A ‘sandwich’ of options
In a talk to graduating Kellogg students, former dean Dipak Jain explains the importance of offering consumers a menu of choices By Ed Finkel
5/6/2010 - To thrive in a competitive marketplace, companies need to move in the direction of their strengths and offer consumers a “sandwich” of options, says Dipak Jain, former Kellogg dean and the Sandy and Morton Goldman Professor of Entrepreneurial Studies.
“Where do companies go wrong? They move in the direction of their weakness,” Jain said during an April 28 talk, the first in a series of “Nota Bene” seminars geared to graduating Kellogg students. “If you become more like your competitor, you lose differentiation. … You need to make your brand sharper and stronger.”
In deciding how to do so, Jain said, companies need to keep in mind a few key parameters. “Execution depends on your resources. Execution depends on your competencies,” he said. “It’s also based on what [companies] want to be in the future.”
To illustrate these points, Jain pointed to the U.S. Postal Service’s efforts to position itself against Federal Express, when the latter upped the ante on its next-day offering by adding a new product with a 10 a.m. guarantee.
Rather than trying to match Fed Ex, the Post Office went in the other direction and created a lower-cost, two-day product — then outsourced its express mail to Fed Ex.
“What is Fed Ex known for? [Being] on-time and reliable,” Jain said. The strength of the Post Office is cost advantage and scale rather than speed, he said, and the new product brought volume and enabled the agency to get rid of most of its airplanes, which “created a value proposition for them. You need to make sure there is no inconsistency. Every step you take should build your brand.”
The two-day product is not lower quality, he added, just a different offering for those willing to wait — which creates the “sandwich” of options. “That is the principle of market valuation,” he said. “It’s just different, depending on your needs.”
Jain offered another example from the pharmaceutical industry. Shortly before the patent on its heartburn and acid relief Prilosec product was going to expire, Astra Zeneca introduced its own generic brand, Prilosec-OTC, designed to price away potential competitors — then released Nexium as its branded product, at a higher price.
The generic product is aimed at patients, while the latter is directed at physicians. “The generic cannot enter the market because the cost of entry is higher,” Jain said. “The sandwich strategy can be proactive. You launch like a sandwich, rather than one product. You capture the brand-loyal [customers] at a higher price.”
Jain said he’s been urging airlines to leverage one of their strengths — the frequency of flights to and from certain cities — to offer a “sandwich” by giving fliers the option of paying an extra $100 to book two consecutive flights. That way, if a business meeting runs longer than expected, travelers are not stressing about missing a flight.
Airlines, Jain said, “are not in the travel business — they’re in the stress-reduction business. The future is for you to think how to make life easier for your customers.”