Strategy in Three Minutes. Episode 10
1. Strategy and Value Exchange: Profit happens where the measurable meets the emotional
You don’t earn as much as you deserve. You earn as much as you negotiate.
Your business’s profit = its potential profit – missed profit.
Missed profit = created value – captured value.
Every company should create value for customers and capture a significant part of this value as revenue.
Profit = captured value – costs.
Captured value cannot be greater than created value.
But it can be significantly less. A business can underprice its products.
It happens for various reasons:
[1] It does it deliberately. For instance, it's part of an aggressive marketing campaign.
[2] Intense competition pushes the prices down.
[3] For some reason, the company’s leaders are afraid of increasing prices.
You can measure captured value, but you can only estimate created value.
It is an emotional phenomenon.
But if you can’t measure it, it doesn’t mean you can’t manage it.
Talk to your customer to learn:
[1] How much value does your business create for them in comparison with competitors?
[2] What strategy can you use to increase the perceived value in the eyes of your clients?
2. Strategy-related terms: Don’t analyze those who steal your money. Analyze who gives it to you
Competitor analysis is an activity that will make your biased view of the market even more skewed.
Typical mistakes:
[1] We analyze the wrong competitors, who deliver a different value to customers.
[2] We don’t analyze substitutes, those who deliver the same value but differently.
[3] We see only what's on the surface. Their today's products are the results of their yesterday's decisions. We don't know what they are working on now.
[4] We compare our products with theirs by looking at them through our own lens, not through the lens of our customers.
We can get better results if we:
[1] Analyze competitors’ products to better understand our customers’ needs. Why do customers buy them? What do they see in them?
[2] Analyze rival products by discussing them with our clients.
But anyway, if you’ve spent an hour on competitor analysis, spend three on customer research.
Check out my new book, Red and Yellow Strategies: Flip Your Strategic Thinking and Overcome Short-termism, here.
3. Trend of the week: The loophole for Chinese online retail in the US and Europe is closing
Shein, an online fashion giant from China, generated $32.5 billion in 2023.
It has 88.8 million active shoppers, 17.3 million are based in the US.
Shein was downloaded 238 million times in 2023, making it the most downloaded fashion app of that year.
But this success may come to an end soon.
The Wall Street Journal reports:
“The Biden administration said this month it intends to take executive action to stop textiles from China entering the US under a trade exemption covering packages valued at or below $800—which has benefited China-founded Shein and its e-commerce rival Temu enormously.
Countries including South Africa and Turkey have recently closed similar loopholes, while the European Union is looking to do the same.”
Relying on legal loopholes is a risky strategy.
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Read also: Stay Ahead of the Curve: Glimpse Into the Future of Your Industry
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