Price Wars:The Sandwich Strategy

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With the emergence of social media today, customers are more informed and demanding than ever before. Customers are spoilt for choice, with a variety of products and services available in the market. However with increased competition, products and services continue to become increasingly similar and less differentiated - making it more difficult to develop and extract value from a brand. Companies too often compete exclusively on price, and this could lead to a race to the bottom. Often when quality is difficult to judge, price may be interpreted as an indicator of quality. Furthemore with Mobile apps such as TheFind, consumers are able to compare prices of a product just by scanning the barcode using their smartphone. As a result, companies must find ways to launch new products or services that create meaningful differentiation in the minds of their consumers while capturing and sustaining the value they have created for their different target segments. This requires companies to employ new innovative models if they are to create the necessary conditions for their success. In my blog post titled, "Innovation at it's Best" I talked about how companies need to consistently innovate to turn consumers expectations upside down and take an industry into the next generation. Failure to innovate is a recipe for disaster.  

Traditionally companies responded to competitive pressures using the different elements of the marketing mix. Among the Four P's of marketing, product, price, place and promotion, price is the most important factor as price is the only element that captures value and brings resources back to the firm as compared to product, place and promotion. As a result, it is important for companies when launching new products and services to use price as a strategic weapon in order to capture the value it creates for its customers, while also enhancing the firm's profitability. 

If a new competitor enters the industry, and a company responds to the competition simply by dropping the price, two undesirable consequences can occur: you give legitimacy to your competition, signally that the two offerings are more or less identical, and you send an unpleasant message to your existing customers that you have been overcharging them for years. How should companies respond then? How do they compete for price without damaging their brand equity? Fear not, the "Sandwich Strategy" can help companies introduce a value-price offering as well as a premium one. Even though this a relatively new concept, employing this strategy can help a company reap the rewards. This method helps segment the market to draw new customers and squeeze competitors within the "sandwich". It is a 3 step process that involves 1) Redefining the current market, 2) Resegmenting the current market, and 3) Adopting a Sandwich Strategy for market resegmentation. Let's take a look at the case of FedEx vs USPS.

Though most people would consider Federal Express (now known as FedEx) a high quality leader in the premium overnight delivery service, this company launched overnight service to compete with United States Postal Service, USPS. To compete with FedEx's market dominance, USPS created a product called Express Mail priced at $8.95 as compared to FedEx's $12. Instead of reacting on price alone, FedEx reacted by redefining its market. 

FedEx used to call its product "Overnight Delivery", but "Overnight" does not specify what time the delivery will arrive. Hence FedEx introduced precision not only in terms of the delivery day, but also in terms of the delivery time. Using this new definition of their business offering, they resegmented the market. The resegmentation included two delivery methods, one in the morning and one in the afternoon. In branding terms, rather than calling the new product "morning" or "afternoon" delivery, they labeled the service as "Priority" and "Standard". This sent powerful messages to customers about how a client perceives the value of a business. Customers such as investment bankers Goldman Sachs and JP Morgan Chase, were happy to pay for this service distinction, seeing it as an additional tool to help them better manage relationships with their own clients by providing them with a more convenient timely service. 

Most importantly with regards to the Sandwich Strategy, FedEx increased the price of its Priority service to $13, slightly more than the amount they were charging previously for overnight delivery. At the same time, it kept the lower end Standard service at $9, which is almost identical to the price of the USPS Express Mail product, hence Sandwiching USPS in between its premium and value price offering. Under this method, customers might buy the brand leader's current offering at the new price, or switch to the new offering at a higher price. In short the company with the stronger brand will win. This approach not only helped FedEx gain market share, but also increased its profitability. Its current clients migrated upward from the company's existing offering to its new Priority offering, paying an additional premium. At the same time, FedEx also acquired an entirely new customer segment at the lower end of the market, a segment that would have otherwise belonged to USPS. One of the factors that also contributed to FedEx success was its technology investment. FedEx had invested in technology that featured parcel tracking, which was not available to USPS at that time. Tracking proved to be an additional benefit for customers. Some of the feedback gathered from clients of Goldman Sachs and JP Morgan Chase was that when they received the package, the first thing they do is to check if the package was sent by priority or standard. This information tells them whether the company treats them as an important client or an ordinary client.  This indication helped FedEx capture its value for the overnight delivery of the packages. 

3 important factors for the Sandwich Strategy to succeed are cost leadership, market expansion capabilities and speed of execution. 

Cost Leadership

In order for a company to create a successful low-priced alternative, it is essential that the firm enjoys a position of cost leadership. This translates into a company being able to maintain cost efficiencies before they strive for product or market leadership. FedEx knew that they could transform its business and offer greater value to customers without the company incurring extra costs in providing that value. Airlines like Delta and US Airways have tried to create a low-cost alternative such as Metro Jet and Shuttle by United respectively to compete with Southwest Airlines. However both of these new branches were unsuccessful as they had large cost structures. They would be better off resegmenting their current offerings under the existing structure by providing value added services.

Market Expansion

To successfully employ the Sandwich Strategy, a company must have developed and be able to leverage its market expansion capabilities that enable it to create innovations in its offerings. When a company offers variety, it is offering a customized product that closely fits a consumer's needs. Hence the ability to innovate helps a company achieve speed-to-market and customization. P&G in its Head and Shoulder shampoo line offers shampoos and conditioners for all types of hair. As a result, customers walking into a store can find a hair product that is close to their needs. This gives P&G the advantage to charge a greater average price compared to its competitors which have a less customize product.

Speed of Execution

A company must demonstrate superior speed-of-execution capabilities. Companies should have a portfolio of products that will allow them to launch products in small batches to gauge market reactions from competitors. With this they will be able to quickly react to developments by using other offerings waiting in line. Even though speed is essential, research shows that a company does not need to react immediately to its competitor.  When a new competitor attacks with a low-priced alternative, firms must ask themselves whether a market at the lower end exist. Toyota's entry into the luxury car market with its Lexus offerings was to compete with Mercedes-Benz and BMW where neither brands were players in the lower-end luxury car market as they did not know if such an offering exist. Lexus was doing a favor for its competitors by conducting  market research, however Mercedes Benz and BMW decided to wait for the results of that research before entering the new market. Presently Mercedes Benz and BMW are successfully in the lower-end luxury market, however it is still too early to say if they waited too long to enter this market. What's concrete is that the costs of entering the market later may have proven to be much higher for them than the cost of entering the market earlier.

The value capture strategy presented in this article, called the Sandwich Strategy, offers a powerful way to beat the competition while expanding the company's market share. However the approach demands that firms cultivate the necessary conditions for success, including deepening their understanding of customer's needs and adopting a more sophisticated perspective on market segmentation and positioning. I will leave you with one of my favorite advertisements by FedEx. Happy Thanksgiving everybody =)

Ideas from: 

1) Kellogg on Marketing by Alice Tybout & Bobby Calder

We Are Living In The Social Era

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In the last century, we have seen the change from agriculture to manufacturing, manufacturing to technology and presently in my opinion technology to social. We are at the start of the social era where digital Darwinism has caused the evolution of consumer behavior when society and technology evolve faster than their ability to adapt. The millennial generation represents one-quarter of the American population. 70% of millennials feel that once they find a company or product they like, they write about their positive experience online with companies and products online. On the flipside, 39% will share negative encounters. Because of this, customers are in the driver's seat and new approaches, tools and skills are required for companies to stay competitive. Due to this change, nothing today is too big to fail or too small to succeed. This has become a major game changer in all aspects of business. Some will fail, some will thrive, however all businesses will have to evolve to this new environment or risk termination. Organizations such as Tower Records, Borders Books and Music, Ann Arbor News and Blockbuster Video to name a few, that once appeared invincible to any market conditions have all fallen to the social era and are now terminally ill or deceased. The days where great companies, products and services organically connected with their markets are numbered. Social media changes the way companies operate internally and externally. In this highly competitive attention economy, where attention is a precious commodity, businesses must purposefully connect with connected consumers and deliver exceptional experiences. How do businesses then survive in this new era?

Before the invention of the internet, people relied on mainstream media such as newspapers, television and radio for news and entertainment. When I was growing up, I remember that the television will be turned on in the the morning and it will stay on until everyone in the family went to bed. The television used to be a device in the living room where my family could spend quality time gathering around to watch movies, cricket matches and the news. Everyone seated in the living room was focused on one medium, the television. Fast forward to my home today, if everyone is at home and we are enjoying "quality" time together in the living room, it is highly likely that each person is tuning in to his or her own medium or even several media sources. My brother is likely to be catching up on the latest episode of his favorite show that has been downloaded onto his iPad while simultaneously writing on his friend’s Facebook wall. My mom will probably be checking her email. My wife will probably be shopping for new clothes online and I will probably be surfing the web, posting a few tweets, checking my LinkedIn account, updating my weekly blog and asking myself why have we purchased a 46 inch flat screen television for all of us to enjoy together. Indeed media choice is providing consumers with access to the information that they want, when they want, 24 hours a day, 7 days a week.

It is obvious that social media has changed the way we interact with one another and get about our daily lives. An unhappy customer can now write a nasty review online talking about their bad experience with a company. Other customers that feel the same way will probably do the same thing. Now you will have a community of unhappy customers sharing their negative experience online and this may potentially ruin the reputation of your company and chase away potential customers reading these reviews. The exact opposite can also happen where positive reviews can attract new customers to the business. This new formula of one plus one equals to many has the potential to enhance or destroy a company’s reputation. A company can no longer get away with consistently offering shoddy products and services or ignoring customers concerns and needs. Organizations need to capitalize on this new trend and understand how they need to change the way they operate. They need to incorporate social media into their organization to help them stay connected to their customers and it takes a leader and culture of engagement to navigate this market in transition. A great example of an organization that does this, is Dell.

Back in 2005, a reputable media thought leader Jeff Jarvis, published a blog post that expressed his hatred for a company that he felt had failed him. His post titled “Dell hell: Seller beware” reached his big group of followers and now the reputation of Dell was left hanging. He concluded the post by saying, “You know what: If Dell were really smart, they’d hire me to come to teach them about blogs, about how customers now have a voice; about how their customers are a community- a community often in revolt; about how they could find out what their customers really think; about how they could fix their customers’ problems before they become revolts; about how they could become a better company with the help of their customers. If they’d only listen.” What did Dell do? They listened. But they did more than that; they adapted. Dell established a “Social Media University” and is currently training more than a thousand employees to be the  face and voice of Dell in Social Environments. In doing so, Dell led the way for other businesses to follow, learn and adapt. Dell’s new adaptive business plan wasn’t simply about social media; it was about improving customer experience through better products or services. As Dell’s CMO, Erin Nelson says, “To be successful in a highly competitive marketplace, companies need to truly and transparently understand the full range of customer’s experiences”. A few years later, Jeff Jarvis was blogging about Dell again. This time he was singing praises. Companies need to understand  that we now live in a recommendation based economy where consumers can bypass traditional resources, looking to their peers to support them in making decisions about everything under the sun.

So what makes social so addictive? Harvard Professor of Psychology Daniel Gilbert says in his book, Stumbling on Happiness, that the true essence that is responsible for a human being’s happiness is social activity. It’s no wonder Facebook, Twitter, Youtube and the iPhone that was created in the last 5 years have become so successful in a short period of time. Facebook, Twitter, Youtube and Apple have made a huge impact in our lives. To provide you with some facts, Facebook added 200 million users within a year, Twitter users averages 27.3 millions tweets a day, 48 hours of video is uploaded every minute on Youtube and iPhone application downloads hit 1 billion in 9 months. Customers are connecting with each other online and organizations need to join their conversation or be left out. In order to succeed in today’s climate, organizations must first compete for attention through the hearts, minds, and words of the social consumer.

In today's' social era, organizations need to find better ways to listen and connect with their customers. As the old saying goes, “People do business with people they like”. Social media provides an answer to this. Most organizations are afraid of change and they are not comfortable with the idea of going social. In fact, by understanding how businesses should be managed, they can better understand the benefits of going social. It is that simple; let us go back to basics.  Brian Solis states in his book, The End of Business as Usual, businesses exist because of customers. Customers have specific needs and wants and look to businesses to fulfill them. Those needs are either satisfied or they’re not and products and services represent varying levels of value to customers in addressing those needs before, during and after the sale. What he is basically trying to say is that organizations need to become more customer-centric in order to provide better products and services as it is difficult to see the customer or empathize with them if organizations are too focused on a spreadsheet.  Take BP for example, here’s a company that didn’t get it.

On 20 April 2010, the explosion of Deepwater Horizon killed 11 men working on the platform and injured 17 others. Most importantly, 200 gallons of oil was released into the ocean making this oil spill the biggest in US history. During this period, the cries of anger echoing throughout the social media environment intensified. As the saying goes, news no longer breaks, it tweets. Angry citizens started spewing hate on Facebook, Twitter and blogs. An Environmental Protection Agency administrator Lisa Jackson, even tweeted on the issue saying, “Someone said BP must not be let off the hook. I agree.” Another Tweeter promised, “You can rest assured that I will walk before I would even buy a gallon of your gasoline.” Instead of being open and upfront about the oil spill in the Gulf, the company misread the social environment in which it operates and took a “less is more” approach. They didn’t reach out to ask for help when it became clear that BP didn’t know how to fix the situation – despite the fact that thousands of people would have jumped in with assistance. In fact Dwayne Spradlin, president and CEO of InnoCentive, launched an oil spill challenge to source solutions to help BP solve the problem. Thousands of solutions were submitted by experts online; oil spill recovery experts, chemists, and construction engineers. However BP turned a deaf ear. Thankfully the spill has been stopped. During that period, its stock price fell from $59.88 to $27.02.

There are a few lessons that we can learn from these examples. Firstly, companies need to become more transparent in dealing with the public. Companies also need to have an active team of “listeners” that can respond immediately to comments from the public. This is where social media comes into play. Social Media allows for real time responses and it also allows companies to develop real time strategies based on customers’ feedback. Technologies have changed how companies are operating. Customers have more information on companies, and companies have more information on customers. With this much transparency, a company success will be increasingly dictated by those that can use social media and technology in the smartest way possible to better understand what is happening with customers and competition. I will leave you with a video on the launch of Dell's Social Media Command Center

Ideas from: 

1) The End of Business As Usual: Rewire the Way You Work to Succeed in the Consumer Revolution by Brian Solis

2) Everywhere: Comprehensive Digital Business Strategy for the Social Media Era by Larry Weber

CMOs of the 21st Century

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The explosion of data in the world today of Chief Marketing Officers is remarkable. Even though this tsunami of information is overwhelming, when used smartly with the right tools, it can make an organization's marketing more powerful. So what are the skills needed today by the CMOs of the new millennium? How are CMOs fairing in the sea of 2.5 quintillion bytes of data? Are their organizations prepared to manage the change?

In a recent marketing event I attended last week, Tom Mangan, a North American Leader for Business Analytics & Optimization Strategy from IBM shared that more than 1700 CMO's from 64 countries and 19 industries revealed that majority of the world's brightest marketing executives recognize a shift occurring in the way they engage with their customers. This shift places customers in the driver's seat and new marketing approaches, tools and skills are required for companies to stay competitive.  He went on to add that the two biggest forces that are affecting organizations today are market and technology factors. He further emphasized that the four challenges that could be universal game changers are Data Explosion, Social Media, Proliferation of Channels, and Shifting Consumer Demographics.

CMOs are aware of this changing landscape, but are struggling to respond. More than 50 percent of CMOs think they are underprepared to manage key market forces – from data explosion to social media to greater customer collaboration and influence. This indicates that they will have to make fundamental changes to traditional methods of brand and product marketing.

Managing the Four Challenges

Data explosion: Faced with 2.5 quintillion bytes of data, the increasing volume, variety and velocity of data available from new digital sources like social networks, in addition to traditional sources such as sales data and market research, tops the list of CMO challenges. As most of these data are unstructured, CMOs need to know how to analyze these vast quantities of data to extract relevant insights and use them effectively to improve products, services and the customer experience.

Social platforms: Social media has become an important platform for companies today. Marketers are using these platforms to communicate but they still struggle with capturing valuable customer insight from the unstructured data that customers and potential customers produce.

Channel and device choices: The growing number of new marketing channels and devices, from smart phones to tablets, is quickly becoming a priority for CMOs. Most companies would have gone mobile within the next 5 years. Mobile commerce is expected to reach $31 billion by 2016, representing a compound annual growth rate of 39 percent from 2011 to 2016. Meanwhile, the tablet market is expected to reach nearly 70 million units worldwide by the end of this year, growing to 294 million units by 2015.

Shifting demographics: New global markets and the influx of younger generations with different patterns of information access and consumption are changing the face of the marketplace. In India, as one example, the middle class is expected to soar from roughly 5 percent of the population to more than 40 percent in the next two decades. Marketers who have historically focused on affluent Indian consumers must adapt their strategies to market to this emerging middle class. In the United States, marketing executives must respond to the aging baby boomer generation and growing Hispanic population. 


Taking a look at these 4 factors, CMOs who successfully harness this new source of insight will be in a strong position to increase revenues, reinvent their customer relationships and build brand new value. This is why I personally feel that Marketing Analytics will play a pivotal role in this road to success. In my previous post "The Future of Marketing: Where does Analytics fit in?". I explained how the growing role of Analytics is important for marketing in the future.

Even more so today, CMO's need to quantify the value they bring to the business, be it from investing in advertising, new technologies or any other activity. If they are to be held responsible for the marketing returns they deliver, they must also have significant influence over all "Four Ps": promotion, products, place and price. Sadly, CMO's only have a strong influence over the promotion factor. They play a smaller role in shaping products, place and price. To put it plain and simple, the traditional Marketing MBAs are not trained to have the skills that are needed to respond to this new era of social consumerism and advertising companies are facing a talent gap of employees who know digital and are quantitatively fluent.

Even though the traditional Marketing MBAs who are presently the CMOs of top companies recognize the importance of analyzing the real-time impact of data, the lack of ability to incorporate marketing analytics causes them to still focus on 20th century traditional marketing approaches such as market research and competitive bench marking. These methods won't cut it in today's business environment. Today’s CMOs have to cover more ground than ever before. They have to manage more data from disparate sources, understand and engage with more empowered customers, adopt and adapt to more sophisticated tools and technologies, while being more financially accountable to their organizations. This is where I feel fortunate as a student from the MSc in Integrated Marketing at New York University. Covering all the traditional aspects of marketing, as well as the more contemporary ones such as digital and marketing analytics, I will have the knowledge and ability to create a greater impact in all the Four P's of marketing.

CMOs of the past may be comfortable making decision based on gut feel, but today that will not cut it. The stakes are much higher. They have to make decision based on facts and this is where Analytics will take the front seat in an organization. 

For organizations that still think marketing analytics is still hiding in the background, they need to think again. Companies need to ask themselves these questions: Would they like to be proactive in their decision making? Would they like to adjust their strategy based on the look into the future? Would they want to side step problems and capitalize on opportunities long before their competition? If the answer is YES, then they are on the right track to success. Marketing Analytics will provide the power to know. It will provide the power to know your customers, the power to know your suppliers, and the power to know each and every aspect critical to your business. Most of all the power to know and understand what lies around the next corner. After all to gain a competitive advantage is to be a couple of steps ahead from the competition. I will leave you with a video from the IBM CMO Study 2011.

Ideas from: Insights from the Global Chief Marketing Officer Study - From Stretched to Strengthen

Review on "The End of Business as Usual" - 5 Stars

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Having just begun my Masters in Integrated Marketing at New York University, I decided to purchase this book to complement my existing coursework in the program.  Businesses are constantly evolving, and the ones that are long lived are those that are sensitive to their environment, as they managed to react in a timely fashion and respond to the conditions of society around them. How do companies respond to social media, the mobile web and new media all around us in this digital era? How do C Level Executives incorporate social media into their organization?

This is what Brian Solis does best throughout his book. He breaks down the most complex concepts to the simplest ideas for you to understand. Brian takes you through a journey on how the internet in the digital age has changed the culture of consumerism and the way information is processed and exchanged. As Brian says in one of his chapters, "Brands Are No Longer Created, They're Co-Created".  The entire world is now on Facebook, Twitter, Youtube, Blogs etc. and it's about time companies understand the significant change of behavior and use these findings to their advantage. In this book, Brian helps us to understand the behavior patterns that are emerging from the new generation of consumers and where the social and mobile web is headed. 


This book took me some time to read and digest due to its rich and detailed content. However the real life stories and current business examples (Zappos, Virgin America, Starbucks. etc) makes the time spent on the book even more worth while as they are relevant and forward thinking. Brian does a good job by providing useful charts and info graphs throughout the book, but what I personally feel he does best is by providing a summary at the end of each chapter in bullet points and this reinforces the concepts covered in each chapter. The use of color in the book also helped captivate my attention while reading.


Overall this book has exceeded my expectations and has given me a boost to succeed in my graduate program and career ahead. It covers the areas in sales and marketing to customer service and product development to leadership and culture. It is a must read for those interested in how businesses are changing and the future of customer engagement. I would highly recommend this book not only to marketers but also to entrepreneurs and managers in other industries. Senior to junior executives that want to get a jump start against the competition will also find this useful. I will leave you with a video below that gives you the essence of the book. Enjoy =)

The Future of Marketing: Where does Analytics fit in?

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Open-minded creativity and imagination, good eye for compelling visual design and an engaging flair for showmanship, were some of the skills needed by CMO's and senior marketing executives to drive marketing strategies. Don't get me wrong, they still are. Unfortunately, even though these skills are still important in today's era, they are not enough to produce the desired results. Today more than ever, the right side (Creative) of the brain needs to make room for the left side (Logic). 

Since the beginning of time, marketers have been trying to get into the minds of their consumers. What is it that they really want? What drives them to purchase a product? What keeps them loyal? Intuition and experience are no longer enough to make the grade. In order to succeed, or even survive in our data-based world, all marketers need to become statistically literate and that is where Analytics plays a big part.

The shift in the paradigm of analytics playing a big part in the future of marketing is evident from Big Blue (IBM) spending $14 billion on acquisitions in the past five years. RedPill solutions a privately-held company in Singapore, that provides advanced customers analytics services to businesses in industries such as financial services, telecommunications, technology and hospitality, was one of the companies that was acquired by Big Blue in September 2009. Most recently in September 2011, they bought Canadian risk management analytics software developer Algorithimics, for $387 million. Big Blue Business Analytics and Optimization team has now more than 8000 consultants including 200 mathematicians with more than 500 patents and a network of analytics and solution centers. 

With the rapid infusion of technology in marketing, new skills need to be developed if companies are serious about competing for market leadership. Presently, most part of people's media consumption begins and ends with social networking sites such as Facebook, Twitter and LinkedIn. However, accurately capitalizing on these sites has been a tricky business. Marketing executives are generally unimpressed with the ROI on internet marketing. Then there's also the question of what 'content' even means anymore as the format of the internet itself blurs the realm between the written word and video. The future may lie in the development of savvier analytical and metric tools and a more consistent format for content. However, will it be consumer driven and will the top sites today be dusty digital relics of tomorrow? How will marketing look like 10 years from now?

The answer to these questions lie in the accuracy of metrics and analysis. The internet has been overly used by people for various reasons. Specifically how we use it can be particularly useful information for marketers. What people do while they're visiting a web page, is extremely important for a marketer to know. In order for them to effectively place ads, marketers need to know how much time people spend looking at a particular web page, and the actions they take while they do so. Do they click on videos more often than text? Do they send links to their friends? How many times do they return in a given period of time, and what content is attracting them?  

In order to excel, I feel that marketers need to develop their analytical pattern recognition and systems thinking.

Analytical Pattern Recognition

Marketers are constantly flooded with information; web analytics, behavioral profiles, industry aggregates, social community feedback etc. Organizing the flow of data is a good skill, as is proficiency with tools such as Excel and Google Analytics. However, the real skill is to have the ability to look beyond the numbers to see the underlying patterns and trends - to coax out explanation and ideas from the endless sea of bits. This is data analysis, but as intuitive as it is analytical. Actional, data-driven insights, coupled by lucid visualization, will be invaluable as will the people who can deliver them.  

Systems Thinking

Marketing can no longer be managed in silos. Tactics in one area can impact the effectiveness of others almost immediately. Social media has accelerated cross-channel effects and blended channels and partners with independent communities into a completely new, living ecosystem. The key is to engage it properly by grasping the developing relationships between the different moving parts, their positive and negative interaction and optimize it for it to be a powerful force multiplier.

The original skills of marketing are still significant, but now they must be modified for a digital world that is rapidly changing. I believe that the right side (Creative) of the brain and the left side (Logic) can peacefully coexist.

I will leave you with a video to demonstrate how fast technology is changing and where we are in today's digital era. GO ANALYTICS!!!