Summary: You should look outside strategic groups to create unique and superior value, because identifying which value factors cause buyers to trade up or down to another strategic group is a way to identify compromises that consumers are being forced to make.
A strategic group is a group of companies making products based on a very similar strategy aimed at similar customers. For example, Mercedes, BMW and Jaguar are in the same strategic group.
Seeing what value factors cause buyers to trade up or down to another strategic group is a way to identify compromises that consumers are being forced to make. Toyota knew customers many traded down from the above group because of cost. Enter their Lexus brand, a ‘same for less’ value offering that met the jobs and outcomes of consumers as well as marques like Mercedes, including very importantly close parity on prestige of brand, but for much less.
In another example, the job of undergoing a home fitness regime versus health clubs was looked at. These two alternatives were part of differing strategic groups – but what made women trade up or down to them?
Value pains for health clubs were men, complex machines, self consciousness, traffic in city centres, high costs and time. The only value factor many women saw in health clubs was that is got them out of the house, as staying in they were likely not to bother. That was the main value pain of home exercise – it was too easy to give up or do other things!
A distinct segment cared little for the highly priced extras and luxuries at many health clubs. Curves was born – a 30 min exercise club with 10 machines for women only. The machines are in a circle facing each other; everyone starts at the same time and rotates. From the business point of view, town center locations, lavish large facilities, and expensive complex machines were all cut out – they cost a lot but provided very little value to the customer they were replaced with small rooms, simple machines and out of tome locations.
Another example that springs to mind is eating out – either ‘all you can eat’ – low cost but low quality with quick “time to meal”– or traditional restaurants – slow “time to meal” but high costs and high quality. The value lies between the two – “quick time to meal”, high quality, but low cost. In others words an all you can eat restaurant with low cost, instantly available food of the same quality as in a real restaurant.
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