Playing to win: How strategy really works

by A.G. Lafley

These consumers were happy to use more sheets of a lower-priced paper towel, when needed, rather than spend more money for a premium brand that enabled the use of fewer sheets each time. It was a trade-off that made good sense to them.

Bounty had captured most of the first consumer segment, but had made few inroads with the other two groups. Pierce wanted to play in all three segments to achieve more scale and enhance profitability.

Traditional Bounty would remain unchanged and serve the first segment, which already loved the brand. A new product called Bounty Extra Soft would target the consumers who craved a soft, cloth-like feel. And then there was the final segment—the strength-and-price segment. These consumers presented something of a challenge.

Most of the lower-priced paper towels on the market were of poor quality, and the Bounty team didn’t want to devalue the core brand by associating it with a subpar product.

To have the Bounty name—even at a value price point—a product would have to live up to the equity of the Bounty brand.

The new offering for the strength-and-price segment was designed not as a stripped-down version of Bounty, but as a new product with specific consumer needs in mind. Bounty Basic was considerably stronger than any other value brand and priced at about 75 percent of the cost of regular Bounty. Shelved away from traditional Bounty, with the other lower-priced brands, it spoke directly to the third segment of consumers.

The modern-day Bounty is now three products that were designed against very clear consumer understanding and consumer segmentation. They’re all very different from each other on a product performance standpoint, and each is designed to meet the needs of its users.”

Pierce and his team made where-to-play choices on geography (North America), consumers (three segments in the top half of the market), products (paper towels, branded basic and premium), channels (grocery stores, mass discounters, drugstores, and membership club stores like Costco), and stages of production (R&D and production of the paper towel itself, but not growing, harvesting, or pulping the trees).

Where-to-play choices occur across a number of domains, notably these:

Geography. In what countries or regions will you seek to compete?

Product type. What kinds of products and services...

Consumer segment. What groups of consumers will you target? In which price tier? Meet...

Distribution channel. How will you reach your customers? What ch...

Vertical stage of production. In what stages of production will you engage? Where along the value ch...

But even the largest companies must make explicit choices to compete in some places, with some products, for some customers (and not in others).

Inevitably, the significance of each dimension of the where-to-play choice will vary by context. Each dimension must be considered thoughtfully and will hold different weight in different situations. A start-up might focus first on the products or services to be offered. A stagnating giant might focus on customers—looking for a deeper understanding of needs and new ways to approach segmentation—to narrow and refine an overly broad where-to-play choice.

At P&G, where to play choices start with the consumer: Who is she? What does the consumer want and need? To win with mom, P&G invests heavily in truly understanding her—through observation, through home visits, through a significant investment in uncovering unmet and unexpressed needs.

One final consideration for where to play is the competitive set.

company should make its where-to-play choices with the competition firmly in mind.

Choosing a playing field identical to a strong competitor’s can be a less attractive proposition than tacking away to compete in a different way, for differe...

But strategy isn’t simply a matter of finding a distinctive path. A company may choose to play in a crowded field or in one with a dominant competitor if the ...

For Liquid Tide, it wasn’t a matter of avoiding a playing field that held a fierce competitor. It was about expanding the playing field to make room for the two competitors and creating time to gain momentum.

Three Dangerous Temptations

Failing to Choose

Focus is a crucial winning attribute. Attempting to be all things to all customers tends to result in underserving everyone.

If your customer segment is “everyone” or your geographic choice is “everywhere,” you haven’t truly come to grips with the need to choose.

Rather than attempting to acquire your way into a more attractive position, you can set a better goal for your company. The real goal should be to create an internal discipline of strategic thinking that enables a more thoughtful approach to the current game, regardless of industry, and connects to possible different futures and opportunities.

a company always has a choice of where to play. To return to a favorite example, Apple wasn’t bound entirely by its first where-to-play choice—

“I took my leadership team off-site for two days,” he says. “The focus was to come up with a set of choices that would make a difference on the business.

The knowledge transfer between the different categories is significant, meaning that what you learn in cosmetics and fragrances—through both product R&D and consumer research—has a lot of spillover into hair care and skin care, and vice versa.

The heart of strategy is the answer to two fundamental questions: where will you play, and how will you win there?

Winning means providing a better consumer and customer value equation than your competitors do, and providing it on a sustainable basis.

As Mike Porter first articulated more than three decades ago, there are just two generic ways of doing so: cost leadership and differentiation (for more on the microeconomic foundations of these two strategies, see appendix B).

While all companies make efforts to control costs, there is only one low-cost player in any industry—the competitor with the very lowest costs.

Having lower costs than some but not all competitors can enable a firm to stick around and compete for a while. But it won’t win. Only the true low-cost player can win with a low-cost strategy.

Differentiation S...

The alternative to low cost is dif...

Differentiation between products is driven by the activities of the firm: product design, product performance, quality, branding, advertising, distribution, and so on.

The more a product is differentiated along a dimension consumers care about, the higher price premium it can demand. So, Starbucks can charge $3.50 for a cappuccino, Hermès can charge $10,000 for a Birkin bag, and they can do so largely irrespective of input costs.

the automaker is able to earn a price premium of several thousand dollars per vehicle over its competitors in the US car market, while producing vehicles at similar cost.

The best-selling Camry and Corolla models have a reputation for superior quality, reliability, and durability, driving the significant price premium.

life inside a cost leader looks very different from life inside a differentiator. In a cost leader, managers are forever looking to better understand the drivers of costs and are modifying their operations accordingly. In a differentiator, managers are forever attempting to deepen their holistic understanding of customers to learn how to serve them more distinctively. In a cost leader, cost reduction is relentlessly pursued, while in a differentiator, the brand is relentlessly built.

At a cost leader, nonconforming customers—that is, customers who want something special and different from what the firm currently produces—are sacrificed to ensure standardization of the product or service, all in the pursuit of cost-effectiveness.

At a differentiator, customers are jealously guarded. If customers indicate a desire for somethi...

design a new offering that the custome...

It is as simple as the difference between Southwest Airlines and Apple.

Competitive advantage provides the only protection a company can have.

Across its categories and markets, P&G pursues branded differentiation strategies that allow it to command price premiums.

There simply is no one perfect strategy that will last for all time. There are multiple ways to win in any almost any industry. That’s why building up strategic thinking capability within your organization is so vital.

How-to-win choices determine what you will do on that playing field.