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What To Do WhenYou’re Not #1 Or #2

Though GE wrote it in stone, you can still succeed by breaking the commandment.

A common characteristic of being either the leader or the number two in any market is the ability to supply a wide range of products to a diverse group of customers. Typically, this requires a lot of overhead since the majority of the firm’s efforts are directed at providing more, not less, and it also limits responsiveness to change. These characteristics create an opportunity for any smaller and more focused competitor who identifies some unsatisfied customer requirement and then works diligently to satisfy it, initially within a narrow product or service niche.

Smaller, more focused competitors slip unnoticed by the big guys long enough to establish a dominant position with key customers in their niche. By the time market leaders respond, it is often with too little, and frequently whatever they do is too late to change the minds of the customers they have already lost. Market leaders create these windows of opportunity by becoming victims of their past success.

This is especially true when they feel that they own a comfortable share of the market. Once that happens they start to make assumptions about what the customer wants, rather than asking them about current needs. Once you start to market by assumption and define quality internally from your product’s own marketing design, you are creating an opportunity for a more focused competitor. This was the window GM left open, which Honda among others brilliantly exploited.


From 1980 to 1989 GM’s share of the U.S. auto market went from 59 percent all the way down to 33 percent. GM sells one-third fewer cars now than it did in 1979. Last year GM lost close to $1 billion in North America and entered 1990 with $1 billion worth of unused factory capacity. The auto-making monolith is turning to stone. This is a very expensive price to pay for not paying attention to customers and marketing only by assumptions about customer desires. Honda on the other hand has experienced unprecedented success during the same period.

Americans are buying more foreign cars, and especially Honda’s, not because they are foreign, but because they have been more intelligently designed, more carefully put together and are more economical to operate than American-made cars. These reasons stand out when we compare the GM Chevette and the Honda Civic. What’s the basic difference between these cars? They both have about the same amount of plastic, rubber, chrome and steel, but one is superior in design, craftsmanship and performance-the key criteria customers use to evaluate a car.

The fundamental assumption has to be that quality is whatever the customer says it is. It naturally follows that companies must talk directly to customers to find out what they value. Those that best adapt their products to meet customer requirements, over time, will naturally displace their competitors no matter how big they are. Basic marketing strategy advocates a deliberate search for unsatisfied consumer requirements because few competitive advantages last forever. In reality, the best way to beat your bigger competitors is probably staring you right in the face. GM has been an obvious target for Honda and others for the last 10 years.

Let’s look at another example of how important it is to understand what customers value. In the 1970s, Hanes, a manufacturer of women’s stockings and panty hose, asked women what they wanted and couldn’t find in these products. The answers, as always, were simple: a heavier denier or sheerness, which makes stockings less likely to develop a run; a good fit; and a convenient source of supply. Obviously, improved quality of material, better fit, and more convenient availability at the local supermarket was the solution. “L’eggs” was born. Creative packaging in colorful plastic eggs and the masterful play on words contributed to one of the most successful consumer products of the ’70s. It was clearly a case of those that adapt best, by targeting consumer needs, displacing the rest. The more highly focused competitors changed the competitive equilibrium because they realized that playing by the leader’s rules is competitive suicide. Each delivered a new value to customers and changed the nature of the existing competition for market share by waging the war on newly defined grounds.


The niche marketer must become totally customer conscious. Successful niche marketers recognize that innovation is really as much about customers as it is about products. The key to beating number one and number two is finding out how customers behave, what motivates them and what they really need and value. Customer requirements are becoming ever more sophisticated and thus more easily segmented. Niche marketers create value by changing the perceptions specific sets of customers have about existing products or services, making those products more closely fit current requirements.

Customer profiling identifies groups of similar customers who have sets of unsatisfied requirements. These customer groups are usually subsets of existing market segments and can be sizable and uniquely profitable unto themselves. By determining the special requirements of these subset segments and creating or modifying a product or unique service approach to satisfy their special needs, a viable and very profitable niche can be developed. Notice what Volvo has done to appeal to the safety-conscious driver. Volvo’s overall emphasis in the last 10 years has been on the safety and durability of its cars. Repetitive promotions which illustrate life-saving crash results and cars stacked on top of cars to demonstrate strength of construction have allowed Volvo to carve a profitable niche out of the highly competitive luxury car segment of the auto market. The unsatisfied customer requirement prior to a Volvo was as basic as the fear of dying or becoming seriously injured in an automobile accident because of weak vehicle construction. In this case the value feature staring all the auto manufacturers in the face was safety. Volvo was neither one nor two in terms of overall market share, but today safety is synonymous with Volvo.

The best way to determine what you need to do to become more customer conscious is to go through your own consumer decision-making process and apply the same logic to your customers. You know there are some products you care about and others you don’t care about. Your value thresholds have been established in you minds of your customers since childhood. They’ve been embellished over the years by input from parents, peers and virtually thousands of advertising messages.

But many CEOs never go to the supermarket anymore. A business philosopher said a long time ago, “A desk is a dangerous place from which to view the world.” My advice to every CEO is to get out to see your customers as frequently as possible. Apparently, Roger Smith never got out, not even to see a GM dealer. Designing cars by committee obviously produced cars only a committee can love.


Most consumers have a mental product grid. We separate the products we care about and those we don’t care about.

Those we do not value highly we buy as cheaply as possible. When it comes to products we do care about, we look for the best quality product or a set of attributes whose appeal is unique to us. In the quality category a single cell in our mental product grid usually has room in it for about three brand alternatives in descending order of grade. Whatever gets into your mental product grid displaces something that was already there. Apparently, European, Japanese and Korean cars have recently been displacing American cars in many consumers’ minds.

Your goal as a niche marketer is to segment customers in order to target unmet needs. First you must identify customers that care and those that don’t care about the kinds of products or services you offer. For example, if you’re selling something new and innovative certain customers won’t care about it because they’re not interested in new things, and consequently you’ll never sell anything new or innovative to this group. Next, separate existing and potential customers into those that can afford your product and those that cannot. You’re not going to sell too many Rolls Royces in Appalachia. Then segment customers into those that buy your products or services now. Why? So you can keep them and treat them as an appreciating asset, by serving them well and by finding out what else you can do or get for them in the way of additional, new or modified products.

Don’t forget-stay close to the customers. Ask them if they’re happy. Ask them what else you can do to keep them happy and shopping at your particular supermarket. Then look to your competitors’ customers and find out if there is anything they are unhappy about. Survey them for unsatisfied buyer requirements. Why? To determine if there is something missing that you can provide.

Marketing is really a battle for the customer’s mind. The more customers you can attract the bigger and more profitable you will become. The forces of social change have created micro-markets made up of clusters of many different kinds of customers with very different backgrounds, desires and requirements. If you are totally customer-focused and you deliver the services your customers want, everything else will follow. But be careful, if you ever get to be number one or two in terms of market share, not to become a victim of your own marketing strategy.

Robert M. Donnelly, a past contributor to Chief Executive, is president and chief executive of EI-O-Matic.

About Robert M. Donnelly

Robert M. Donnelly
Robert M. Donnelly is CMO of Flo-Tite Valves & Controls, a U.S. based supplier of valves and components to the process control industry in North America. A coach, educator, and advisor to founders/CEOs of growing firms, he is a serial entrepreneur, having started, grown and sold several technology based businesses. Previously he held executive positions at IBM, Pfizer and Exxon.