In 2008, when asked if Apple plans to offer an entry-level notebook, Steve Jobs replied:
“There are some customers which we chose not to serve. We don’t know how to make a $500 computer that’s not a piece of junk, and our DNA will not let us ship that… We’ve seen great success by focusing on certain segments of the market and not trying to be everything to everybody.
Achieving success in business is all about uncovering opportunities and making the right choices.
A brand is a promise made to a specific consumer segment. Once the promise is made, internal and external consistencies have to be put in place to constantly deliver on it.
Delivering on your brand promise requires compromises. Regardless of your brand positioning, and how carefully it was selected, strategic trade offs are always required.
What Are Strategic Trade-offs?
The quote above from Steve Jobs perfectly summarizes the concept of strategic trade-offs.
Strategic trade-offs are the “sacrifices” a brand has to make in order to deliver on its positioning.
Trade-offs include consumer segments you will not be able to service, service levels you are not be able to achieve, and products that are not a good fit to your portfolio.
Competition would not exist without strategic trade-offs. A company’s inability to cover a need is an opportunity for a new player to establish itself in the category.
Some Practical Examples
Let’s take a look at some examples that will better illustrate this concept.
Dell disrupted the computer industry in the 1990 with their “sell direct to consumers” business model. This strategy offers Dell many advantages including the ability to customize each product, and offer it at a lower price to the end consumer.
Dell became the worldwide leader in PC sales in 2001.
Although successful, the sell-direct strategy also meant important trade-offs for the brand, including:
- Irrelevance to consumers who prefer the retail experience of touching, and trying their products before the purchase
- Inability to service a consumer segment that doesn’t feel comfortable shopping online for computers
- Limited brand exposure versus competitors with strong retail presence
- Inability to attract a customer base that prefer to service their computers at a physical location
Walmart is known to adopt a cost differentiation strategy. In order to constantly deliver on its strategy, the retail chain focuses on offering a narrow assortment in each category, while the service levels are kept to a minimum.
Although immensely successful, the Walmart brand is only appealing to a specific consumer demographic. Some of the strategic trade-offs the brand embraces include:
- Inability to service consumers who prefer a wider product assortment and a more premium shopping experience
- Inability to service consumers who prefer to shop at the smaller, local retail store
- Impossibility to replicate the service levels provided by smaller, independent retail stores who are able to better motivate their staff
- Inability to expand the brand into the more profitable premium segment, due to Walmart’s “low cost” brand image
Automakers That Utilize Platform Sharing
Car companies such as Toyota, Honda and Nissan share the same manufacturing platform across multiple models. Platform sharing provide many benefits, including cost savings, and the ability to build vehicles for different market segments (Toyota and Lexus, Honda and Acura, Nissan and Infiniti).
Although great from an efficiency perspective, this strategy comes with compromises:
- Inability to appeal to customers who prefer premium cars manufacturers only, such as Mercedes-Benz and BMW
- Usually all vehicles sharing the same platform are affected in case of a recall
- Inability to offer a truly unique model design
- Higher risk of brand dilution and cannibalization
Strategic trade-offs are a necessity of doing business. Instead of trying broaden their appeal, brands should remain true their roots, and constantly deliver on their promise.