Case Studies

Apple (chapter 1)

The Challenge: Find an antidote to relentlessly declining market share and break out of the role of a perpetual niche player in the personal computer market.

The Solution: Apple began by going down its well-trodden path of design-driven product innovation with the iMac and Apple’s first laptop, the iBook. That was enough to stop the bleeding but not ignite growth. With the iPod, Apple ventured into music retailing, an entirely new market for the company. By combining new technology with a new business model – offering a convenient way to upload digital music through the iTunes Web site – Apple revolutionized the way people consume portable entertainment and created an entirely new, highly lucrative, market.

Better Place (Chapter 5)

The Challenge: Make an electric car as convenient and affordable as a used gasoline-powered car

The Solution: Better Place is focusing not on the cars but on the electric infrastructure needed to make them attractive to consumers, creating an electric-car infrastructure made up of charge spots, battery-switching stations, and grid-management software. Using a model akin to the way cell phones are sold, the company intends to use the margin between what electricity costs and what people pay per mile for gas to heavily subsidize the cost of new electric cars to make them cost-competitive with current used cars. It intends to sell electric miles the same way consumers buy cellular minutes, by offering a range of subscription plans designed to appeal to different driving segments; heavy commuters, city drivers, and so on.

Dow Corning (Chapter 3)

The Challenge: Find a solution to the problem of stagnating growth in many key product areas and fill excess manufacturing capacity in its capital-intensive silicone business.

The Solution: Dow Corning was bundling its products and service together – R&D, product development, customer services – but attentive customer research revealed that many customers just wanted to buy the product. By offering a standardized set of products through a fully automated Web-based order and delivery system and lowering costs by sourcing raw materials on the spot market, Dow Corning was able to not only retain defecting customers at the low end but also attract new customers, which helped fill industry capacity, driving up prices overall in increasing profitability in the core.

Hilti (Chapter 3)

The Challenge: Counter commoditization in its market for small power tools without lowering prices.

The Solution: Rather than sell power tools, at lower and lower prices, Hilti realized it could fulfill an important job for its customers by offering a leasing service. Instead of buying hand tools individually and dealing with their upkeep and management on their own, customers are charged a monthly fee to have a full complement of tools at their fingertips, kept well inventoried and in full repair. Leasing services sold to upper management command higher margins than ever more disposable power tools sold to construction site workers could ever hope to command.

Hindustan Unilever (chapter 4)

The Challenge: Devise a new business model that could break the wealth and access barriers keeping hundreds of millions of people in the countryside of India from being able to consume the company’s personal hygiene products.

The Solution: Taking advantage of an ongoing effort by the Indian government to promote small-scale entrepreneurial efforts, Hindustan Unilever formed partnerships with NGOs to identify and train an independent sales force of rural women, who could distribute the company’s products in their own remote villages. By supporting the entrepreneurial efforts of these “Shakti Ammas” (literally “Strength Mothers”), Hindustan Unilever was able to create and tap into a radically more efficient and far-reaching distribution network to reach a previously untapped market.

IKEA (Chapter 3)

The Challenge: Seize the opportunity to better address the needs of a poorly served segment of the furniture-buying market: twenty-something buyers looking for stylish, affordable furniture for apartments and starter homes.

The Solution: IKEA essentially transformed furniture into a nondurable good. By combining very low prices with high style, IKEA turned furniture buying from an infrequent, high-stakes lifetime purchase into a fun, short-term fashion purchase, making it more like buying clothing than buying a washing machine or refrigerator. To further cement the value proposition, IKEA combined the shopping experience of a showroom with the convenience of a logistics facility: after seeing the furniture in hip, stylish room setups, customers buy their selections in modular and easily transportable kits, which they can take home in their cars the same day and assemble themselves.

MinuteClinic (chapter 4)

The Challenge: Capitalize on the opportunity advances in medical knowledge have created to make simple medical procedures more affordable and convenient.

The Solution: MinuteClinic identified a range of low-level ailments and procedures that are so well understood that they could be treated or performed by nurse practitioners, rather than by highly trained, far more expensive doctors. To do so, it formed partnerships with pharmacy chains to set up decentralized kiosks in their retail outlets, allowing people to walk in without an appointment and be treated in about 30 minutes.

Southwest Airlines (chapter 7)

The Challenge: Make regional air travel competitive with bus service.

The Solution: To deliver revolutionary low prices, Southwest needed to keep margins low. To make money at these margins, it needed to need to keep direct costs and overhead low and resource velocity high, getting more turns from its capital equipment. To lower costs Southwest chose to fly into secondary airports with lower gate fees, negotiated revolutionary profit-sharing contracts with its pilots’ union, entered into long-term contracts to lower fuel costs, and eliminated expensive extras like in-flight food and entertainment. To both lower costs and increase resource velocity, it chose to use a single type of plane, which both lowered repair and maintenance costs and decreased turnaround times. And it adopted an automated, direct sales model for tickets, which eliminated travel agent fees and put payments in the company’s hands more quickly.

Tata Motors (Chapter 2)

The Challenge: Produce a car so affordable that it becomes a viable alternative for Indian consumers currently using motorscooters to transport their entire families.

The Solution: To compete with motorcycles, Tata needed to sell a car for only $2,000, which meant devising a way to make radically lower unit margins profitable. Tata’s $2,000 car, the Nano, makes up for the lower margins by coupling the dramatically greater sales volume the price generates with a radically lower cost structure. Driving down costs entailed some creative thinking: reducing the number of parts the car required and predominantly outsourcing their manufacture, limiting the number of suppliers, and experimenting with shipping modular components to its distributors for final assembly.

Threadless (chapter 6)

The Challenge: Take advantage of the Internet’s social-networking capabilities to dramatically increase margins by producing only those products that customers’ want.

The Solution: Threadless accepts design submissions on its Web site from its rapidly growing community of amateur designers and young trendsetters and lets them vote on the products they want to buy. Using mass-customization technology, it then manufactures the winning designs within hours fulfilling the job of keeping its customers’ fashions up to the minute through the efficiency of a just-in-time supply chain. Producing a predetermined demand keeps costs low and margins above 30%, and because community members tell it precisely which shirts to make Threadless never has a flop; every product eventually sells out.

Whole Foods Market (Chapter 2)

The Challenge: Create a national market for local organic produce and other perishables

The Solution: Whole Foods inverted the established supermarket model: Rather than keep costs low through centralized distribution networks and profiting from selling high volumes of low-margin goods, Whole Foods relies on higher prices and margins on the perishables, which its customers buy in large quantities. To sell customers on the higher prices, it carefully coordinates its centralized packaged-goods inventory with its local supply chains of organic foods and homeopathic products and invests heavily in making the grocery-shopping experience more pleasurable and less tiresome.

Zara (Chapter 6)

The Challenge: Create “instant fashions” -- clothes that can be designed and brought to market as fast as demand arises.

The Solution: Rather than seek to lower costs by designing collections of clothes in batches each season and shipping then en masse, Zara has invested in advanced, automated systems to tightly integrate its retail, inventory, and design processes. It built a state-of-the-art communications system that has turned store managers into trend spotters and linked them to in-house designers. It assembles most of its clothes locally and has built a just-in-time shipping system capable of delivering goods to every store twice a week. With this efficient and responsive operation, Zara can deliver new fashions to market not 15 months after they’re designed, nor even 15 weeks, but in as little as 15 days, reaping the higher unit margins through more accurate fulfillment of its customers’ demand and higher overall profits through higher inventory turns.