6.5 Testing the Defensibility of Strategy Copy
To test the defensibility of your strategy from an operational standpoint, you can benchmark your operations against those of other companies, especially potential competitors, to gauge whether they would have cost advantages delivering YOUR value proposition with THEIR value chain.
In other words, could your closest competitors make the same products that you make but cheaper if they wanted to?
This type of introspective analysis can help you understand how much of your performance has to do with a cost advantage and how much is due to differentiation. For example, if you realize that a potential competitor would have a cost advantage delivering a product that’s identical to yours, that would be a signal that your market position is at risk. In response, you could help protect your position against a potential attack by investing more in non-product (i.e. market positioning) efforts such as branding and promotion, or by improving relationships with strategic customers.
If your close competitors can’t match your costs with their value chain, it means that you have the cost advantage (at least for now) and they don’t pose a threat in the short term (unless they are willing to subsidize losses to compete). In that case you can just focus on strengthening your value chain and expand that advantage for as long as possible.
An example can probably help clarify these points. Let’s say that executives at Dr Pepper Snapple Group, owners of the Sunkist soda brands, realize that Coca-Cola could deliver a similar product at lower costs per unit. If that was the case, Sunkist should use the positioning levers to improve at the non-product factors that make its products stand-out with its buyers such as branding, flavours and distribution. If on the other hand they do this exercise and conclude that Coca-Cola couldn’t deliver a similar product cheaper, then Coke is not a current threat to Sunkist and they can remain focused on tangible factors such as operations and keeping that cost advantage.
Describe how testing the defensibility of strategy is done.