Brand Masters

Value Discipline of Market Leaders

David W. Maaske
17 February 1998 brand0216.ppt
 Brand Masters
The Value Discipline of Market Leaders

Operational Product Customer

Excellence Leadership Intimacy
Value
Proposition * Best total cost * Best product * Best total solution

Golden * Variety kills * Cannibalize your * Solve the client's

Rule efficiency success with broader problem
breakthroughs
Core * End-to-end * Invention * Client acquisition
Processes product delivery * Commercialization & development
* Customer service * Market exploitation * Solution
cycle development
Improvement * Process redesign * Product * Problem expertise
Levers * Continuous technology * Service
improvement * R&D cycle time customization
Major
Improvement * Shift to new asset * Jump to new * Total change in
Challenges base technology solution paradigm

brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema
3 Major Value Disciplines:
1. Operational Excellence
Middle of market products; best price, least inconvenience (low price,
hassle free); "Their products last and last." Best total cost. Examples:
AT&T Universal Card Services and Federal Express.
2. Product Leadership
Push performance (product) boundaries; best product--period;
continuous innovation; "Premium priced, but worth it." Best product.
Examples: Intel, GE Medical Systems, Johnson&Johnson.
3. Customer Intimacy
Deliver what specific customers want, not what the market wants;
provide all support for customer to achieve optimum results; don't
pursue one-time transactions--cultivate relationships; "They are the
experts in my business." Best total solution. Examples: Nordstrom,
IBM, Home Depot, Airborne Express.
brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema

• The choice of which of these disciplines to follow is not arbitrary.

Picking one doesn't mean abandoning the other two, but companies
pick one to stake their reputation on.
• A value discipline does not equal a strategic goal. A value discipline is
the central act that shapes every subsequent plan and decision a
company makes. It defines what a company does and therefore is.
• Different customers buy different types of value. Companies can't be
the best in all; choose your customers and narrow your value focus.

brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema

4 Rules That Govern Market Leaders' Actions:

1. Provide best offering in the market place by excelling in a specific
dimension of a value.
2. Maintain threshold standards on other (not chosen) dimensions;
channel energy into what separates you from the pack.
3. Dominate your market by improving year after year.
4. Build a well-tuned operating model dedicated to delivering unmatched
value. (Operating Model: The way operation is structured to deliver
on value proposition.)
The pursuit of customer satisfaction and loyalty doesn't--by itself--create
unmatched value. Value comes from choosing customers and narrowing
the operations' focus to best serve those customers. Customer satisfaction
and loyalty is a by-product of delivering on a compelling value proposition,
not the drivers behind it.
brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema

Threshold vs. Leadership In Customer Value

• Breakthrough points:
– Product Leadership--product differentiation
– Operational Excellence--operational competence
– Customer Intimacy--customer responsive

Must get to:

• Product Leadership -- Best product
• Operational excellence -- Best total cost
• Customer Intimacy -- Best total solution

brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema

Operational Excellence Value Discipline

• Focus on customer service is key part of discipline
• Operating models support zero defects
• Effectively exploit information technology
• Keep assets working; new ways to use existing assets
• Have a "formula" that can be replicated in other markets; formula
firmly associated with brand name
• Less product variety
• Not pleasing every customer
• Whole company is a single, focused instrument

brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema

Product Leader Value Discipline

• Product with little initial demand (customers don't yet know they want
it)
• Must prepare markets; educate potential customers
• Champions and contenders at the same time
• Continually striving to replace your own "hot" product with something
new
• Don't "slavishly" follow the voice of the customer; customers can't
define the next break-through product

brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema
Customer Intimacy Value Discipline
• Not lowest price; not latest product features
• Better overall result for the customer
• Recognize hierarchy of customer needs: product, basic service, identify broader
under-lying problem, customer success
• Needs irreverent, out-of-the-box, transformational thinkers due to rapidly
changing world
• Take responsibility for customer results
• Have detailed and integrated customer data
• Carefully selects customers
• Customize services to meet customer needs
• Look for ways to penetrate into the customer's business
• Customer as partner; share rewards (company charges more for "extras")
• Display confidence to charge more because it's worth it
• Have developed techniques for sharing among teams the best practices of
customers, suppliers, etc.
• Product changes are evolutionary, not revolutionary brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema
Setting the Value Discipline Agenda
• Companies must define precisely the exceptional value it offers
customers. Must conduct 3 rounds of disciplined assessment and
deliberation watching for:
• Delegating work too quickly after initial pass
 Underestimating competitors that look or operate differently
 Pursuit of multiple markets and value propositions through one
business unit rather than through multiple units geared to different
markets, delivering different kinds of value
 Getting agreement among selves without bringing out and resolving
differences

Round 1: Determine current standing and why

Round 2: Develop realistic value propositions and operating models
Round 3: Hard choices; must commit to 1 value discipline. What changes
will be necessary? What are the risks?

brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema
The "Cult of the Customer"
• Market leaders have a customer credo. Customer value is the ultimate
measure of one’s work performance. Improving value--and the pace at
which it is done--is the measure of one’s success.
• In building the credo, market leaders borrow from, and build upon, the
quality movement. Worked should be viewed as a process amenable to
systematic streamlining and continuous improvement. TQM alone is not
whole answer to market leadership. Market leaders are selective in how
they apply these philosophies; need a slightly different set of principles.
As opposed to focus on the customer; prevent, don't fix; and measure
everything, market leaders should:

brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema
The "Cult of the Customer"
1) Tune In To Value
Is work creating value? Determine how to create more value.

2) Live With The Customer

Continuous, painstaking, unrelenting effort to get everyone to walk
in the customer's shoes. This goes beyond sales, marketing and front
line customer service all the way to senior management.

3) Act As The Customer’s Advocate

Give license to all to take on this role. Build employee competence.
Open up lines of communication and have information at people's
fingertips. Provide fast feedback.

brand0216.ppt
 Brand Masters
Synopsis of The Discipline of Market Leaders
By Michael Treacy and Fred Wiersema
Sustaining Operational Excellence
• Threat: Assets that turn into liabilities. Time spent figuring out how to
better utilize assets that may no longer be the right ones,

Sustaining Product Leadership

• Threat: Sense that turns into nonsense. Can develop blind spots that
impair people’s skill at sensing the potential of new technologies and
concepts.

Sustaining Customer Intimacy

• Threat: Knowledge that turns into ignorance. It’s not what you know,
but what you don’t know that hurts.
• Threat: Illusion company can do absolutely anything to give customers
the total solution promised; taking on tasks they should decline.

brand0216.ppt