1) The lecturer discussed the incumbent's advantages that established companies have over new entrants in a market. This includes existing customer information, brand recognition, and existing assets/infrastructure.
2) It was recommended that companies exploit their incumbent advantages by developing a customer segmentation database to identify profitable and unprofitable customer segments. Teams should then focus on retaining profitable customers and improving profitability of less profitable segments.
3) Creating a customer-centric information system allows companies to track customer profitability and behaviors in order to better serve customer needs, defend against competitors, and continuously improve business performance. Maintaining focus on customers is key to sustaining incumbent advantages long-term.
1. Lecturer:
Ass. Professor Dr. Hj. Mohamad Md Yusuff
Subject: Marketing Management (YSP 503)
Present by:
1) Noorazlin Ani
2) Zetty Rosela
3) Haniza Harun
4) Nadhirah
2. Professor of Innovation and Entrepreneurship at the
Wharton School, Executive Director of the Sol C.
Snider Entrepreneurial Research Center. Formerly,
Director of the Entrepreneurship center at NYU and
taught at Columbia and Northwestern Universities
and the University of South Africa.
Prior to joining the academic world, Professor
MacMillan was a chemical engineer, and gained
experience in gold and uranium mines, chemical and
explosives factories, oil refineries, soap and food
manufacturers and the South African Atomic Energy
Board.
Director of several companies in the travel, import/export and
pharmaceutical industries, and has extensive consulting experience, having
worked with many international companies throughout the U.S., Asia, and
Europe.
Professor MacMillan's articles have appeared in several leading journals.
His latest books, The Entrepreneurial Mindset and MarketBusters were
written with Rita McGrath.
3. Professor Emeritus of Finance and Economics
at Columbia University and the Founder and
Managing Director of Selden & Associates,
which has been advising the senior most
management of companies on share price
focused business performance improvement
for more than 15 years in North and South
America, Europe and Asia.
Co-author the widely acclaimed book Angel Customers and Demon
Customers. A former foreign exchange trader, Selden has been an advisor
to more than two hundred public and private companies across the globe.
Selden has been a lecturer and conference leader in innumerable
Executive Programs sponsored by Columbia University as well as other
institutions and corporations, often receiving the very highest ratings from
attendees.
4. He is a frequent presenter to Investment
Professionals on Investment Management
Techniques and Business Strategy and has
participated as a panelist and presenter for
Fortune’s Global CEO Forums, including a
presentation shown on closed circuit TV to 88,000
viewers worldwide. Business Week rated Selden as
one of the top ten academic advisors to leading
corporations. He has led or participated in
business (board) reviews for more than 150
companies in 30 countries and is a frequent
advisor on CEO presentations to buy-side and sell-
side investors.
A frequent contributor to Fortune and Business 2.0, Professor Selden has
published excerpts of his Angel Customers and Demon Customers in
Fortune, Harvard Business Review and American Banker and also appeared
on Wall $treet Week, the most widely watched business television show.
7. INCUMBENT’S ADVANTAGE
In politic:
An incumbent advantage is an advantage gained
by someone already in a position, as compared to
newcomers.
In market:
The advantages companies already established in
a market have a new entrants.
10. Incumbent firms often face severe difficulties in
adapting to radical technological change. For
example, the Swiss watch making industry was
almost entirely destroyed by one of its own
inventions — the quartz. New entrants, such as
Seiko and Timex, were extraordinarily
successful in commercializing this new energy
source for clockworks (Glasmeier, 1991).
11. Radical innovations often initiate a
Schumpeterian process of ‘creative
destruction’, frequently leading to the
replacement of incumbents by new entrants.
Complementary assets, strategic alliances, and the
incumbent’s advantage: an empirical study of industry
and firm effects in the biopharmaceutical industry
Frank T. Rothaermel∗
12. Incumbent firms often face severe difficulties
in adapting to radical technological change
(Foster, 1986).
INCUMBENT’S ADVANTAGE THROUGH
EXPLOITING COMPLEMENTARY ASSETS VIA
INTERFIRM COOPERATION
FRANK T. ROTHAERMEL*
13. The advent of the personal computer (PC),
for example, destroyed the demand for a wide
array of products ranging from typewriters to
fully dedicated word-processing systems, while at
the same time it created huge opportunities for
new PC manufacturers, their suppliers, and the
producers of complementary products like
software and printers
15. PROFITING FROM INITIAL CUSTOMER
RESEARCH
Needs to invest in research that exploits
its unique access to its customer
information.
With customers teases out two main
customer segments:
Strength seekers,
Workability seekers,
who use ready mix
concrete for support who pour cement for
columns and other load- interior spaces such as
walls and staircases.
bearing applications.
24. Building Your Incumbent’s Advantage
1) Fragmented structure of most market leading companies
give ways to invaders.
2) Invaders tend to target vulnerable customer segments;
most likely the segment that cut across product groups.
3) The invasion is hard to spot when too much concentration
given on the strong accounts and neglecting the
vulnerable one. When the sales for strong account keeps
growing, the vulnerable ones are easy to disregard.
25. Fighting the Invaders
1. Exploits incumbent’s 2. Organize corporate
existing internal structure around
information to customer segments needs
understand the by assigning teams to
economics of the most quickly mend losses and
and least profitable sustain the most
customers. profitable customers.
i. Help give powerful insights into the incumbents’
advantage.
ii. Lay the foundation for customer-centric information base.
iii. Enable tracking of performance of customer segment.
26. Techniques
1. Begin with small pilot database and steadily add
in more customer data from other sources.
2. Begin with simple proof of concept . Discussion
among key players across the organization to
identify the neglected customer segment, hence
create product/service specially tailored to meet
their needs .
28. Creating your Information Advantage
1) DO NOT build a customer-segment database from scratch.
Do a low-cost analyses of existing databases, which able
to extract profits quickly.
2) For a start, DO NOT obsess over accuracy of the database.
Identify major customer segments – build segments using
the characteristic and behavior that can be extracted from
existing record. Constructing a relatively simple customer
characteristic database will allow incumbent to rank customers
according to their profitability, subsequently identify its Most and
Least Profitable Customers.
29. Creating your Information Advantage
3 ) Focus on specific segments, i.e. the top and bottom two
deciles, following these steps:
i. Use regression analysis to uncover statistically significant
relationships among customers’ profitability; behavior vs
demographic characteristics .
ii. Perform a cluster analysis to group similar individuals into
candidate customer segments.
iii. Identify actions that can reduce losses from profit-eating
customers and can prevent defections by the most
profitable customers.
30. Creating your Information Advantage
iv. Rank the above actions according to their most effective
potential to improve incumbent’s profits.
v. Do a more detailed research on what additional resources
candidate segments consume other than the one found in
the initial profit-contribution calculation.
vi. Identify preliminary needs-based customer segments.
Assign each candidate segment to a team who will be in
charge of finding ways to increase the segment’s profit
contribution.
31. Creating your Information Advantage
vii. Start expand the customer-centric information system
to include the middle deciles of customers.
32. Using Organizing to exploit your advantage.
• Build corresponding business unit for the identified
needs based segments.
• Provide the team with budget and human resource
for them to conduct experiments with customers in
their segments.
• The team to focus on growing the segments’
profitability.
• Current product managers to support this new
segment team.
33. Purpose of having the Information Base
“To yield comprehensive customer
profitability analysis by assembling the
required inputs for revenue, costs and
capital at the customer segment level”.
It is an incumbent’s advantage because invaders does not
have access to this type of information.
34. Source of Revenue
SHIFT TO
Accustomed
Customer
Product or
Segments
Geography
It is CRITICAL TO SHIFT from thinking in terms of cost
allocation TO viewing costs strategically as customer
investments.
35. CONCLUSION
■ Market-leading companies get attacked when
they focus on products and geographic locations
rather than on what competitors and disrupters
actually target – unmet customer needs.
■ To fend off invaders, an incumbent should
strategically analyze and reorganize its customer
information base and align its corporate
structures accordingly.
■ Unrelenting attention to exploiting your
incumbent’s advantage is the key to growing
profits organically.