What is the most important thing a business needs to be successful? Good products? Great service? Startup capital? Reliable employees? Those are all important, but the number one thing a business needs is: customers! Businesses get and keep customers by creating value. They offer customers something they will value more than the money they’ll part with to get it. So, how do you create value?
The Discipline of Market Leaders
Creating value is the subject of The Discipline of Market Leaders by Michael Treacy and Fred Wiersema. This book was first published 20 years ago and is still in print. It is something of a business classic now. At Aire-Master, we still present the core ideas from the book in our franchise training program.
Treacy and Wiersema identify three distinct ways that market leading companies deliver value to customers, calling them value disciplines:
- Operational Excellence
- Product Leadership
- Customer Intimacy
The authors devote a large section of the book to each value discipline, describing its characteristics and giving numerous examples. Some of the examples are a bit dated now, of course, but the points are still valid.
Operational Excellence
Companies that focus on Operational Excellence offer their customers lowest overall cost (not necessarily lowest price), convenience, and fast, hassle-free service. Examples include McDonalds, Walmart, and Southwest Airlines.
You don’t expect gourmet food at McDonald’s; you aren’t going there for your anniversary. McDonald’s is where you go when you want something inexpensive, fast, and easy. There’s usually one on the way to wherever you’re going. It’s the least amount of trouble to go there.
Walmart doesn’t specialize in top-of-the line goods, fashions, or foods. They often carry name brands in order to drive sales of their store brands.
Today, we would probably add Amazon to the list of operationally excellent companies. Whatever you want, Amazon has it — at a great price — and they can ship it immediately.
Product Leadership
Product Leadership companies focus on making the best product, period. They push performance boundaries, making their own products obsolete before their competitors can. Examples in the book include Intel and Nike. These days, we would also think of Apple, Samsung, and maybe Under Armour in this category.
Product leaders create entire categories and markets. Nobody knew they wanted a smartphone until Apple introduced the iPhone. When they introduced the App Store, they created the mobile application development industry practically overnight. Part of the frustration of owning an Apple product is that you know it will be obsolete in a year or two when they come out with the new model. And you’ll want that new model when you see it!
Product leaders face fierce competition; staying ahead of the pack is a constant struggle. Samsung is putting a lot of competitive pressure on Apple in the smartphone and tablet market, for example. Bigger screens, higher resolution cameras, more, better, faster!
Customer Intimacy
Customer Intimate companies focus on cultivating long-term relationships with customers. They provide the best total solution, not an isolated service or product. With customer intimacy, the emphasis is on solving problems rather than conducting transactions. As examples, the authors include Home Depot, IBM (in the 1970s), and Airborne Express. (DHL bought Airborne Express in 2003.)
Aire-Master is also an example of a customer intimate company. We focus on building relationships with customers, getting to know their challenges, solving problems, and providing the right combination of services and products for each customer.
Aire-Master provides excellent service and top quality products, but those are tools for solving problems. Not every customer needs everything we offer, so every customer gets a custom-tailored program.
Achieving Market Leadership
Focusing on one of the value disciplines doesn’t mean that you can ignore the other two. It does mean that you have a clear vision of what your brand stands for.
Treacy and Wiersema give businesses four rules for market leadership:
- Focus on one type of value
- Maintain standards in the others
- Improve value year after year
- Develop a superior operating system for delivering value
We would add one more thing about market leadership: even if your business is relatively new and small, and you aren’t the number one company in your market, you can still be a market leader. You can lead, you can inspire others to follow you, to share your vision. If customers believe in your brand, they will follow you. (More about this in a future post.)
We have been reading and recommending The Discipline of Market Leaders since 1995, and we still do. In fact, part of the fun of reading it all these years later is thinking of current examples for each of the value disciplines.