Compete Smarter, Not Harder: The Carrot and the Stick

In a recent post, we introduced you to Compete Smarter, Not Harder: A Process for Developing the Right Priorities Through Strategic Thinking, a new book by MBA@UNC Marketing Professor Dr. William Putsis of UNC Kenan-Flagler. In the book, Putsis describes the challenges of today's rapidly changing marketplace and explains how strategic control points and vertical incentive alignment can help companies achieve a competitive edge.

Strategic Control Points = "The Stick"

In the 1980s, when Minnetonka Corporation decided to sell liquid hand soap in a pump bottle branded as Softsoap®, the company knew that giants like Unilever, Procter & Gamble (P&G) and Johnson & Johnson might launch similar products. To give the company a 6-8 month lead over potential competitors, Minnetonka made the bold move of buying up the world's supply of plastic pumps. If a major manufacturer wanted to sell liquid soap, they'd need to build their own factories to make the pumps or wait until the supply had been replenished. By creating this strategic control point, Softsoap® gained a competitive advantage in the retail market and built a successful brand.

Google's Project Glass offers another example of strategic control points. In order to be successful, Google Glass (a wearable computer that displays information hands-free) needs to work seamlessly as you move from one wireless source to the next. Meanwhile, Google's Project Fiber in Kansas City delivers ubiquitous ultra high-speed broadband Internet throughout Kansas City, with plans to expand to several other cities. Once they've launched throughout the United States, Google will essentially own the key strategic control point for next-generation computing devices. As Putsis writes, "The company that owns the Internet owns the customers."

Vertical Incentive Alignment = "The Carrot"

Vertical incentive alignment means designing relationships so that the incentives for all players align with your best interests. For instance, by the 1990s, consolidation had made Walmart a major player in the retail market, so manufacturing companies like P&G rushed to establish better sales relationships with Walmart. Instead of simply being friendly to Walmart as other manufacturing companies, P&G's message was, "We're not interested in just being your friend — we want to help you run your business more efficiently."

The company proposed jointly investing in an inventory-control management system that would track every P&G product sold by Walmart in the United States. From Walmart's perspective, there was little downside in having one of its major suppliers streamline inventory supply. For P&G, the move helped solidify a key relationship and gave the company access to timely product information so that the company could plan its future product mix. P&G understood the importance of margins and inventory to a retailer like Walmart and aligned incentives accordingly, creating a win-win for Walmart and its own business. To compete in today's fast-paced environment, companies need to think ahead and incentivize rather than govern. "We often focus — incorrectly — on first and early moves into a new product space, such as in failures like the Apple Newton or in successes like the iPod," Putsis writes. "What we all too often fail to see is the Value Chain, strategic control and infrastructure necessary for success." William Putsis focuses on the empirical application of game theoretic models of competition, competitive strategy, the marketing of private-label products, new product diffusion and product line strategy, international marketing, advertising and communications research, and sports marketing. His numerous scholarly articles have been published in top journals, and he serves on the editorial board of Marketing Science, Journal of Marketing, International Journal of Research in Marketing, Review of Marketing Science and International Journal of Marketing Education. He served as a regular contributor and contributing editor to the Eastern European business journal, Business Tech International. He has taught in executive non-degree programs for The Boeing Company, Barclays Bank, Royal Bank of Scotland, ABN AMRO, Amcor, British Airways, Baker Hughes International, the U.S. Navy, Matsushita, KONE and ExxonMobil. Previous post: Compete Smarter, Not Harder: Fundamental Strategies