10.292009

size as a competitive advantage

Establishing competitive advantage is one of the basic tenets of business strategy.  Companies must establish a way of standing out from competitive offerings and being perceived as different and better from those offerings. One business aspect that I believe is underutilized as a lever for competitive advantage is business size and scale.

Often a large business size is equated with large distribution and that is considered a competitive advantage.  However in many cases that kind of advantage is not sustainable or it doesn’t reflect true customer preference.  It’s a forced advantage.  For example years ago Dasani, the bottled water brand, was able to steal share from long established competitive brands simply because the Coca Cola bottling company picked it up and distributed it and therefore beat competitive offerings for shelf space.

There are other more meaningful and sustainable ways of using large size and scale as competitive advantage.  The case in point here would be Wal-mart.   The company has thrown its weight behind the green movement and is using their heft to make a difference that makes a difference to consumers.walmart-2

A couple of years ago Wal-mart launched their consumer-facing green campaign which effectively turned the size of the company from something to be criticized and protested into an important and compelling benefit.  Each of the ads explained how the sheer number of Wal-Mart shoppers (“all 200 million of us”) made it possible for each individual purchase to be a part of a big impact on our planet.  The 7 national TV spots and 16-page magazine inserts magalog they ran – not to mention radio and online ads, informative websites, and in-store signage – may have been one of the most widespread campaigns educating Americans about their role in protecting the environment.

The company continues to promote its environmental efforts and to advocate consumer participation today.  Wal-Mart’s comprehensive, integrated initiative is a powerful force with the muscle to dominate consumers’ mindshare and purchases because of the company’s size.

On the flip side, small scale and size is typically viewed as s competitive disadvantage. Most small brands want to get larger so they can compete more effectively with larger brands.  However a smaller sized scope can be a unique competitive advantage if it is used properly.

jdv logoOne example is the Joie de Vivre boutique hotel brand.  (By the way, I enjoyed getting an insider’s look at JDV in the book Peak:  How Great Companies Get Their Mojo from Maslow.  It’s written by Chip Conley, the Founder and CEO of the JDV brand.  And it not only introduces a provocative philosophy toward business based on Abraham Maslow’s concept of the Hierarchy of Needs; it also tells the remarkable story of JDV.)

JDV has only 40 hotel sites compared to Westin, for example, which has over 200.  Some may view that as a disadvantage because they don’t have the awareness that a larger brand like Westin enjoys and they’re only able to serve a certain segment of customers because their market penetration is so low.

But the company actually uses their small size to their advantage by customizing each location.  The Carriage Inn in San Francisco’s SOMA district has a “literary” theme while its site in the city’s Japantown, Hotel Kabuki, features a “unique blend of Eastern and Western influences.”  And their website has a great feature that functions basically like a dating service for travelers who are seeking a hotel.  By completing an online questionnaire about yourself, the “hotel MATCHMAKER” tool suggests the particular sites that would be appropriate for you. In doing so, they deliver a meaningful benefit to customers and increase the likelihood customers are going to enjoy their experience at one of their hotels.

There’s no way a larger hotel brand like Westin can do this — and it wouldn’t make sense for them to do so because their stronger market presence and uniformity across their 200+ sites are the bases of their competitive strategy.  But because JDV has a small size and scope, they’re not only able to do this, they are a thriving business as a result.  Their annual revenues now total just under $200MM.

In today’s economic climate and with so many categories with fierce competition, you need to use every advantage you have.  And size is just one of them.

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