It’s no secret that in many industries today, upstream activities—such as sourcing, production, and logistics—are being commoditized or outsourced, while downstream activities aimed at reducing customers’ costs and risks are emerging as the drivers of value creation and sources of competitive advantage. Consider a consumer’s purchase of a can of Coca-Cola. In a supermarket or warehouse club the consumer buys the drink as part of a 24-pack. The price is about 25 cents a can. The same consumer, finding herself in a park on a hot summer day, gladly pays two dollars for a chilled can of Coke sold at the point-of-thirst through a vending machine. That 700% price premium is attributable not to a better or different product but to a more convenient means of obtaining it. What the customer values is this: not having to remember to buy the 24-pack in advance, break out one can and find a place to store the rest, lug the can around all day, and figure out how to keep it chilled until she’s thirsty.
When Marketing Is Strategy
Reprint: R1312G
For decades, businesses have sought competitive advantage in “upstream” activities related to making new products—building bigger factories, finding cheaper raw materials, improving efficiency, and so on. But those easily copied sources of advantage are being irreversibly eroded, and advantage increasingly lies “downstream”—in the marketplace.
Today the strategic question that drives business is not “What else can we make?” but “What else can we do for our customers?” This new center of gravity demands a rethink of long-standing strategy principles:
First, the sources and locus of competitive advantage now lie outside the firm, and advantage is accumulative—rather than eroding over time as competitors catch up, it grows with experience and knowledge.
Second, it’s no longer about having the better product but about how you position yourself in the market and which companies you choose to compete against.
Third, the pace of change in markets is now driven by shifts in customers’ purchase criteria rather than by improvements in products or technology.
HBR Learning