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lined the situation through showing customers’ conscious and
Needs
Studying the needs
Search for
needs Old customers
New customers
Categories of clients
unconscious needs (Scheme 6.1).
traditional customers. Only in this case marketing activities in
the focus of which are the clients are really highly effective.
Activities aiming at satisfying conscious needs of new clients
are usually less systematical. In this case, a marketing specialist relies on both "the customers" and "the goods".
ly when it has already made a product (service, technology) for
other groups of customers and from the firm’s point of view
this product can win other groups of clients.
scious needs of both new and old clients. Consumer surveys
are of no help here as the customers do not know what they re-
ally want.
The American scientists G. Hemmel and K. Pralad out-
New chances
unconscious
customers and
studying the
conscious
Scheme 6.1. Hemmel-Pralad's matrix
"Buyers’conscious and unconscious needs"
Firms work more actively with conscious needs of their
The firm can decide to start attracting new customers on-
Finally, what companies intend to satisfy less is uncon-
111
Thus, it is the company itself which has to generate the
idea of a new product, which:
• is difficult to do as it is about an essentially new concept;
• is risky, as nobody knows what the consumer’s reac-
tion will be like.
Unconscious needs are one of the most important fields
of exploring firms’ activity as in case of success these needs
offer them great opportuni ties. Each forward-looking company
has to think about its customers’ unconscious needs.
6.5. ROGERS'S DISTRIBUTION
AND THE TIME NEEDED TO GET USED
TO AN INNOVATION
An exploring firm’s success is only the beginning of a se-
rious examination: the company has to learn to meet the mass
demand.
It is a real challenge for an exploring firm as:
• it hasn’t enough experience;
• the process of transformation of the innovation into a
mass product can be very fast.
The American economist Everett Rogers has divided the
innovation cycle (time period starting with the introduction of the
innovation into the market and finishing with its transformation of
the product into an average product) into five equal intervals.
These intervals appear to be different for different goods (in terms
of their absolute value). However, some buyers who start using
the product during the first, second, or third period, are usually
guided by the same principle, which is connected with the peculi-
arities of people’s social psychology rather than with the characteristics of certain goods (Figure 6.1).
112
The time of getting used to
percentage
of clients
2,5
13,5
34
16
Figure 6.1. Rogers's distribution
During the first time interval, the innovation attracts only
a few people (2,5 %). The first consumers of the product are
innovators, they are ready to take risks.
1. If new goods become a success, during the following
period the percentage of buyers sharply (five times as many)
increases.
2. It is early adopters (13,5 % of the total number of
buyers) who start buying the innovative product. These people
have an absolutely different psychology, they get used to inno-
vations quickly, but at the same time they are quite careful and
competent. Their choice is never spontaneous, they are not
ready for unreasonable expenses and spend money only for
those goods that are really worth it.
For this reason, early adopters are opinion-leaders in their
environment, people take into account their ideas, and their be-
havior is often imitated.
3. There is another (almost three times as much) increase
in the number of buyers. The goods start being purchased by
the early majority of consumers (34 % of the total number).
4. During the following period, there appears the late ma-
jority (34 % of the buyers, too); these are the "mass" custom-
ers, they do not create opinions, and follow behavioral stereo-
113
types that have already been adopted. During the mass exploi-
tation, all the (hidden) shortcomings of the product manifest
themselves. It is the number and gravity of these shortcomings
which the degree of market success of an exploring firm de-
pends on.
The difference between these two largest customer
groups consists in the motive of purchasing — the early majority tries to follow the leaders, and the late majority does not
want to lag behind the others.
5. At last, the process of the product adaptation finishes
with those lagging behind (16 %); they are the people who
strictly follow the traditions and therefore refuse any innovations. The lagging group starts using an innovation only when
the product is psychologically treated not as an innovation, and
as a usual product.
As a rule, the initial production capacities of an exploring
firm are enough to satisfy the demand of the consumersinnovators and some early adopters — before that, the production still can be of a small scale. What the company faces later
is a critical moment. During this period, the market has to be
supplied with goods without any delay because this product is
being actively tested by early adopters who are trend-setters for
most consumers. If an exploring firm copes with this task, it
will continue its development using, though, another strategy.
Literature
1. Ansoff, I. Strategicheskoe upravlenie v korporatsi-
yah. — M. : Eko-nomika, 1999. — 519 p.
2. Ansoff, I. Novaya korporativnaya strategiya. — SPb :
Piter, 1999. — 214 p.
3. Goremyikin, V. A., Bogomolov, O. A. Ekonomicheskaya strategiya predpriyatiya. — M. : Filin' : Rilant, 2001. —
240 p.
114
4. Gorbashko, E. A. Konkurentosposobnost promyishlen-
noy produktsii. — SPb : SPbUEF, 1991. — 64 p.
5. Efremov, V. S. Strategiya biznesa: kontseptsii i meto-
dyi planirovaniya. — M. : Finpress, 1998. — 192 p.
6. Innovatsionnaya i konkurentnaya strategiya korpo-
ratsiy : nauchno-analiticheskiy obzor. — M. : INION RAN,
2004. — 190 p.
Questions for self-check
1. Is resistance to innovation a natural result of the action
of market forces (according to J. Schumpeter)?
2. In which case the degree of resistance to innovations is
stronger — in the case of moderate innovations or radical ones?
3. For which firms are moderate innovations more attractive — for violent or exploring firms?
4. What are the types of new combinations of resources
according to J. Schumpeter (name no fewer than four of them).
5. What are the developmental stages of an exploring firm?
6. What is the difference between the early and late majority of buyers (Rogers's distribution)?
7. What stage of Rogers's distribution shows the need for
a sharp increase in capacities?
8. Why is the degree of an exploring firm’s motivation
higher and more intensive?
9. Why is the consumption value of a new product
very high?
10. What is to be done if the value of production is high
for the firm’s activity but the degree of competitiveness is low?
115
CHAPTER 7.
FLEXIBILITY AS A SOURCE
OF HIGH-DEGREE COMPETITIVENESS
7.1. THE ROLE OF BOTH SMALL BUSINESSES
AND LOCAL NEEDS IN THE ECONOMY
Most new firms are small unspecialized companies.
An average small company has no perfect equipment or
attractive goods in its production program. It is limited in fi-
nancial resources. So, it is not surprising that the number of
firms stopping their activity is almost identical to the number
of new ones. One of the main features of the commutant strate-
gy is a huge number of firms being its followers. In the majori-
ty of developed countries, no less than 50 % of all employed
people work for small enterprises. Thus, small enterprises are
largest in number in any market economy.
Besides, the role of small businesses is great not only quan-
titatively, but also functionally (in terms of those problems that
they solve in the economy). First of all, it concerns the role of
those small companies that organize the economy as a whole.
In any market economy, an availability of the solvent
demand for a certain product has to automatically rise the sup-
ply of the latter. However, modern production is selective: it is
economically justified but not under any conditions.
So, a large-scale production usually gives returns only if
a great number of more or less the same products are produced.
Otherwise, if it is possible the major company does not start
supplying unprofitable goods.
Specialized production arises only if a special and quite
long-term demand is available.
Innovative firms are not ready to adjust to certain
conditions.
116
Thus, only commutants are ready to use any opportunity
for their business.
Without small enterprises, there would be "a scrappy
(patched-up) economy". Some market needs would be satisfied
completely, while others (especially those for which it is im-
possible to set up a large-scale, innovative or specialized busi-
ness) would be ignored.
Here are the main characteristics of local needs that
commutants are aiming at.
1. Local needs are not really high and are connected with a
limited group of customers. A business like this is not interesting
to a large distribution network. On the other hand, a small firm
will be quite able to run this business more effectively as it is
more functional and uses a more individual approach.
2. Heterogeneity of local needs. Local needs cannot be
satisfied by means of a highly effective serial production, be-
cause they are so various.
3. Large numbers. Local needs are observable in all in-
dustries of the national economy. Each local need is practically
a separate niche suitable for the activity of only one independent firm.
4. Variability of local needs. In the case of mass needs,
fluctuations of the demand are not really vivid. Disappearance
of some clients is compensated by the introduction of others.
There are few consumers in a local business. Even if only a
few of them demonstrate some shift in demand, it immediately
affects the producer; that’s why a commutant firm has to be
able to adapt to various changes and to appreciate each client.
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7.2. SMALL BUSINESS STRATEGIES
TO FIGHT AGAINST COMPETITORS
With regard to the special character of local needs, one
can formulate several practical conclusions for the commutant
strategy.
First, commutant firms have to watch closely any shifts
in the client’s demand not to lose the latter.
Secondly, if some need disappears, the commutant has to
be able to quickly take certain actions to satisfy other needs.
Thus, flexibility is the central element of the commutant
strategy.
However, it is necessary to observe two conditions to
achieve success.
First, flexibility has to be a conscious and violent policy.
The head of a commutant firm has to compensate a shortage of
funds, lack of high technologies and special unique products of
the production program by a business acumen (an entrepre-
neurial flair).
For a reason, the well-known American business consult-
ant Jay Conrad Levinson considers that small firms should use
technology of "guerrilla marketing".
The methods of low-cost "guerrilla" marketing (from the
list of 100 recommendations of J. K. Levinson) are as follows:
1. Color. Choose the brand color and use it as often as
possible — apply it for the room decoration, the paper, the
marking of goods — so people will remember you faster.
2. Internal advertizing. Place it in all the rooms. It will
serve as a sales agent whom you don’t have to pay.
3. Working hours. Try to change the working hours of
the firm so that to be open when your competitors do not work.
4. A dissatisfied client. Think over in advance the way
you will behave if the client is dissatisfied with your goods
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(service). Remember that if you solve his or her problem, a
displeased customer will easily become a regular one.
5. Local environment. The better the terms you are on
with your neighbors — the local community and enterprises —
the higher is your profit.
6. Cooperation. Collaborate with other enterprises. Display their advertizing leaflets in your shopping area (trade
floor) or office if they display yours in theirs.
7. Reprints. If some newspaper has issued an article
about your company, make photocopies of this article and give
them out as publicity handouts. Newspapers wouldn’t write
about you often, and nobody will soon remember about the article. By distributing copies, you will make the article be more
effective.
8. A list of clients. You have to remember that former
clients are at the same time potential clients, and try to keep in
mind all of your customers from the date of the firm’s foundation.
The second condition of the commutant strategy suggests
the idea that the firm using it has to stay small in size.
Benefits of a small firm:
• efficient management;
• an increase in stability (thanks to a small firm’s spe-
cial entrepreneurship incentives that are unique and not typical
of other firms);
• low costs (the small size of a commutant firm prede-
termines low storage charges, promotion expenses as well as
expenses on accounting procedures, management, and research
and development);
• the state’s support — small businesses are traditionally
considered both as an embodiment of the national go-go spirit and
as the most valuable social group — the so-called middle class
stabilizing a political and economic situation in the country.
119
7.3. TYPES OF COMMUTANT FIRMS
In practice, commutant firms often choose one of the
three following patterns of behavior:
• they operate in those spheres that are traditional only
for small businesses;
• they perform functions of a sub-supplier of basic parts or
semi-products for a larger company (a violent or patient firm);
• they supply goods or services copying others products.
Consequently, three main types of commutant firms can
be differentiated.
Traditional commutant firms choose a field of operation
in which a proper size of the enterprise is small.
It is especially important to remember in terms of the op-
eration of a commutant firm, that a proper size of the enterprise
depends on the type of industry. Moreover, small sizes are typ-
ical not only of primitive productions that are impossible to
mechanize (for example, hairdressing salons and cafe), but also
of the firms using modern equipment and software.
Commutant sub-suppliers. The commutant acts as a jun-
ior partner of a major company. Breach of relations is more
dangerous for it, rather than for the major company: the latter
will easily replace it for a different small firm, but as for the
commutant company it will lose its sales market. Therefore, the
commutant usually agrees upon the dictated prices and delivery
conditions, etc.
This situation is often considered as an implied (hidden)
loss of freedom. Realizing dangers of a dependence on a major
company, commutant firms have to take precautionary
measures. Thus, they widely use the tactics of limiting the
turnover part accounting for one large customer. The small
firm aims to deliver goods to several large corporations so that
the product share for each of them wouldn’t exceed 20 % of the
total turnover of the firm.
120