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Star – the largest business in a high-growth market. Question mark – a business in a high-growth market but not the largest in it. Cash cow – the largest business in a low-growth market. Dog – a business in a low-growth market that is not the largest in it.
low. The simple principles behind the Boston Box made it possible for BCG to train almost unemployable people like me and then trust us to turn out original and useful analysis in a very short period of time.
How could BCG do this? Because it simplified. It boiled down the libraries of worthy work on business strategy into one dinky little model
Steve Jobs described his whole approach as ‘very simple … the way we’re running the company, the product design, the advertising, it all comes down to this: Let’s make it simple. Really simple.’
The first we call price-simplifying. This requires cutting the price of a product or service in half, or more.
strategy, which is very different but equally effective, is proposition-simplifying. This involves creating a product that is useful, appealing and very easy to use, such as the iPad (or any other Apple device of the last decade), the Vespa scooter, the Google search engine or the Uber taxi app. Proposition-simplified products are also usually aesthetically pleasing.
as well as more practical and/or beautiful. Proposition-simplifying works when the product becomes a joy to use. As with price-simplifying,
The ordinary way of doing business is not the best way. Henry Ford
following the custom of the trade. Our automobile was less complex than any other. We had no outside money in the concern. But aside from these two points we did not differ materially from the other automobile companies.
was a stubborn man. Though his whole industry was in the business of providing ‘pleasure cars’ for the rich, Ford conceived a vision of something completely different. To their horror, he told his salespeople:
The idea of democratizing the automobile inspired Ford. His great insight was that the key was price. If he could make a car cheap enough, it would, he believed, sell in vast quantities. He had some supporting
That works both ways and applies to everything. The less complex an article, the easier it is to make, the cheaper it may be sold, and therefore the greater number may be sold.
world’s biggest factory – not just the biggest car factory – on a massive sixty-acre site at Highland Park, near Detroit.
was surprised by how much demand responded to the lower price. A price reduction to 35–40 percent of the original price boosted sales by more than 700 times. We shall see this pattern repeated throughout this book – the impact of a really chunky
The relationship between price reduction and demand expansion is asymmetrical. If you cut price by half or more, demand rises exponentially – by tens or hundreds or thousands of times. This is one of our most important findings. Radical cost reduction is one of the most powerful economic forces in the universe.
other objectives – a more useful car (higher utility) and one that was easier to drive and maintain (greater ease of use).
frame, and the front and rear axles), and these were easily accessible, no special skill was required to repair or replace broken parts.
One way to create a huge new market – with a different type of customer, only able or willing to pay a much lower price – is to simplify your product so that it is much easier and cheaper to make, and hence sell. In order to price-simplify, you need to reduce the price by at least 50 per cent. This does not need to happen all at once, but you need to continue cutting costs and prices each year – by about 10 per cent a year.
Reach good results with small means. Ingvar Kamprad
prices. In 1976 Kamprad wrote The Testament of a Furniture Dealer, his firm’s Bible.
Simple product design to eliminate unnecessary costs. Limited product variety within each category, so more of each product line can be made and sold; as a result, stock-keeping costs are decimated.
Much greater scale. Great reduction in cost at every stage of production and distribution. In Ford’s case, this was achieved through the assembly line, whereas Kamprad organized the functional equivalent of an assembly line within his stores, with the customer doing most of the ‘assembly’, both in the store and at home. The beauty of Ford and Kamprad’s systems was that they became proprietary – peculiar to their own organization, excluding rivals. Once Ford had built the biggest factory in the world, there
Then there is the art embodied in the products. We define art as anything that is emotionally appealing or attractive that cannot be reduced to hard economic usefulness. IKEA’s products meet this definition by being well designed and stylish.
Customers play ball not just because of extremely low prices but also because IKEA offers them advantages and an experience that other retailers do not. Are there ways in which your firm – or a new venture – could offer customers advantages that would not cost you very much, or would
implemented it outside Sweden. So, if you invent a way of price-simplifying that works, be sure to roll it out internationally before local rivals have a chance to copy it.
A designer knows he has achieved perfection not when there is nothing left to add, but when there is nothing left to take away. Antoine de Saint-Exupéry1
By sourcing beef and other ingredients in large quantities, a virtuous circle was created – lower prices for hamburgers, leading to higher demand, further increasing purchasing muscle and overhead cost coverage, resulting in yet-lower prices but also higher margins.
bins, which allowed plenty of time for the wind to dry out the potatoes and change the sugars to starch.
Consistent menu – no variants allowed – and the same methods to attain the same food quality.10 Sparkling clean toilets, restaurants and car parks. Cleanliness was one of the four principles that Kroc stressed, along with quality, service and value.11 No pay telephones, jukeboxes or vending
and Kamprad all realized that the main purpose of their systems was to deliver a good product at an exceptionally low price. The bigger the scale of the operation,
valuable business with a global footprint. Ray Kroc added a simple, uniform, high-quality franchise system that cloned the McDonald’s formula to a degree that was truly mind-boggling.
Jobs’ biographer, Walter Isaacson, says Jobs ‘liked the notion of simple and clean modernism produced for the masses … he repeatedly emphasized that Apple’s products would be clean and simple’.
advertising, it all comes down to this: Let’s make it simple. Really simple.’
to a certain type of user – broadly creative types and those who revel in good design – made it a huge long-term commercial success.
for the user. He made a device that he himself wanted to use. He was not wholly uncommercial: he simplified so that his machines were easier to produce and therefore cheaper; and he introduced some stunning cost savings relative to the Xerox Star. But he reduced cost and price only when doing so did not compromise his main objective, which was to make a fabulous computer. Ease of use, art and usefulness made his machine a joy to use. Price was important too, but markedly less so. Ever since, no Apple device has been sold primarily on price.
or service, not in its price. In Jobs’ own phrase, the product has to be ‘insanely great’.
With proposition-simplifiers, the position is exactly reversed. Their absolute priority is to make the product or service not just a little better, but a whole order of magnitude better, so that it is recognizably different from anything else on the market. The Macintosh, the iPod, the iPad and the Apple watch all met this criterion: the
Simple to set up and plug in. Escape from the DOS command mentality that was still used in all other machines at the time. Even the path-breaking IBM PC, launched in 1981, used old-fashioned command-line prompts to drive the operating system. The Macintosh operating system, with its desktop and bitmapped graphical displays, was far more intuitive and required less training and expertise than the
Usefulness: The ability to store and access documents on the desktop. Overlapping windows that scrolled perfectly. The ability to compose a document and print it exactly as it appeared on the screen. Art: Playful and intuitive icons. Wide range of beautiful fonts. The hardware design was clean and light – an attractive consumer product in comparison
On what the entrepreneur or executive wants to do. On what his or her firm is able to do. On the opposition. On the market On the technology. On the time and place.
shows that there can be room for both a price-simplifier and one or more proposition-simplifiers to weave their magic within the same broad market. But any company that tries to pursue an approach that is halfway between the two is destined to fail.
spades. As with Henry Ford’s price-simplifying, Steve Jobs didn’t reach the summit in a single bound. Self-belief and doggedness eventually proved just as essential as the right strategy.
lower cost position than any competitor. The best position was a ‘star business’: that is, a market leader in a high-growth market.
Do your firm’s attitudes – its policies and culture – make it more disposed to pursue price-simplifying or proposition-simplifying? Has a competitor already occupied one or both of the target positions? Can you see the key to unlocking either position? Does your firm have people with the necessary skills to execute the target
