Thursday, May 17, 2012

The "unfair advantage" of Apple.

         In studying business, we learn that there are two basic types of competitive advantages a company can have: (a) lower cost and (b) differentiation.

         Lower cost has its risks, of course. Somebody, somewhere, can decide to price their products even lower, and your advantage is wiped out.

         Differentiation can take many forms, trying for distinction in the areas the customer cares most about. That could be design, accessibility, convenience, quality, style, and so on.

         Venture capitalists want a company to go even further. They look for companies with an "unfair advantage". That is, a patent or copyright , an exclusive contract with a vendor --- something that can hopefully protect and enhance their investments.

         Where does advertising fit into all this? Can advertising do more than communicate and persuade? Can advertising actually become part of the product, and be part of its distinction and even part of what consumers are buying?

          I believe it can. Coca-Cola is similar to other cola drinks. In some taste tests, consumers aren't sure which is which. But Coca-Cola is selling more than cola. It's selling happiness. Joy is part of what you're buying --- and its commercials with Santa, Polar Bears, and fantastic stories make it so.

          Chanel ads don't say much about the clothes or even the makeup, but they say a lot about the Chanel lifestyle. The genius and individuality of Coco Chanel live in the ads, helping the products become part of it.

          Would you buy a car if you thought their advertising was stupid? Maybe hamsters are cute to you, but do you really want to own a Kia, "the ultimate hamster machine"?

           Advertising is part of the brand. It's part of what you're buying when you buy an iPod or an iPad.
Part of the experience of eating Kellogg's Frosted Flakes, the achievement of owning a Mercedes.

           By the way, these products are definitely not the lower cost brands. And the advertising is part of the value.


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