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Faculty
Reserach: Dipak Jain, Marketing
Snack
Time
Jain's 'sandwich strategy' offers a potent tool for value
creation in tight markets
By
Matt Golosinski
Kellogg
School Dean
Dipak C. Jain knows how to make a meal of the competition.
His recent
studies of how firms can optimize value creation in highly
competitive markets have produced a model he calls the "sandwich
strategy," a tool that he says can enable companies to expand
their markets through product and pricing innovations.
Too often,
firms find themselves competing exclusively on price, he explains.
This scenario can result in a "race to the bottom" that Jain
says may be avoided by carefully leveraging the sandwich model
to create "expanded market opportunities around a firm's existing
offerings, as well as those of the competition."
Certain
necessary conditions must be met, including cost leadership
and speed-to-market capabilities, but in essence, the strategic
segmentation works like this: Firm A, or the incumbent, reacts
to Firm B, the competitor, by resegmenting the market. Firm
A should create one or more offerings that can be positioned
around the competition. By introducing a value-priced offering
alongside a premium one, for example, the incumbent can effectively
carve out more share for itself by tapping two ends of the
overall market. In this instance, Firm A positions itself
as the "sandwich bread," forcing Firm B in between the incumbent's
offerings --- or, in other words, forcing the competition
into a space where it cannot easily compete with the incumbent,
thus avoiding the ravages of a price war.
"If you
respond to competition simply by dropping your price, two
undesirable consequences occur," says Jain. "First, you give
more legitimacy to your competition, signaling that the two
offerings are more or less identical. Second, you send a message
to your existing customers that you have been overcharging
them for years."
Instead,
Jain advises the incumbent to preserve both the price and
quality of its existing premium line while pricing the new,
more economical product the same or slightly less than it
had positioned its original offering. Importantly, the pricing
of this new offering need not necessarily be less than that
of the nearest competitor's, since the incumbent can exploit
its brand reputation to extract price-based value because
of that brand.
"We are
not reducing the value of a company when we launch a lower-priced
product using the sandwich approach," notes Jain, who adds
that FedEx is one example of a firm that has successfully
employed this kind of segmentation with its overnight delivery
service. "In fact, the new offering should be designed in
such a way as to bring in a new segment that has not previously
been a customer of the company."
What's
more, the ultimate goal is to move these new customers "up
the value chain" to the premium offering, while simultaneously
maintaining existing "premium" customers.
A marketing
expert and mathematician by training, Jain is the Sandy and
Morton Goldman Professor of Entrepreneurial Studies, and also
the chief administrator at Kellogg, responsible for overseeing
all of the school's programming and strategy. Clearly this
role demands an extraordinary amount of energy, not to mention
travel, but Jain also continues to follow his scholarly passions:
teaching and research. He shares his insights extensively,
particularly through his involvement with Kellogg Executive
Education, both in Evanston and around the world, where
he leads custom programming for a variety of clients.
Such efforts
are instrumental in building the Kellogg brand by extending
its thought leadership, says Jain, who has been dean since
July 2001, after serving five years as associate dean for
academic affairs. He joined the school in 1987.
"Many
look to the Kellogg School for leadership across several disciplines,
so I believe it important that all our faculty, including
those serving in senior administrative capacities, remain
committed to scholarly pursuit," says Jain, whose expertise
involves marketing research and product and service innovations.
His other research has included studies of high-tech marketing,
cross-cultural issues in global product diffusion, and forecasting
models.
Much of
Jain's thinking on competitive market structure analysis begins
with consideration of a fundamental challenge facing most
companies today --- namely, how to create meaningful differentiation
in customers' minds.
"One hurdle
increasingly confronting marketers is how to capture and sustain
value," says the dean. A daunting challenge, since customers
are more informed and savvy than ever before while products
and services seem more and more alike.
Such dynamics
require companies to employ new strategic models, such as
the sandwich approach, if they are to create the necessary
conditions for their success.
"Failure
to innovate invites disaster," says Jain. |
