Good strategy inherently involves trade-offs: choosing one path and not the other. Competitors trying to be all things to all people are the easiest to beat. The mark of a great company is that their trade-offs result in extreme focus, enabling them to carve out a distinct position in consumers’ awareness. Mention a great company’s name and one thing will immediately come to mind: their distinct position (e.g., Walmart = low prices). Say a mediocre company’s name and you’re left searching for their position, usually winding up with nothing more than their general market category. To compete at an optimal level demands the discipline to make trade-offs. Oftentimes, these trade-offs involve things that your competitors cannot or will not do. As former world chess champion Garry Kasparov said, “What separates a winner from a loser at the grandmaster level is the willingness to do the unthinkable. A brilliant strategy is, certainly, a matter of intelligence, but intelligence without audaciousness is not enough. I must have the guts to explode the game, to upend my opponent’s thinking and, in so doing, unnerve him.”22
A tool that can be used to help gauge your trade-offs relative to the competition is the Trade-Off Zone. The Trade-Off Zone is a visual representation of the trade-offs, or lack thereof, being made in a market. The tool identifies five common trade-off factors, and additional factors can be added if they figure prominently in the customer’s value equation. The five primary benefit factors are quality, convenience, cost, service, and selection. Competitors are plotted in the low, medium, or high zone for each factor based on their performance delivering that particular benefit. Figure 2.3 provides an example of the Trade-Off Zone.
To construct a Trade-Off Zone for your business, first select the specific type of customer that the offering is targeting. In some cases, the root of poor strategy is trying to be all things to all customers. If some potential customers are not happy with how you’re choosing to bring
Figure 2.3 Trade-Off Zone
value to the market, it’s a sign that trade-offs have been made. The point is that effective strategy is going to upset some potential customers, be they internal or external customers. Learn to live with it. Just as a real leader isn’t going to please all followers, a real strategy isn’t going to please all customers.
The manager then rates their offering for each of the trade-off factors as low, medium, or high, as seen by the targeted customer. Competitive offerings are then plotted, creating trade-off profiles, to determine where differentiation exists within the Trade-Off Zone. If your trade-off profile mirrors the competition, work needs to be done to determine the trade-off factors targeted customers value, and how to create positive differentiation around them.
Figure 2.4 provides an example of the Trade-Off Zone for three fictitious technology companies, representing the three different value disciplines: TechnoStar (product leadership), CustoSolution (customer intimacy), and CostAlert (operational excellence).
Using the Trade-Off Zone, it becomes apparent which benefit factors each company is using to steer customers to their offering. Customers
Figure 2.4 Trade-Off Zone for Three Companies
with a greater demand for quality would be more likely to choose TechnoStar, while those customers more interested in cost savings would prefer CostAlert. Those wanting higher service and selection would prefer CustoSolution. Based on the value discipline your company invests a disproportionate amount of resources into, the resulting trade-off profile should show points of difference among the benefit factors. If you are bringing differentiated value to customers, this will be reflected in differences in the Trade-Off Zone. If your offering is at parity, you’ll see competitive convergence or a mirroring of trade-off profiles with your competition.
The following questions can start your thinking about the Trade-Off Zone:
- • Which specific customer types are you choosing to serve?
- • Which potential customer types are you choosing not to serve?
- • Which benefit factors does your targeted customer most value?
- • Which of the trade-off factors are you able to provide the most differentiated value to your targeted customers?
- • Which benefit factors are you not going to focus on?
As you construct the Trade-Off Zone for your business, keep in mind your desired target customer. The way you configure your trade-offs will not appeal to everyone. Therefore, you must have a clear picture of the factors of value that are most relevant to your target customer. In fact, if you’ve developed a sound strategy built on legitimate tradeoffs, there will be certain types of potential customers who won’t like your configuration of trade-offs at all. This is a difficult concept for some leaders to wrap their head around. “Are you saying some potential customers won’t like us at all?” Yes.