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  Dean Dipak C. Jain

Faculty Reserach: Dipak Jain, Marketing
Snack Time
Jain's 'sandwich strategy' offers a potent tool for value creation in tight markets

By Matt Golosinski

Kellogg School Dean Dipak C. Jain knows how to make a meal of the competition.

His recent studies of how firms can optimize value creation in highly competitive markets have produced a model he calls the "sandwich strategy," a tool that he says can enable companies to expand their markets through product and pricing innovations.

Too often, firms find themselves competing exclusively on price, he explains. This scenario can result in a "race to the bottom" that Jain says may be avoided by carefully leveraging the sandwich model to create "expanded market opportunities around a firm's existing offerings, as well as those of the competition."

Certain necessary conditions must be met, including cost leadership and speed-to-market capabilities, but in essence, the strategic segmentation works like this: Firm A, or the incumbent, reacts to Firm B, the competitor, by resegmenting the market. Firm A should create one or more offerings that can be positioned around the competition. By introducing a value-priced offering alongside a premium one, for example, the incumbent can effectively carve out more share for itself by tapping two ends of the overall market. In this instance, Firm A positions itself as the "sandwich bread," forcing Firm B in between the incumbent's offerings --- or, in other words, forcing the competition into a space where it cannot easily compete with the incumbent, thus avoiding the ravages of a price war.

"If you respond to competition simply by dropping your price, two undesirable consequences occur," says Jain. "First, you give more legitimacy to your competition, signaling that the two offerings are more or less identical. Second, you send a message to your existing customers that you have been overcharging them for years."

Instead, Jain advises the incumbent to preserve both the price and quality of its existing premium line while pricing the new, more economical product the same or slightly less than it had positioned its original offering. Importantly, the pricing of this new offering need not necessarily be less than that of the nearest competitor's, since the incumbent can exploit its brand reputation to extract price-based value because of that brand.

"We are not reducing the value of a company when we launch a lower-priced product using the sandwich approach," notes Jain, who adds that FedEx is one example of a firm that has successfully employed this kind of segmentation with its overnight delivery service. "In fact, the new offering should be designed in such a way as to bring in a new segment that has not previously been a customer of the company."

What's more, the ultimate goal is to move these new customers "up the value chain" to the premium offering, while simultaneously maintaining existing "premium" customers.

A marketing expert and mathematician by training, Jain is the Sandy and Morton Goldman Professor of Entrepreneurial Studies, and also the chief administrator at Kellogg, responsible for overseeing all of the school's programming and strategy. Clearly this role demands an extraordinary amount of energy, not to mention travel, but Jain also continues to follow his scholarly passions: teaching and research. He shares his insights extensively, particularly through his involvement with Kellogg Executive Education, both in Evanston and around the world, where he leads custom programming for a variety of clients.

Such efforts are instrumental in building the Kellogg brand by extending its thought leadership, says Jain, who has been dean since July 2001, after serving five years as associate dean for academic affairs. He joined the school in 1987.

"Many look to the Kellogg School for leadership across several disciplines, so I believe it important that all our faculty, including those serving in senior administrative capacities, remain committed to scholarly pursuit," says Jain, whose expertise involves marketing research and product and service innovations. His other research has included studies of high-tech marketing, cross-cultural issues in global product diffusion, and forecasting models.

Much of Jain's thinking on competitive market structure analysis begins with consideration of a fundamental challenge facing most companies today --- namely, how to create meaningful differentiation in customers' minds.

"One hurdle increasingly confronting marketers is how to capture and sustain value," says the dean. A daunting challenge, since customers are more informed and savvy than ever before while products and services seem more and more alike.

Such dynamics require companies to employ new strategic models, such as the sandwich approach, if they are to create the necessary conditions for their success.

"Failure to innovate invites disaster," says Jain.

©2002 Kellogg School of Management, Northwestern University