At P&G, it boiled down to three themes that would enable the company to win, in the places and ways it had chosen, regardless of the details of individual differences between businesses:

• Make the consumer the boss.

• Win the consumer value equation.

• Win the two most important moments of truth.” (Lafley and Martin, “Playing to Win”,

p.141)

“The first dictum, that the consumer is boss, was a reorientation to the company’s aspiration—to improve the lives of consumers. We wanted everyone focused on the end consumer in all aspects of the business: in innovation, branding, go-to-market strategies, investment choices, and so on. We wanted to be clear about just who the most important stakeholder is and always should be. Not shareholders. Not employees. Not retail customers. But rather the end user: the people who buy and use P&G products. The second crucial theme was to win the consumer value equation. This quickly and unambiguously defined the way that P&G would win: by opening up a bigger gap between

the value it offers to consumers and the cost of delivering that value than competitors’ gaps. This meant providing unique value to consumers (through brand differentiation and innovative products). And it meant maintaining a cost position that would let P&G offer that value to the consumer at an attractive price and still make a healthy profit. This edict turned everyone’s attention toward the where-to-play and how-to-win choices that create sustainable competitive advantage through differentiation.

The company introduced Crest Pro-Health, Crest Vivid White, and a set of sensory Crest Expressions offerings, with flavors like cinnamon and vanilla. It took a decade, but Crest was able to reframe the business from toothpaste to oral care, to understand consumer preferences and unmet needs, and to broaden the product line in light of a richer

understanding of industry segments.” (Lafley and Martin, “Playing to Win”, p.163) “Attractiveness:

Once you have articulated existing and new segments, you must understand the structural attractiveness of the different segments. Other things being equal, a firm would want to play in segments that have higher profit potential based on their structural characteristics. To understand structural attractiveness, we can turn to Mike Porter’s seminal five-forces analysis and ask about the bargaining power of suppliers, the bargaining power of buyers, the degree of rivalry, the threat of new entrants, and the threat of substitutes (figure 7-2).

Porter’s framework is a very useful aid to understanding the profit potential of markets and segments.

The horizontal axis determines which entity will capture the industry value—suppliers, producers, or buyers. If the suppliers are larger and more powerful than the producers, the suppliers will appropriate more of the value (think Microsoft and Intel in the PC business). If, on the other hand, the buyers are large and powerful, they will get a greater portion of the

value (think Walmart versus the many small manufacturers whose products fill their shelves). The degree to which there is fierce rivalry affects which group captures value too. If rivalry between competitors is high, the dynamic will facilitate the appropriation of value by suppliers or buyers. A low degree of rivalry will protect profitability for the producers. At P&G, the analysis of segment attractiveness was occasionally a decisive factor in setting the strategy. For Bounty, geographic segmentation, paired with an understanding of consumer preferences, demonstrated that the paper- towel business was only structurally attractive for P&G in North America, due to massive overcapacity and low willingness to pay in the rest of the world. The industry featured high rivalry, high buyer power, and plenty of substitutes. When assessing segment attractiveness for Crest, P&G came to realize that the health segment was not only the largest, but also the most structurally attractive.

Health claims need to be backed by clinical trials, and few companies—really only P&G and Colgate-Palmolive—have the resources and experience to play that game on an ongoing basis. This kind of analysis—crunching the numbers on the size and appeal of different segments—is crucial to determining the range of attractive where-to-play choices.

To understand the consumer value equation, you must truly get to know your consumers—to engage with them beyond the quantitative survey, through deeper, more personal forms of research—watching them shop, listening to their stories, visiting them at home to observe how they use and evaluate your products. Only through this kind of deep user understanding can you hope to generate insights about where to play and how to win.

To make good choices, you need to make sense of the complexity of your environment. The strategy logic flow can point you to the key areas of analysis necessary to generate sustainable competitive advantage. First, look to understand the industry in which you play (or will play), its distinct segments and their relative attractiveness. Without this step, it is all too easy to assume that your map of the world is the only possible map, that the world is unchanging, and that no better possibilities exist. Next, turn to customers. What do channel and end consumers truly want, need, and value—and how do those needs fit with your current or potential offerings? To answer this question, you will have to dig deep— engaging in joint value creation with channel partners and seeking a new understanding of end consumers. After customers, the lens turns inward: what are your capabilities and costs relative to the competition? Can you be a differentiator or a cost leader? If not, you will need to rethink your choices. Finally, consider competition; what will your competitors do in the face of your actions? Throughout the thinking process, be open to recasting previous analyses in light of what you learn in a subsequent box. The basic direction of the process is from left to right, but it also has interdependencies that require a more flexible path through it.