuminating the potential benefits of allowing customers to return products with impunity. This research finds that when a company has a lenient product-return policy, which allows customers to return almost any product at any time, customers are more willing to make other purchases, thereby raising the company’s revenues from sales. The authors’ own research extended these studies by exploring the trade-offs between the costs of product returns–particularly when customers deem such experiences satisfactory–and their long-term benefits to the company. Analyzing six years of purchase, product-return and marketing-communications data from “Company 1?–a large national catalog retailer that sells apparel and accessories–they confirmed that ignoring product return behavior, or even trying to discourage it directly by not marketing to customers who return products (such as by not sending them catalogs), would be a mistake. In fact, managers should embrace customers’ product-return behavior and offer them a satisfactory experience. In a field experiment with a second catalog retailer, “Company 2,” which sells footwear, apparel and other accessories through the Internet and mail-order catalogs, the authors found that under a lenient product-return policy, customers’ purchases, induced profits and referrals were greater than under a strict policy (which discourages and limits product returns). These measures could be raised even further through a catalog-mailing strategy that takes into account the expected future profits from each customer and the relationship between purchases and product-return behavior–i.e., through an optimal allocation strategy.