One who gains five victories suffers calamity; one who gains four is exhausted; one who gains three becomes Lord Protector; one who gains two, a King; one who gains one, the Emperor. Thus he who by countless victories has gained an empire is unique, while those who have perished thereby are many. [Sun Tzu, Appendix I, Ch. 1]

1. Get new products to the battlefield (marketplace) before competitors do.
2. Seize market segments and niches that competitors have overlooked.
3. Do not attack established products and services. This is like attacking an opponent who holds a fortified position. Bypass these positions unless you have a special, overwhelming advantage.
4. Avoid price wars, or "marketing Vietnams." Trying to gain market share in a mature market is like fighting a protracted war.
5. Shorten the distribution chain, or supply line. Cut out unnecessary middlemen.

The product life cycle shows the role of new or introductory products.

6-1-1 The Product Life Cycle

Most products go through the following life cycle. The table shows the life cycle and the Boston Consulting Group (BCG) definitions. [Rowe, 1985, pp. 194-195]

Table 6-1 The Product Life Cycle
Life Cycle Phase /BCG Definition

(1) Introduction: Question mark ?
-High growth, low market share

(2) Growth: Star *
-High growth, high market share

(3) Maturity: Cash Cow $
-Low growth, high market share

(4) Decline: Dog 0
-Low growth, low market share

The subsequent section will discuss this further. For now, we will focus on the introductory stage.

Cross-Functional Teams

Peters cites Chaparral Steel as an example. Engineers and researchers work in the manufacturing shop with tool operators. They experiment in the mill itself. The successful Ford Taurus was another product of the DFM approach. Ford involved the Design, Engineering, Marketing, Manufacturing, and Service functions from the beginning. The company also consulted insurance companies about accident damage. By doing this, Ford learned how to make a car cheaper to repair after a collision. Ford consulted auto dealers to learn what customers wanted. This happened during the design phase. [Peters, 1987, Section I-2]

DFM and Quality Function Deployment 

Most American firms do not use the best design practices. [Hoover, 1991] Bruno Wenschel, President of Wenschel Engineering Company, reiterates this point. Japan and Germany emphasize DFM. In the United States, about 2/3 of product design emphasis is on design and 1/3 on manufacturability. In Japan and Germany, 2/3 of the emphasis is on manufacturability. Wenschel says, "Design quality into the product, instead of trying to inspect it into the product." Prevention is better than correction, and correction is better than field failures. [Wenschel, 1991]

Recall the story about the obscure Chinese doctor who cured diseases in their infancies. His brother was famous for treating seriously ill patients. Today we prefer vaccines over treatment for the illnesses they prevent. We must become equally wise in product development. DFM will assure our victory over competitors who cling to outmoded approaches. We will not have to fight them for market share. We will occupy the market while they are still mobilizing for the contest.

The next section treats a similar concept. However, using it does not require a new product. We can win with existing products and services by delivering them where no one opposes us.

This approach sounds attractive and easy. If no competitor holds a market share, just walk in and take it! The concept is very simple, but it needs effort to make it work. General Clausewitz said everything is simple, but the simplest matter is difficult. To put the idea into practice, we must examine market segments and niches.

6-2-1 Niche Markets

The underlying idea is very simple. Meet the customer's requirements. Don't be like Ford in its early days. Henry Ford told customers they could have any color they wanted, as long as it was black. This works well when we have a monopoly. Today, like Burger King, we must tell customers, "Have it your way."

Adding Value at Elgin Corrugated Box

1. Elgin makes a higher quality box. It uses a more expensive, but stronger, corrugation method. It uses better ink for labeling the boxes.
2. The company consistently ships orders on time.
3. The company is very responsive to customer needs. It will accept small orders its competitors won't touch. [Peters, 1987, Section C-1]

Niche Penetration/Infiltration Tactics

Niche penetration of a market is often more effective than a frontal attack. The Japanese have used this approach in most new markets. Instead of launching massive frontal efforts, they address small, application-oriented niches. They offer cars with ceramic engine parts, four-valve engines, lightweight nonmetallic body panels, and other features. Few American cars offered these options in 1987. American automakers wanted to "leapfrog" the Japanese with huge technological breakthroughs. Meanwhile, the Japanese incremental improvements kept widening the gap the Americans had to leap. [Peters, 1987, section I-1]

Canon and Savin infiltrated the copier market in the 1970's. Xerox paid attention to its large rival, Kodak. It ignored "little stings" from Savin and Canon in "pipsqueak market segments." Patton's skunks got under the front porch. The frog didn't notice the water heating around him. Machiavelli's physician didn't recognize the early symptoms. Suddenly, "--- these mice moved out of their corners and became lions; Xerox lost more than half its market share before it stemmed the tide." [Peters, 1987, section I-4]

6-2-2 Attack Where No One Opposes You 

Peters cites, "--- oddball forays through distribution channels and from competitors you wouldn't expect (e.g. TV home shopping, and the explosion of catalogers in retailing)." [Peters, 1987, section I-4] We can add home computer services that allow subscribers to buy products electronically. Be innovative in looking at distribution channels. New, short, and efficient channels can bypass a competitor's defenses.

6-2-3 Guerrilla Marketing [Ries and Trout, Chapter 10] 

The segment or niche may be geographical, economic, or specialized product. For example, Rolls-Royce occupies a luxury car niche. None of the big automakers think it is worthwhile to go after this relatively small segment. If they did, they would be at an enormous disadvantage because of Rolls-Royce's reputation.
American Motors Corporation's Jeep has been very successful. AMC sells about 100,000 Jeeps each year. It is not worth GM's while to attack this product niche. Ries and Trout think AMC is making a mistake by challenging Chevrolet with Alliances and Encores. AMC actually loses much of what it makes on the Jeep by competing with GM. Instead, AMC should produce only the Jeep and its relatives, like the AMC Eagle.
Inc. magazine is a "demographic guerrilla." Instead of competing with Business Week, it addresses the needs of small business owners. Business Week's main orientation is big business. Its circulation is about 800,000. There are more than 5 million corporations in the United States. Most are small businesses. This is another example of the principle of attacking where no one opposes you.

Crain's Chicago Business is a geographic guerrilla. Again, it does not meet big publications like Business Week head-on. Addressing a local market garners a circulation of 40,000. In Chicago, Business Week's share has 36,000 subscribers. While Business Week is 20 times as big as Crain's Chicago Business nationally, Crain's is the local leader.

Triod Systems is an industry guerrilla. It specializes in a computerized inventory management system for automotive part wholesalers. The automotive part wholesaling industry is Triod's special market niche.
Ries and Trout emphasize the need to keep the organization lean and agile. We have already covered the idea of avoiding excessive hierarchy and staff. Bureaucracy is expensive, and it reduces the flexibility of the organization.

The Art of War lists four strategies for waging war. In descending order of preference, they are: [Sun Tzu, Ch. III]

1. Attack or thwart the enemy's strategy.
2. Disrupt the enemy's alliances.
3. Fight the enemy army.
4. Besiege the enemy's fortresses and cities.

This principle was true until about a century ago. In the 17th century, the military engineer Sebastian Vauban developed a formula for capturing fortresses. The procedure relied heavily on the pick and shovel. Vauban's formula guaranteed capture of the fort. However, it also guaranteed spending weeks or months on the siege. Defenders did not rely on fortresses to stop an enemy. They relied on them to cost the attacker precious time. If the attacker bypassed a fort, he had to leave troops behind to contain the garrison. If he tried to cut corners with a frontal assault, the result was a massacre. (C.S. Forster's The Gun gives an example of a premature frontal attack on a fort.)

Reducing and Bypassing Strongpoints

These historical examples show that we have two viable choices against a strong position. If we have a special advantage, we can overcome it. A castle full of archers and spearmen was very formidable to a medieval army. However, it would offer little resistance to modern artillery. (A Data General commercial showed a scenario like this several years ago.) We also can bypass the position.

Special advantages include the following.

1. A new product can make the existing one obsolete. This is like having a cannon against bows and catapults. Most mature, well-established products eventually succumb to new ones. An innovative company will make its own products obsolete. Remember that passive market barriers do not offer permanent security. Constant improvement and innovation provide an active defense.
2. Strong advantages in product quality, cost, or service can win. This is how the Japanese displaced American automakers from their market share. Recall Tom Peters' advice to make manufacturing a marketing weapon. The manufacturing system dictates product costs and product quality. A superior manufacturing system is a decisive competitive weapon.
3. A short distribution chain can win by reducing the customer's costs. For example, mail-order personal computers have overwhelmed computer retailers.

Bypassing the position means capturing unprotected market segments and niches. We can always consider markets in complementary and substitute goods. A complementary product is something the customer uses with the product. For example, tires and oil are complementary goods for cars. A substitute is something the customer can use instead of the product.

Sun Tzu and Clausewitz; "We Told You So."

The Art of War cites the following specific effects of a protracted war. [Chapter II]

1. Your soldiers lose their morale.
2. You deplete your treasury, and impoverish your country.
3. Your economy suffers inflation.

The United States suffered these effects during the Vietnam War. Many men of military age looked for ways to avoid fighting. Popular sentiment eventually forced the government to abandon its foreign policy goals. Vietnam was a gross blunder that even a novice student of the art of war would have avoided. It was the Fool's Mate of American foreign policy. (The Fool's Mate is a checkmate in two moves. It requires almost deliberate self-destruction by the victim.)

The Soviets suffered the same fate in Afghanistan. Since Russia was North Vietnam's ally, this is especially surprising. We would have expected them to learn from our mistakes and their ally's success. The Soviets are supposedly ardent students of The Art of War. [Sun Tzu, Clavell translation, Foreword]

Other Forms of Protracted War

In business, we are not trying to wear down and destroy the competitor. We are trying to make money. Protracted market conflicts are not consistent with this goal.

6-4-1 Mature and Declining Markets

A mature market is no longer growing. The pie is not getting bigger. The only way to get a bigger piece of pie is to take someone else's. This means a zero-sum game or win-lose situation. If one organization wins, someone else must lose an equal amount. Clausewitz refers to this as polarity. A declining market is even worse. We have to take someone else's share to stay even.

Polarity and the Prisoners' Dilemma 

Options in a Declining Market

Downsizing as a Last Resort

Discharging workers is contrary to the Way of Lord and Retainer. It hurts commitment and morale. Companies like IBM and Matsushita avoided layoffs even during the Depression. It is a last resort, like gnawing off a leg to get out of a trap. While staying in the trap may mean death, losing a leg will probably just delay it a while. It means accepting a permanent loss of competitive capability. The company loses the experienced workers. If it wants to expand later, it must hire and train new workers. High turnover, whether from layoffs or resignations, is characteristic of noncompetitive organizations.

Flexible Automation Lets Us Get Out 

6-5-1 Distributors and Middlemen

Each middleman adds economic distance to a transaction. Each entity in the distribution chain has to make money on the transaction. The manufacturer's goal is to deliver value to the customer. Sun Tzu warned that transporting supplies to a distant army used most of the supplies. Transporting goods through several middlemen can consume most of their value. Here is the key question. What value does the middleman add to the transaction? Is it more than he consumes?

Middlemen as "Hidden Plant"

1. Each middleman must pay salaries, wages, and benefits for personnel.
2. The middleman has fixed assets with their associated costs (overhead).
3. Each middleman must earn a profit.
4. A long distribution chain delays and suppresses feedback from customers. This is an intangible cost. However, it affects the company's ability to adapt its products and services to customer needs.

YKK, a Japanese zipper company, captured market share from Talon by shortening its distribution chain. YKK bypassed wholesalers and sold zippers directly to clothing manufacturers. [Porter, 1985, p. 522]
DAK (Drew Alan Kaplan) Industries, Inc.'s catalog has an ad that shows how shortening the distribution chain saves the customer money. [DAK catalog, Summer 1992, p. 17] The ad shows "fat-cat middlemen with their expensive warehouse overhead and commissions." The ad says the retail price for a push-button direct-access world band radio ranges from $179 to $500. However, DAK can offer this product for $69.90 by buying directly from the manufacturer. Again, someone has to pay for the middlemen's fixed costs, personnel, and inventory cost. DAK gains a competitive advantage by cutting out these distribution costs. The mail-order firm itself is a middleman. However, it plays a useful role in getting the product from the manufacturer to the customer. It provides a marketplace for several manufacturers, and convenience for the buyer. [INSERT DAK "WHY SO CHEAP?" PICTURE. CREDIT, "DAK Industries Incorporated, 8200 Remmet Ave., Canoga Park, CA 91304-4182"]

Innovative Distribution Strategy for Cars 

[Side note, 1997: online services like "Auto-by-Tel" are seeking to cut the salesman out of the loop. The author stands by this prediction.] 

General Motors' recent problems include plant closings and layoffs. We contend that General Motors is laying off the wrong people. They are trying to cut costs by severing productive assets like factories and autoworkers. They need to ask the following questions. How much value does a car factory create for the customer? How much value does a car dealership create for the customer? Maybe GM should lay off its dealerships. The obvious objection is that dealers sell the cars. This is how traditional "push" marketing works. We make a product and pay someone to peddle it. If no one wants the product, we are out of luck. This is why there are so many incentives and rebates at the end of a car's model year.

Why do automakers need a showroom to sell cars? Any reputable service station can provide the warranty service. Consider the following arrangement. To keep the production line running, the manufacturer makes subassemblies like engines, bodies, and transmissions. Instead of showrooms, the manufacturer has retail outlets that take orders. Authorized service stations could perform this function. Customers could specify their cars on minicomputers. For example, a CD-ROM (Compact Disk, Read-Only Memory) could contain every car, and every option. The customer also could get descriptions of each option, and its price, from the computer. The computer also shows each body and upholstery color. A representative would be available to answer technical questions. When the customer finishes his or her selections, the computer generates an order. The customer signs a contract and makes a down payment.

Now the factory puts the subassemblies together to make the car. The customer gets exactly the options and colors he or she wants. The manufacturer does not have to store inventories of complete cars. (Ideally, a steady stream of orders will keep the subassembly stocks low.) Look at the competitive advantages the manufacturer gains.

1. It cuts out the salesman's commission and salary. The only sales cost is the cost of processing the order.
2. It cuts out the expensive showroom (fixed asset). The service station can warehouse one of each model for test drives. Compare this to a parking lot-full of inventory.
3. It avoids ending the model year with inventories of cars with colors and options no one wanted. Every car that leaves the factory has a buyer.
4. The customer gets exactly what he or she wants, not what the dealer wants to push off his lot.

Utility of Distributors and Retailers 

1. Retailers and distributors are convenient. It is inconvenient to buy food directly from a farmer or a food company. The farmer gains an economy of scale by selling his crops in large lots. The consumer gains convenience through one- stop shopping at a grocery. He or she does not have to go to a dairy, meat packer, and miller for their products. Retail clothing stores offer similar convenience. However, catalog companies like L.L. Bean and Land's End offer one-stop clothing shopping. These companies do not have to pay for floor space, and sales personnel, the way Sears does. The Computer Shopper is a one-stop shopping resource for computer buyers. A mail-order catalog can provide much of the retailer's convenience without the costs.
2. The distribution system is a source of market intelligence. A company's own sales force often provides the best feedback. It has no divided loyalties. However, it can be expensive. [Carr, 02/15/88] The sales force also can get ideas from customers for new products and services.
3. Agents and distributors may have access to a widespread distribution system.
4. Distributors and retailers know their local environments. Small retail businesses may have a regular clientele. The owners' personal contacts in the community are a valuable marketing asset. This factor becomes even more critical in international marketing.

6-5-2 Physical Distance and Transportation Costs

We can buy corrugated boxes for delivery to our factory. The box maker folds the boxes almost flat. Many will fit in a truck or rail car. Once we make a can or bottle, we can't fold it. If we put empty bottles in a truck, the truck transports mostly air. Cans and bottles are worth very little by themselves. The transportation costs are very high in comparison to the value of the containers. Putting the drink (or detergent) in the container adds value to the product. It costs little more to ship full bottles than empty ones. We don't have to make the liquid product at the bottling site. The liquid can get there by tank car. It is the containers that can't travel empty.

The same argument applies to "popcorn" packing material and bubble wrap. These packing materials are mostly air. It makes sense to make the packaging material at the point of use. The key point is to ship product, not air.

Price-to-Weight Ratio