Tuesday, March 27, 2007


Hello everyone. Sorry for the delay but I was traveling most of last week.

In an effort to further the discussion comparing competitive advantage vs. separation, I would like to introduce a very powerful tool developed by McGrath and MacMillan that is summarized in perhaps the greatest business book ever written – The Entrepreneurial Mindset. The tool is the Attribute Map and it shows the dynamic nature of how your target customers react to your offering’s attributes:

The labels going down the table –POSITIVE, NEGATIVE, OR NEUTRAL – describe the type of reaction from the customers. Obviously, the more positive and less negative the better. The labels on the top of the table –BASIC, DISCRIMINATORS, and/or ENERGIZERS – define the intensity of the reaction.

For the BASIC category:
- A POSITIVE defines table stakes – you need these attributes to play and you are conspicuous by their absence (Non Negotiable)
- A NEGATIVE defines attributes that the customer is willing to tolerate (Tolerable) if there is no other alternative.
- A NEUTRAL is one that has no or little impact (So What) on the customer but does add cost

- Differentiate between competitors to influence the purchase decision. The POSITIVE (Differentiator) attribute is in the positive direction and the NEGATIVE (Dissatisfier) is in the negative direction.
- The NEUTRAL is an influencer to the purchase decision but is not directly related to the purchase

- Attributes are so powerful that they overwhelm the purchase decision either positively –the Exciter – or negatively – the Enrager

An example, I usually illustrate the power of the Attribute Map using the history of the Big 3 auto dealers in the 70”s and 80”s when the Japanese initiated their onslaught of the U.S. market. At this time the U.S. consumer TOLERATED the poor quality of their automobiles from Detroit because there was no alternative. The Japanese came in pushing their superior quality and created a revolution since their new offering EXCITED the U.S. consumer toward their cars and shifted the attitude towards the Big 3 from TOLERABLE to a negative DISCRIMINATOR or even to ENRAGERS. Your ideal move against competition is to EXCITE your customers with a new offering while at the same time shifting their attitude towards the competitors to the negative. Interestingly, car quality is now considered a BASIC attribute. This dynamic shift usually occurs over time – this dynamic is what drives the Fair Value Line discussed in the last positing to the right in the Value Map.

Now lets discuss competitive advantaged vs. competitive separation in the context of the Attribute Map. If you have a strong competitive advantage, i.e., you are superior to competition, in an attribute that is considered a DISCRIMINATOR or an ENERGIZER by your customers, then you will achieve competitive separation. If your advantage is in an attribute that is BASIC or even worse, a NEUTRAL, you will not achieve competitive separation!! The goal should be competitive separation, not just advantage. Never assess your competitive position without real insight into what your customer really wants/needs.

Another issue is when is “just good enough” ok versus “best in class” or “unique in class”; the latter two usually costs vs. the first. Again, realizing that competitive separation is the goal, you should focus your added efforts to achieve “best or unique in class” for DISCRIMINATOR or ENERGIZER attributes, not BASIC or NEUTRAL categories.

Hopes this helps.

Wednesday, March 14, 2007


The next two posting will deal with what I think is a fundamental difference between having a competitive advantage and creating competitive separation. This posting covers a tool called the Value Map

The Value Map tool was best described in Richard D’Aveni’s book on Hypercompetition and highlights the importance of competitive separation to the stability of the marketplace. I used it very effectively while running businesses as well as consulting them. It helps view the marketplace in the context of the perceived value from a target group of customers/consumers.

It is a construct of the price charged by competitors vs. the market average and the value of delivered, non-price attributes (function and emotive) both as perceived by the customer; it is best accomplished by using a third party to gather the information. First, you establish a list of no more than 10 non price attributes that your customers feel are critical and have the customer rate them from 1 to 100. The X-axis positions your offering as well as your competitors as a % of the total possible rating. The same is done with price by asking the customers what they perceive your price is vs. their competition; this can also be accomplished by an analytical price analysis if you feel uncomfortable discussing prices with your customer.

The Fair Value line (FVL) is the points of equilibrium where your customers feel they are paying an adequate price for the perceived quality they are getting. Now some possible scenarios:
- If your offering is left of the FVL, you are charging more than the perceived value delivered. You can expect price erosion unless you add more value
- If you are to the right of the line, you are not charging enough for the perceived value delivered and should consider increasing your price. This happens to be where most of my DuPont offerings were and we did refocus our efforts on increasing price accordingly.
- The trend over time always favors the customer/consumer (except in healthcare which is another discussion): either pricing will tend to drop for the same value delivered (FVL moves down); or more value will be delivered at the same price (move the FVL to the right); or prices will lower while more value is delivered (the FVL moves diagonally down).

These are all typical market dynamics that can still lead to profitable markets as long at there is sufficient competitive separation, i.e. a separation ON the FVL!

As an example, in the 80’s and early 90’s, there was sufficient separation among the major fast food players: McDonald’s tended to be lower price/lower quality house (less food in their hamburgers --player A); Burger King was in the middle (player B); while Wendy’s was a bit more upscale (player C). Trouble really started when they dramatically changed their menus. They all tended to become closer to each other. They grouped together at the center, thus reducing their competitive separation. This is a typical market dynamic.

Notice, I did not mention competitive advantage. McDonald’s had (they still may) a competitive cost advantage in the structure and operations of running their global restaurants vs. the others. This only created competitive separation when it enabled them to be profitable when they were in their original configuration on the FVL – the low cost, low price offering.

Now, let’s apply this to the series of articles we talked about involving Starbucks, Dunkin Donuts, and McDonalds (the last two postings). It wasn’t long ago that you wouldn’t have even put these players in the same value mapping exercise but they are now going after each other, particularly for the breakfast business. Starbucks is clearly positioning itself as player C and I suspect Dunkin Donuts (have offered many different types of coffee vs. McDonald’s, at least until now) is attempting to be player B leaving McDonald’s as player A. My guess is that history will repeat itself – they will go to war and become more like each other and come closer on the FVL. It will be interesting to watch.

I suggest going back to the last two postings and read them with this Value Map discussion as a context.

Monday, March 05, 2007

McDonald's Is Poised For Lattes
By JANET ADAMY WSJ, March 1, 2007; Page A11

Remember the last posting on Starbucks and how they were struggling with maintaining their competitive separation from the rest of pack as they expand and automate to manage costs and uniformity of quality plus adding breakfast-type food– they were losing the vaunted “Starbucks experience”. Now, McDonald’s is going after Starbucks to protect their valued breakfast business and Dunkin Donuts is right in the middle. This is classic competitive maneuvering that is playing out right in front of us! I will share some powerful frameworks in the next two positing (a little pre sell) that deal with competitive separation vs. competitive advantage and how you can measure it your self against competition and decide what to do.

For the new KIN members, please go directly to the blog for better insight into what we are trying to accomplish.

I will busy consulting and teaching this week plus partying at Rob Wolcott’s wedding this weekend. I hope to recover from the festivities and issue the next posting by Tuesday of next week.


In a direct shot at Starbucks Corp., McDonald's Corp. is moving closer to adding lattes and cappuccinos to its menu across the country.

The fast-food giant wants to keep competitors from poaching its lucrative breakfast business and draw customers throughout the day with what it calls a "destination" beverage line. It is installing behind some of its counters large black machines that dispense vanilla lattes, iced mochas, caramel cappuccinos and other specialty coffee drinks.

The move promises to create a major new competitor in the industry pioneered by Starbucks. The Seattle-based coffee chain transformed espresso from a niche Italian drink into a popular American ritual by offering it in an appealing atmosphere and sweetening it with flavorings and whipped cream. Last month, Starbucks Chairman Howard Schultz warned in a memo to executives that fast-food chains and other competitors were poaching Starbucks's customers.

McDonald's offering would make espresso drinks cheaper and available to a broader swath of the population at its more than 13,700 locations across the country. At stores where it is already serving the drinks, McDonald's has priced most of them between $2 and $3. By comparison, many of Starbucks's espresso-and-milk drinks sell for more than $3.

McDonald's began testing espresso drinks when it opened its first McCafe in the U.S. in 2001 in an experiment to capture part of the growing coffeehouse business (remember options thinking). The company has yet to confirm it will sell espresso drinks at all restaurants; a spokesman wouldn't say whether McDonald's plans to add the drinks nationwide. However, the chain has recently started selling the drinks at restaurants in Michigan, New York and New Jersey, and one franchisee says McDonald's has indicated it is preparing to add them in other parts of the country.

"We don't have to test whether customers want them.... We know that already," McDonald's President and Chief Operating Officer Ralph Alvarez told investors at a conference in New York yesterday.

McDonald's espresso drinks will also compete with Dunkin' Donuts, a unit of Dunkin' Brands Inc., which has been expanding its specialty coffee offering in recent years and is laying plans for a nationwide expansion.

McDonald's espresso drinks are part of a broad strategy at the Oak Brook, Ill., fast-food chain to stretch beyond hamburgers and french fries. In the past few years, the company has added more chicken items and upscale salads. Last year, it upgraded its coffee to a premium blend (it was rated the best vs Dunkin Donuts – my favorite – and Starbucks), which lifted its coffee sales. It is also looking at adding smoothies to its menu.

Meanwhile, Starbucks last fall announced plans to start selling hot breakfast sandwiches in its stores, treading on Egg McMuffin turf.

To keep service fast, McDonald's has installed push-button machines that roll most of the drink-making into one step. By contrast, Starbucks baristas make espresso drinks using a series of separate steps that include steaming the milk by hand and adding the espresso.(this represents a huge dilemma for Starbucks)