The only ways to defend a profitable market position are through differentiated value, which is products and services that are perceived as both unique and valuable by target consumers, or through lower prices than comparable solutions. But the real beauty of strategy is in how a business can combine these two dimensions in a number of ways to find and nurture unique market positions for its products and services that are both profitable and sustainable over the foreseeable future. This creates a diversity of choices that gives customers options and at the same time creates a playground where multiple players can win at the same time within the same industry. The strategy game is then about finding and retaining that market position where you can create superior profitability. To measure such position, you may use perception maps to track where products in your market are positioned with respect to each other in the minds of target consumers.
A perception map can help you measure the positioning of an industry’s products in the minds of its target consumers, For example, if you were mapping the soft drink industry, you could see how Gatorade is well positioned as a product with a high perceived value in the sports drink segment, while Powerade is positioned as a low-price solution within the same market. Coca-Cola’s strategy is to position its Powerade product as a low-price alternative within the sports drink market, rather than trying to outcompete Pepsi’s Gatorade for the premium customers. Gatorade’s customers are willing to pay higher prices for a high-quality sports drink, but Coca-Cola figured that there was an underserved price-sensitive segment of buyers who would be happy to pay less for a more basic product infused with electrolytes and vitamins, so they decided to position its Powerade product as a low-price alternative to Gatorade. However, to tackle the premium segment of the market, Coca-Cola acquired Glacéau in 2007, bringing brands such as VitaminWater and SmartWater into its portfolio. Although the price of Powerade is around half of its equivalent Gatorade, the bigger size of the market it targets helps Coca-Cola compensate for lower per-unit margins, so that the product could be equally or even more profitable than Gatorade.
In strategy lingo, Powerade’s market positioning strategy is to be the “price-leader” of the sports drink segment. Contrast that with the strategy of Dr Pepper Snapple Group (NYSE: DPS) which owns more than 50 popular brands of beverages including Canada Dry, 7Up, Snapple, Hawaiian Punch, Mott’s, Orange Crush and Sunkist all of which occupy leadership positions in the soft drink market. DPS’s products are unique in what they offer and are positioned in the minds of buyers as top brands in their respective categories, or to use some words you may be familiar with, DPS’s products are “differentiated”. Sunkist’s orange and grape flavoured drinks are well-positioned with respect to similarly flavoured products, and so are Canada Dry in the ginger ale category, 7Up in the lime flavour, and Dr Pepper in the Cherry soda group, while DPS didn’t need to destroy Coke or Pepsi for its products to achieve this market position. There are four main levers that you can act upon to help differentiate your products and services: your product’s features and benefits, how you promote them, your approach to sales and distribution, and your pricing options. Of course, differentiation and low-price are by nature relative terms, since the movement of your products in a perception map depends on the efforts that the other players are making. In other words, while the map is a snapshot at a given point in time, the landscape is actually moving, and the results of any efforts to position your brands must take into account the efforts being made by other companies trying to move around in the map.