When did songs extolling leaders of companies go out of fashion?

When did songs extolling leaders of companies go out of fashion?

When recently visiting Computer History Museum in Mountain View, CA I came across an exhibit called "Songs of the IBM". It's from 1930s and has a song called "Ever onward" which extols then IBM President T.J Watson. It was regularly sung by IBMers.

This seemed very strange to me because the only current leader I can think of having songs extolling his virtues would be "Dear Leader" from North Korea.

So my questions are:

  1. Was it common in the beginning of 20th century for companies/organizations to have songs extolling their leaders?
  2. If yes, when did this go out of fashion and why?

It just so happens that a marketing show on the Canadian Broadcasting Corp radio channel did a nice history of corporate musicals, primarily in the US from the 1920's to the 1960's. The genre was borrowed from New York musicals. Give it a listen: You can download and listen to the podcast from the regular suspects or you can live stream it from the CBC site: http://www.cbc.ca/radio/undertheinfluence/this-week-summer-series-when-madison-avenue-met-broadway-the-world-of-industrial-musicals-1.3618080

The episode is called: When Madison Avenue Met Broadway - The World of Industrial Musicals. If you are interested in marketing, this is a great podcast. I always learn something. The website often has bonus material such as video, lyrics, and supplementary material.

Bradley Foster

Living in the Republic of Technology

Daniel J. Boorstin, author of the monumental trilogy The Americans, characterized our age as driven by “the Republic of Technology [whose] supreme law…is convergence, the tendency for everything to become more like everything else.”

In business, this trend has pushed markets toward global commonality. Corporations sell standardized products in the same way everywhere—autos, steel, chemicals, petroleum, cement, agricultural commodities and equipment, industrial and commercial construction, banking and insurance services, computers, semiconductors, transport, electronic instruments, pharmaceuticals, and telecommunications, to mention some of the obvious.

Nor is the sweeping gale of globalization confined to these raw material or high-tech products, where the universal language of customers and users facilitates standardization. The transforming winds whipped up by the proletarianization of communication and travel enter every crevice of life.

Commercially, nothing confirms this as much as the success of McDonald’s from the Champs Elysées to the Ginza, of Coca-Cola in Bahrain and Pepsi-Cola in Moscow, and of rock music, Greek salad, Hollywood movies, Revlon cosmetics, Sony televisions, and Levi jeans everywhere. “High-touch” products are as ubiquitous as high-tech.

Starting from opposing sides, the high-tech and the high-touch ends of the commercial spectrum gradually consume the undistributed middle in their cosmopolitan orbit. No one is exempt and nothing can stop the process. Everywhere everything gets more and more like everything else as the world’s preference structure is relentlessly homogenized.

Consider the cases of Coca-Cola and Pepsi-Cola, which are globally standardized products sold everywhere and welcomed by everyone. Both successfully cross multitudes of national, regional, and ethnic taste buds trained to a variety of deeply ingrained local preferences of taste, flavor, consistency, effervescence, and aftertaste. Everywhere both sell well. Cigarettes, too, especially American-made, make year-to-year global inroads on territories previously held in the firm grip of other, mostly local, blends.

These are not exceptional examples. (Indeed their global reach would be even greater were it not for artificial trade barriers.) They exemplify a general drift toward the homogenization of the world and how companies distribute, finance, and price products. 1 Nothing is exempt. The products and methods of the industrialized world play a single tune for all the world, and all the world eagerly dances to it.

Ancient differences in national tastes or modes of doing business disappear. The commonality of preference leads inescapably to the standardization of products, manufacturing, and the institutions of trade and commerce. Small nation-based markets transmogrify and expand. Success in world competition turns on efficiency in production, distribution, marketing, and management, and inevitably becomes focused on price.

The most effective world competitors incorporate superior quality and reliability into their cost structures. They sell in all national markets the same kind of products sold at home or in their largest export market. They compete on the basis of appropriate value—the best combinations of price, quality, reliability, and delivery for products that are globally identical with respect to design, function, and even fashion.

That, and little else, explains the surging success of Japanese companies dealing worldwide in a vast variety of products—both tangible products like steel, cars, motorcycles, hi-fi equipment, farm machinery, robots, microprocessors, carbon fibers, and now even textiles, and intangibles like banking, shipping, general contracting, and soon computer software. Nor are high-quality and low-cost operations incompatible, as a host of consulting organizations and data engineers argue with vigorous vacuity. The reported data are incomplete, wrongly analyzed, and contradictory. The truth is that low-cost operations are the hallmark of corporate cultures that require and produce quality in all that they do. High quality and low costs are not opposing postures. They are compatible, twin identities of superior practice. 2

To say that Japan’s companies are not global because they export cars with left-side drives to the United States and the European continent, while those in Japan have right-side drives, or because they sell office machines through distributors in the United States but directly at home, or speak Portuguese in Brazilis to mistake a difference for a distinction. The same is true of Safeway and Southland retail chains operating effectively in the Middle East, and to not only native but also imported populations from Korea, the Philippines, Pakistan, India, Thailand, Britain, and the United States. National rules of the road differ, and so do distribution channels and languages. Japan’s distinction is its unrelenting push for economy and value enhancement. That translates into a drive for standardization at high quality levels.

Vindication of the Model T

If a company forces costs and prices down and pushes quality and reliability up—while maintaining reasonable concern for suitability—customers will prefer its world-standardized products. The theory holds at this stage in the evolution of globalization—no matter what conventional market research and even common sense may suggest about different national and regional tastes, preferences, needs, and institutions. The Japanese have repeatedly vindicated this theory, as did Henry Ford with the Model T. Most important, so have their imitators, including companies from South Korea (television sets and heavy construction), Malaysia (personal calculators and microcomputers), Brazil (auto parts and tools), Colombia (apparel), Singapore (optical equipment), and, yes, even the United States (office copiers, computers, bicycles, castings), Western Europe (automatic washing machines), Rumania (housewares), Hungary (apparel), Yugoslavia (furniture), and Israel (pagination equipment).

Of course, large companies operating in a single nation or even a single city don’t standardize everything they make, sell, or do. They have product lines instead of a single product version, and multiple distribution channels. There are neighborhood, local, regional, ethnic, and institutional differences, even within metropolitan areas. But although companies customize products for particular market segments, they know that success in a world with homogenized demand requires a search for sales opportunities in similar segments across the globe in order to achieve the economies of scale necessary to compete. Such a search works because a market segment in one country is seldom unique it has close cousins everywhere precisely because technology has homogenized the globe. Even small local segments have their global equivalents everywhere and become subject to global competition, especially on price.

The global competitor will seek constantly to standardize its offering everywhere. It will digress from this standardization only after exhausting all possibilities to retain it, and will push for reinstatement of standardization whenever digression and divergence have occurred. It will never assume that the customer is a king who knows his own wishes.

Trouble increasingly stalks companies that lack clarified global focus and remain inattentive to the economics of simplicity and standardization. The most endangered companies in the rapidly evolving world tend to be those that dominate rather small domestic markets with high value-added products for which there are smaller markets elsewhere. With transportation costs proportionately low, distant competitors will enter the now-sheltered markets of those companies with goods produced more cheaply under scale-efficient conditions. Global competition spells the end of domestic territoriality, no matter how diminutive the territory may be.

When the global producer offers its lower costs internationally, its patronage expands exponentially. It not only reaches into distant markets, but also attracts customers who previously held to local preferences and now capitulate to the attractions of lower prices. The strategy of standardization not only responds to worldwide homogenized markets but also expands those markets with aggressive low pricing. The new technological juggernaut taps an ancient motivation—to make one’s money go as far as possible. This is universal—not simply a motivation but actually a need.

The Curious Case of Benjamin Button: wearing future sunglasses

The Curious Case of Benjamin Button is a movie that has confused many of us over the years. After all, it’s not every day that you hear about someone who ages in reverse. However, that’s Benjamin’s life. Brad Pitt was the star of the film that turned out to be an instant hit around the world.

It was nominated for a host of awards and was even lucky enough to take a few home. Unfortunately, there’s one scene that’s a little confusing than all the others. How was Brad Pitt wearing a pair of sunglasses that were made in 1952 when the story was supposed to be taking place in 1945?

10 Social Media Marketing Fails

It's a pretty big deal when marketing misses the mark on television or in print, but it can be just as harmful when it's on as small a screen as a smartphone. Here are some of the worst cases of social media flubs made by popular brands.

1. Dove: “Racist" Facebook Ad

Unilever had a bad year in 2017. Another Dove ad posted on Facebook was a four panel image showing a young African American woman removing her shirt over three panels.

The fourth panel shows a young white woman. Oops!

The ad actually showed up in Google search results as “Dove racist ad.” While no agency has taken “credit,” Unilever said the ad was intended to show “the diversity of real beauty.”

What it got was pretty ugly reviews and plenty of well-deserved heat on social media. Dove apologized (for the second time in 2017), and it was strike two for Brad Jakeman.

2. Walkers: Selfie Competition

Walkers is a UK-based snack company that implemented a social media campaign where customers submitted selfies for an opportunity to win tickets to a major sporting event.

Unfortunately, some people submitted pictures of dictators, serial killers, and criminals.

The end result of their failure to audit the pictures before publishing them created a PR nightmare for the company.

3. Wendy's: Twitter Meme

Wendy's got into a tweet battle with customers over whether they really use fresh beef. At first, it wasn't a big deal, but it eventually escalated.

Then, Wendy's responded by posting a meme. No big deal right?

Except the meme they posted was “Pepe the frog.” If you don't know what that is, Pepe was used by white supremacists in the U.S. presidential election in 2016.

The images were pulled, but not before screenshots were taken, and while Wendy's quickly realized their mistake, the damage was done.

4. The Department of Education: Twitter Typos

Typos aren't usually a big deal, unless you're the Department of Education! They tweeted a W.E.B. Du Bois quote that included his name misspelled.

Then, they responded with an apology that happened to include the word ‘apology’ misspelled.

Not a great entree for controversial Education Secretary Betsy DeVos. In terms of marketing fails, this one got her and the department torched!

The computer systems at the DoE are old, but Betsy next time, try using spell check!

5. Facebook: VR Puerto Rico Tour

Following the devastation from a horrible hurricane season, Puerto Rico was left in shambles. Mark Zuckerberg used Facebook’s VR app Spaces to tour through an NPR-produced 360-video of Puerto Rico.

While the intention behind this Facebook Live video was to show how much aid Facebook was providing the Puerto Rico, it came off as completely tone deaf. The avatars on screen sported cartoonish smiling faces.

The general reaction was that Zuckerberg seemed to be exploiting the disaster to show off Facebook’s VR capabilities.

6. United States Air Force: Yanny/Laurel Tweet

For a short while, the nation was captivated by a single audio clip. People heard either ‘yanny’ or ‘laurel.’ It was a fun, lighthearted debate, but the U.S. Air Force took it to a dark place.

They tweeted, “The Taliban Forces in Farah city #Afghanistan would much rather have heard #Yanny or #Laurel than the deafening #BRRRT they got courtesy of our #A10.”

This tweet was widely considered insensitive, and the Air Force eventually took it down and apologized.

7. Nivea: Purity Post

In Nivea’s Middle East division, the company posted an ad for their “Invisible for Black and White” deodorant. The image depicted the back of a woman’s head with long, dark hair covering her white outfit.

The tagline read, “White Is Purity.”

Obviously, this was interpreted as racially insensitive. In fact, white supremacist groups jumped at the opportunity to applaud Nivea for their messaging.

8. Snapchat: Would You Rather Ad

The social app has experienced a dramatic and consistent decline in use after a layout update that upset pretty much all of its users. And as if the disastrous change wasn't enough, Snapchat's introduction to ads led to a PR nightmare after insulting one of the world's most popular celebrities.

An ad for a game called Would You Rather? presented the user with a question: Would you rather slap Rihanna or punch Chris Brown?

Even though it was some time ago, people haven't forgotten Rihanna and Chris Brown's domestic violence case. And, naturally, neither has the pop star business mogul.

She responded to Snapchat's public apology for the ad on Instagram (their competitor by the way) sharing her disappointment in the company and how a marketing stunt like that has let down not only her but other domestic violence victims, both past and present, as well.

9. Starbucks: Blonde Espresso Advertising

With the release of Starbucks' blonde espresso, which is meant to be a lighter and sweeter alternative to its standard drinks, came a pretty unremarkable marketing campaign.

Their bright yellow landing page advertising the new product read as " Who says espresso has to be intense? We have for 43 years. But we’re Starbucks Coffee Company. So we did the exact opposite."

Were you able to follow that?

Consumers were kind of able to get the gist of what they were trying to say, but their attempt at being edgy just made them sound absurd.

Not to mention, buying a "tall blonde" can sound a bit off.

10. Bootea Shake: Copy and Paste Caption

It's funny that we're starting this list and ending it with the same family, but that's what can happen with influencer marketing. The whole point of partnering with influencers is for their endorsement to feel organic and natural. Most of us understand it's a paid partnership, but still.

Unfortunately for Bootea Shake, Scott Disick didn't just give us a peek behind the curtain. He ripped it off the rod.

Scott posted the company's suggested caption for a promotional photo on Instagram with the instructions still in the text.

Fails like that are cringe-worthy and a strong reminder to make sure that you're partnering with influencers who align with your brand and double check their work.


If you enjoyed this session with Ben Horowitz, let him know by clicking on the link below and sending him a quick shout out at Twitter:

And if you want us to answer your questions on one of our upcoming weekly Feedback Friday episodes, drop us a line at [email protected]

Resources from This Episode:

  • What You Do Is Who You Are: How to Create Your Business Culture by Ben Horowitz
  • The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers by Ben Horowitz
  • Ben Horowitz at Twitter
  • Andreessen Horowitz
  • So Much Fun by Young Thug
  • 4:44 by Jay-Z
  • Port of Miami 2 by Rick Ross
  • Uncle Ralph McDaniels Details 35 Years Of Making The Original Rap Video Show, AFH
  • Ryan Holiday | Stillness Is the Key, TJHS 271
  • The Black Jacobins: Toussaint L’Ouverture and the San Domingo Revolution by C.L.R. James
  • The Haitian Revolution: History of a Successful Slave Revolt, ThoughtCo.
  • Caesar’s Commentaries by Julius Caesar
  • The Byzantine Generals Problem, SRI International
  • The Louisiana Purchase, Thomas Jefferson’s Monticello
  • Bushido: The Way of the Samurai by Tsunetomo Yamamoto
  • The Bushido Code: The Eight Virtues of the Samurai, The Art of Manliness
  • Genghis Khan, Ancient History Encyclopedia
  • How a Door Became a Desk, and a Symbol of Amazon, The Amazon Blog
  • Apple to Build New Campus in Austin and Add Jobs across the US, Apple
  • In Coughlin Time, You Can Be Early and Still Be Late, The New York Times
  • Waymo V. Uber: What You Need To Know About the High-Stakes Self-Driving Tech Trial, Fortune
  • Uber Allegedly Hacked Rivals, Surveilled Politicians, and Impersonated Protestors, The Verge
  • Reflecting on One Very, Very Strange Year at Uber by Susan Fowler
  • Uber Has Replaced Travis Kalanick’s Values with Eight New “Cultural Norms” Quartz at Work
  • Belief — An Interview with Oprah Winfrey, a16z Podcast
  • Melanics: A Gang Profile Analysis, Journal of Gang Research
  • Shaka Senghor at Twitter
  • Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant by W. Chan Kim and Renee Mauborgne
  • Regulatory Capture, Investopedia
  • Dodd-Frank Wall Street Reform and Consumer Protection Act, Investopedia
  • Khan Academy
  • The Airbnb Founder Story: From Selling Cereals To A $25B Company, Get Paid for Your Pad
  • Marc Andreessen at Twitter
  • Internationalization (i18n), Angular


I decided to take a look at what makes crisps so moreish — and the toll our habit is taking on the nation’s health.

In Salt, Sugar, Fat: How The Food Giants Hooked Us, author Michael Moss reveals how crisps are made irresistible.

Salt provides an arresting sensation on first contact with the tongue, called ‘the flavour burst’ by the food industry.

Fat from the oil in which crisps are fried gives ‘mouthfeel’ — experienced through the trigeminal nerve, which sends pleasure sensations to the brain.

Sugar, meanwhile isn’t only present in the potato starch but is added to tomato based flavours such as BBQ or prawn cocktail by manufacturers to make crisps all the more enticing.

Our desire for foods containing fat, salt and sugar is thought to have come from our hunter-gatherer ancestors, who craved high-energy foods. Sensible then, perhaps, but a source of problems now cheap junk food is readily available.

Worryingly experts have found similarities in the brains of crisp-lovers and drug addicts.

Dr Tony Goldstone, a neuroscientist at Imperial College London, found that when overweight people saw photos of junk food their brains responded like those of alcoholics and drug-addicts did when shown wine or cocaine.

A German study discovered the reward and addiction centres of rats’ brains were more active when fed crisps than a powdery mixture of fat and carbohydrates of the same calorific value.

Dr Tobias Hoch, of Frederich Alexander Erlangen-Nuremberg University, believes molecular triggers in crisps stimulate these reward centres.

So why is my husband content with a few crisps, whereas I have to scoff a packet (or two)?

Dr Hoch explains: ‘Possibly, the extent to which the brain’s reward system is activated in different individuals can vary depending on individual taste preferences.’

It is a crisp’s texture, as much as its taste, that keeps us reaching for more. ‘Research has found that the more noise a crisp makes when you bite into it, the more you will like it,’ says Moss.

Makers have spent a small fortune to discover that ‘the perfect break point’ occurs when crisps are put under four pounds of pressure per square inch.

Ever eaten three packets of Wotsits in a row without feeling full? That’s no accident either. Corn snacks that dissolve on the tongue, such as Wotsits, Monster Munch and Cheetos, are so easy to eat that our stomachs have no time to tell our brains they’re full before we’ve overindulged.

Food scientist Steven Witherly says this melt-in-the-mouth sensation is called ‘vanishing caloric density’. He explains: ‘If something melts quickly, your brain thinks there’s no calories in it… so you can keep on eating it.’

The first recipe for crisps was printed in British chef William Kitchiner’s cookbook, The Cook’s Oracle, in 1822.

Since then they have become a national institution.

The Walkers crisp factory in Leicester — the largest in Britain — has machines that get through 2,000 razor blades a day cutting each potato into 45 wafer-thin slices, before frying them in rapeseed or sunflower oil.

Until the mid 20th century crisps came only with salt, but as cellophane packaging replaced greased paper bags to extend shelf life, more flavours came in.

These have become wackier, from langoustine and lemon to chocolate and gin and tonic.

Because our taste buds can detect five tastes — bitter, sour, sweet, salt and meatiness — manufacturers often use flavours that use as many of these as possible.

Pringles Texas Barbecue flavour contains citric and malic acid and monosodium glutamate (MSG) as well as salt and sugar, stimulating four out of five of the tastes for maximum impact.

Reassuringly, good old-fashioned Cheese and Onion remains Brits’ favourite flavour.

In a competitive market nothing is left to chance, not even the shape of the crisp — Pringles, a blend of potato and wheat are curved so they reach as many taste buds as possible. Gourmet crisps have been developed to convince health-conscious adults that some fried potatoes are less bad for us.

And celebrity endorsements prove persuasive among children. A Liverpool University study found that those aged between eight and 11 were much more likely to choose Walkers crisps over unbranded snacks, after watching Gary Lineker advertising them on TV.

Crisps are the largest single contributor to the U.S. obesity epidemic, a New England Journal of Medicine study of 120,877 women and men found.

Dr Dariush Mozaffarian, an assistant professor of medicine and epidemiology at Harvard Medical School, who did the research, said that the carbohydrates in a packet of crisps (typically more than 50 per cent) disturbs blood glucose and insulin levels, causing an imbalance which ‘leads to less feeling of fullness, increasing hunger and larger amounts of food consumed over the course of the day’.

The GI, or glycaemic index database maintained at the University of Sydney has better news, however. It suggests that potato crisp samples have shown a medium to low GI range, meaning that eating crisps may not result in higher blood sugar levels.

Nutritionist Dr Zoe Harcombe, author of Why Do You Overeat? adds: ‘The body converts this excess glucose into glycogen by releasing insulin to the blood stream, which can cause a subsequent slump in energy levels and symptoms including headaches, irritability — and a craving for more crisps.’

In 2006 the British Heart foundation warned that eating a packet of crisps a day was the equivalent of drinking five litres of cooking oil a year.

Manufacturers cut saturated fat levels in response, but the frying process still gives cause for concern. Tests have shown that when starchy foods, like crisps, are fried at a high temperature toxic chemical acrylamide is produced. A Bradford Institute for Health Research study linked acrylamide intake in crisp-eating pregnant women to lower birth weight and head circumference in newborns. It has not been established whether the link between these is causal, however.

Both of these factors can lead to delayed development of the brain and nervous system, type 2 diabetes and heart disease.

The average packet of crisps contains about 0.5g salt — nearly 10 per cent of the recommended daily intake. Although the link between too much salt and high blood pressure and heart disease is well known, the knock-on effect of salt in crisps arguably makes it more damaging.

‘The salt makes us thirsty as it knocks the sodium and potassium levels in our body off balance,’ says Dr Harcombe. ‘What we should do is drink water, which contains potassium, to restore the balance, but what we’re more likely to do, in a social setting, is turn to alcohol.’

One of the most controversial additives in some crisps is MSG.

Clinical trials are inconclusive but research has suggested MSG — which Walkers don’t use but is present in some Pringles and Monster Munch — can cause kidney damage in animals and lead to depressive behaviour in rats.

It also seems to make crisps even more enticing by tricking the brain into thinking the meaty flavour denotes protein.

Dr Harcombe says: ‘The processed food industry is so cynical and ruthless it will stop at nothing to make sure as many people as possible are addicted.’

Competitive Strategy: Techniques for Analyzing Industries and Competitors Illustrated Edition, Kindle Edition

Fortune Three overarching game plans that work in one industry after another explain how thousands of real-world competitors come out on top.

Philip Kotler author of Principles of Marketing Porter's books on competitive strategy are the seminal works in the field.

The New York Times American executives are grasping for a logic to global competition. Mr. Porter. has given them one.

Choice Few books warrant the too-common publisher's blurb "landmark." This one does. Highest recommendation.

Strategic Management Journal Represents a quantum leap. may well be one of the most important contributions to the discipline of strategic management.

Journal of Business Strategy Any manager who studies and uses the material in this book should be able to devise more successful strategies. --This text refers to the paperback edition.

About the Author

Michael Eugene Porter, born in 1947, is a successful American author, and the Bishop William Lawrence university professor at The Institute for Strategy and Competitiveness at Harvard Business School. After procuring his bachelor’s degree in aerospace and mechanical engineering from Princeton University in 1969, he obtained an MBA from Harvard Business School in 1971. He also has a doctorate in business economics, which he obtained from Harvard University in 1973.

--This text refers to the paperback edition.

Excerpt. © Reprinted by permission. All rights reserved.

Chapter 1: The Structural Analysis of Industries

The essence of formulating competitive strategy is relating a company to its environment. Although the relevant environment is very broad, encompassing social as well as economic forces, the key aspect of the firm's environment is the industry or industries in which it competes. Industry structure has a strong influence in determining the competitive rules of the game as well as the strategies potentially available to the firm. Forces outside the industry are significant primarily in a relative sense since outside forces usually affect all firms in the industry, the key is found in the differing abilities of firms to deal with them.

The intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure and goes well beyond the behavior of current competitors. The state of competition in an industry depends on five basic competitive forces. The collective strength of these forces determines the ultimate profit potential in the industry, where profit potential is measured in terms of long run return on invested capital. Not all industries have the same potential. They differ fundamentally in their ultimate profit potential as the collective strength of the forces differs the forces range from intense in industries like tires, paper, and steel -- where no firm earns spectacular returns -- to relatively mild in industries like oil-field equipment and services, cosmetics, and toiletries -- where high returns are quite common.

This chapter will be concerned with identifying the key structural features of industries that determine the strength of the competitive forces and hence industry profitability. The goal of competitive strategy for a business unit in an industry is to find a position in the industry where the company can best defend itself against these competitive forces or can influence them in its favor. Since the collective strength of the forces may well be painfully apparent to all competitors, the key for developing strategy is to delve below the surface and analyze the sources of each. Knowledge of these underlying sources of competitive pressure highlights the critical strengths and weaknesses of the company, animates its positioning in its industry, clarifies the areas where strategic changes may yield the greatest payoff, and highlights the areas where industry trends promise to hold the greatest significance as either opportunities or threats. Understanding these sources will also prove to be useful in considering areas for diversification, though the primary focus here is on strategy in individual industries. Structural analysis is the fundamental underpinning for formulating competitive strategy and a key building block for most of the concepts in this book.

To avoid needless repetition, the term "product" rather than "product or service" will be used to refer to the output of an industry, even though the principles of structural analysis developed here apply equally to product and service businesses. Structural analysis also applies to diagnosing industry competition in any country or in an international market, though some of the institutional circumstances may differ.

Structural Determinants of the Intensity of Competition

Let us adopt the working definition of an industry as the group of firms producing products that are close substitutes for each other. In practice there is often a great deal of controversy over the appropriate definition, centering around how close substitutability needs to be in terms of product, process, or geographic market boundaries. Because we will be in a better position to treat these issues once the basic concept of structural analysis has been introduced, we will assume initially that industry boundaries have already been drawn.

Competition in an industry continually works to drive down the rate of return on invested capital toward the competitive floor rate of return, or the return that would be earned by the economist's "perfectly competitive" industry. This competitive floor, or ȯree market" return, is approximated by the yield on long-term government securities adjusted upward by the risk of capital loss. Investors will not tolerate returns below this rate in the long run because of their alternative of investing in other industries, and firms habitually earning less than this return will eventually go out of business. The presence of rates of return higher than the adjusted free market return serves to stimulate the inflow of capital into an industry either through new entry or through additional investment by existing competitors. The strength of the competitive forces in an industry determines the degree to which this inflow of investment occurs and drives the return to the free market level, and thus the ability of firms to sustain above-average returns.

The five competitive forces -- entry, threat of substitution, bargaining power of buyers, bargaining power of suppliers, and rivalry among current competitors -- reflect the fact that competition in an industry goes well beyond the established players. Customers, suppliers, substitutes, and potential entrants are all Ȭompetitors" to firms in the industry and may be more or less prominent depending on the particular circumstances. Competition in this broader sense might be termed extended rivalry.

All five competitive forces jointly determine the intensity of industry competition and profitability, and the strongest force or forces are governing and become crucial from the point of view of strategy formulation. For example, even a company with a very strong market position in an industry where potential entrants are no threat will earn low returns if it faces a superior, lower-cost substitute. Even with no substitutes and blocked entry, intense rivalry among existing competitors will limit potential returns. The extreme case of competitive intensity is the economist's perfectly competitive industry, where entry is free, existing firms have no bargaining power against suppliers and customers, and rivalry is unbridled because the numerous firms and products are all alike.

Different forces take on prominence, of course, in shaping competition in each industry. In the ocean-going tanker industry the key force is probably the buyers (the major oil companies), whereas in tires it is powerful original equipment (OEM) buyers coupled with tough competitors. In the steel industry the key forces are foreign competitors and substitute materials.

The underlying structure of an industry, reflected in the strength of the forces, should be distinguished from the many short-run factors that can affect competition and profitability in a transient way. For example, fluctuations in economic conditions over the business cycle influence the short-run profitability of nearly all firms in many industries, as can material shortages, strikes, spurts in demand, and the like. Although such factors may have tactical significance, the focus of the analysis of industry structure, or "structural analysis," is on identifying the basic, underlying characteristics of an industry rooted in its economics and technology that shape the arena in which competitive strategy must be set. Firms will each have unique strengths and weaknesses in dealing with industry structure, and industry structure can and does shift gradually over time. Yet understanding industry structure must be the starting point for strategic analysis.

A number of important economic and technical characteristics of an industry are critical to the strength of each competitive force. These will be discussed in turn.

New entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. Prices can be bid down or incumbents' costs inflated as a result, reducing profitability. Companies diversifying through acquisition into the industry from other markets often use their resources to cause a shake-up, as Philip Morris did with Miller beer. Thus acquisition into an industry with intent to build market position should probably be viewed as entry even though no entirely new entity is created.

The threat of entry into an industry depends on the barriers to entry that are present, coupled with the reaction from existing competitors that the entrant can expect. If barriers are high and/or the newcomer can expect sharp retaliation from entrenched competitors, the threat of entry is low.

There are six major sources of barriers to entry:

Economies of Scale. Economies of scale refer to declines in unit costs of a product (or operation or function that goes into producing a product) as the absolute volume per period increases. Economies of scale deter entry by forcing the entrant to come in at large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost disadvantage, both undesirable options. Scale economies can be present in nearly every function of a business, including manufacturing, purchasing, research and development, marketing, service network, sales force utilization, and distribution. For example, scale economies in production, research, marketing, and service are probably the key barriers to entry in the mainframe computer industry, as Xerox and General Electric sadly discovered.

Scale economies may relate to an entire functional area, as in the case of a sales force, or they may stem from particular operations or activities that are part of a functional area. For example, in the manufacture of television sets, economies of scale are large in color tube production, and they are less significant in cabinetmaking and set assembly. It is important to examine each component of costs separately for its particular relationship between unit cost and scale.

Units of multibusiness firms may be able to reap economies similar to those of scale if they are able to share operations or functions subject to economies of scale with other businesses in the company. For example, the multibusiness company may manufacture small electric motors, which are then used in producing industrial fans, hairdryers, and cooling systems for electronic equipment. If economies of scale in motor manufacturing extend beyond the number of motors needed in any one market, the multibusiness firm diversified in this way will reap economies in motor manufacturing that exceed those available if it only manufactured motors for use in, say, hairdryers. Thus related diversification around common operations or functions can remove volume constraints imposed by the size of a given industry. The prospective entrant is forced to be diversified or face a cost disadvantage. Potentially shareable activities or functions subject to economies of scale can include sales forces, distribution systems, purchasing, and so on.

The benefits of sharing are particularly potent if there are joint costs. Joint costs occur when a firm producing product A (or an operation or function that is part of producing A) must inherently have the capacity to produce product B. An example is air passenger services and air cargo, where because of technological constraints only so much space in the aircraft can be filled with passengers, leaving available cargo space and payload capacity. Many of the costs must be borne to put the plane into the air and there is capacity for freight regardless of the quantity of passengers the plane is carrying. Thus the firm that competes in both passenger and freight may have a substantial advantage over the firm competing in only one market. This same sort of effect occurs in businesses that involve manufacturing processes involving by-products. The entrant who cannot capture the highest available incremental revenue from the by-products can face a disadvantage if incumbent firms do.

A common situation of joint costs occurs when business units can share intangible assets such as brand names and know-how. The cost of creating an intangible asset need only be borne once the asset may then be freely applied to other business, subject only to any costs of adapting or modifying it. Thus situations in which intangible assets are shared can lead to substantial economies.

A type of economies of scale entry barrier occurs when there are economies to vertical integration, that is, operating in successive stages of production or distribution. Here the entrant must enter integrated or face a cost disadvantage, as well as possible foreclosure of inputs or markets for its product if most established competitors are integrated. Foreclosure in such situations stems from the fact that most customers purchase from in-house units, or most suppliers "sell" their inputs in-house. The independent firm faces a difficult time in getting comparable prices and may become "squeezed" if integrated competitors offer different terms to it than to their captive units. The requirement to enter integrated may heighten the risks of retaliation and also elevate other entry barriers discussed below.

Product Differentiation. Product differentiation means that established firms have brand identification and customer loyalties, which stem from past advertising, customer service, product differences, or simply being first into the industry. Differentiation creates a barrier to entry by forcing entrants to spend heavily to overcome existing customer loyalties. This effort usually involves start-up losses and often takes an extended period of time. Such investments in building a brand name are particularly risky since they have no salvage value if entry fails.

Product differentiation is perhaps the most important entry barrier in baby care products, over-the-counter drugs, cosmetics, investment banking, and public accounting. In the brewing industry, product differentiation is coupled with economies of scale in production, marketing, and distribution to create high barriers.

Capital Requirements. The need to invest large financial resources in order to compete creates a barrier to entry, praticularly if the capital is required for risky or unrecoverable up-front advertising or research and development (R&D). Capital may be necessary not only for production facilities but also for things like customer credit, inventories, or covering start-up losses. Xerox created a major capital barrier to entry in copiers, for example, when it chose to rent copiers rather than sell them outright which greatly increased the need for working capital. Whereas today's major corporations have the financial resources to enter almost any industry, the huge capital requirements in fields like computers and mineral extraction limit the pool of likely entrants. Even if capital is available on the capital markets, entry represents a risky use of that capital which should be reflected in risk premiums charged the prospective entrant these constitute advantages for going firms.

Switching Costs. A barrier to entry is created by the presence of switching costs, that is, one-time costs facing the buyer of switching from one supplier's product to another's. Switching costs may include employee retraining costs, cost of new ancillary equipment, cost and time in testing or qualifying a new source, need for technical help as a result of reliance on seller engineering aid, product redesign, or even psychic costs of severing a relationship. If these switching costs are high, then new entrants must offer a major improvement in cost or performance in order for the buyer to switch from an incumbent. For example, in intravenous (IV) solutions and kits for use in hospitals, procedures for attaching solutions to patients differ among competitive products and the hardware for hanging the IV bottles are not compatible. Here switching encounters great resistance from nurses responsible for administering the treatment and requires new investments in hardware.

Access to Distribution Channels. A barrier to entry can be created by the new entrant's need to secure distribution for its product. To the extent that logical distribution channels for the product have already been served by established firms, the new firm must persuade the channels to accept its product through price breaks, cooperative advertising allowances, and the like, which reduce profits. The manufacturer of a new food product, for example, must persuade the retailer to give it space on the fiercely competitive supermarket shelf via promises of promotions, intense selling efforts to the retailer, or some other means.

The more limited the wholesale or retail channels for a product are and the more existing competitors have these tied up, obviously the tougher entry into the industry will be. Existing competitors may have ties with channels based on long relationships, high-quality service, or even exclusive relationships in which the channel is solely identified with a particular manufacturer. Sometimes this barrier to entry is so high that to surmount it a new firm must create an entirely new distribution channel, as Timex did in the watch industry.

Cost Disadvantages Independent of Scale. Established firms may have cost advantages not replicable by potential entrants no matter what their size and attained economies of scale. The most critical advantages are factors such as the following:

* Proprietary product technology: product know-how or design characteristics that are kept proprietary through patents or secrecy.

* Favorable access to raw materials: established firms may have locked up the most favorable sources and/or tied up foreseeable needs early at prices reflecting a lower demand for them than currently exists. For example, Frasch sulphur firms like Texas Gulf Sulphur gained control of some very favorable large salt dome sulphur deposits many years ago, before mineral rightholders were aware of their value as a result of the Frasch mining technology. Discoverers of sulphur deposits were often disappointed oil companies who were exploring for oil and not prone to value them highly.

* Favorable locations: established firms may have cornered favorable locations before market forces bid up prices to capture their full value.

* Government subsidies: preferential government subsidies may give established firms lasting advantages in some businesses.

* Learning or experience curve: in some businesses, there is an observed tendency for unit costs to decline as the firm gains more cumulative experience in producing a product. Costs decline because workers improve their methods and become more efficient (the classic learning curve), layout improves, specialized equipment and processes are developed, better performance is coaxed from equipment, product design changes make manufacturing easier, techniques for measurement and control of operations improve, and so on. Experience is just a name for certain kinds of technological change and may apply not only to production but also to distribution, logistics, and other functions. As is the case with scale economies, cost declines with experience relate not to the entire firm but arise from the individual operations or functions that make up the firm. Experience can lower costs in marketing, distribution, and other areas as well as in production or operations within production, and each component of costs must be examined for the effects of experience.

Cost declines with experience seem to be the most significant in businesses involving a high labor content performing intricate tasks and/or complex assembly operations (aircraft manufacture, shipbuilding). They are nearly always the most significant in the early and growth phase of a product's development, and later reach diminishing proportional improvements. Often economies of scale are cited among the reasons that costs decline with experience. Economies of scale are dependent on volume per period, and not on cumulative volume, and are very different analytically from experience, although the two often occur together and can be hard to separate. The dangers of lumping scale and experience together will be discussed further.

If costs decline with experience in an industry, and if the experience can be kept proprietary by established firms, then this effect leads to an entry barrier. Newly started firms, with no experience, will have inherently higher costs than established firms and must bear heavy start-up losses from below- or near-cost pricing in order to gain the experience to achieve cost parity with established firms (if they ever can). Established firms, particularly the market share leader who is accumulating experience the fastest, will have higher cash flow because of their lower costs to invest in new equipment and techniques. However, it is important to recognize that pursuing experience curve cost declines (and scale economies) may require substantial up-front capital investment for equipment and startup losses. If costs continue to decline with volume even as cumulative volume gets very large, new entrants may never catch up. A number of firms, notably Texas Instruments, Black and Decker, Emerson Electric, and others have built successful strategies based on the experience curve through aggressive investments to build cumulative volume early in the development of industries, often by pricing in anticipation of future cost declines.

The decline in cost from experience can be augmented if there are diversified firms in the industry who share operations or functions subject to such a decline with other units in the company, or where there are related activities in the company from which incomplete though useful experience can be obtained. When an activity like the fabrication of raw material is shared by several business units, experience obviously accumulates faster than it would if the activity were used solely to meet the needs in one industry. Or when the corporate entity has related activities within the firm, sister units can receive the benefits of their experience at little or no cost since much experience is an intangible asset. This sort of shared learning accentuates the entry barrier provided by the experience curve, provided the other conditions for its significance are met.

Experience is such a widely used concept in strategy formulation that its strategic implications will be discussed further.

Government Policy. The last major source of entry barriers is government policy. Government can limit or even foreclose entry into industries with such controls as licensing requirements and limits on access to raw materials (like coal lands or mountains on which to build ski areas). Regulated industries like trucking, railroads, liquor retailing, and freight forwarding are obvious examples. More subtle government restrictions on entry can stem from controls such as air and water pollution standards and product safety and efficacy regulations. For example, pollution control requirements can increase the capital needed for entry and the required technological sophistication and even the optimal scale of facilities. Standards for product testing, common in industries like food and other health-related products, can impose substantial lead times, which not only raise the capital cost of entry but also give established firms ample notice of impending entry and sometimes full knowledge of the new competitor's product with which to formulate retaliatory strategies. Government policy in such areas certainly has direct social benefits, but it often has secondary consequences for entry which are unrecognized.

The potential entrant's expectations about the reaction of existing competitors also will influence the threat of entry. If existing competitors are expected to respond forcefully to make the entrant's stay in the industry an unpleasant one, then entry may well be deterred. Conditions that signal the strong likelihood of retaliation to entry and hence deter it are the following:

* a history of vigorous retaliation to entrants

* established firms with substantial resources to fight back, including excess cash and unused borrowing capacity, adequate excess productive capacity to meet all likely future needs, or great leverage with distribution channels or customers

* established firms with great commitment to the industry and highly illiquid assets employed in it

* slow industry growth, which limits the ability of the industry to absorb a new firm without depressing the sales and financial performance of established firms.

The Entry Deterring Price

The condition of entry in an industry can be summarized in an important hypothetical concept called the entry deterring price: the prevailing structure of prices (and related terms such as product quality and service) which just balances the potential rewards from entry (forecast by the potential entrant) with the expected costs of overcoming structural entry barriers and risking retaliation. If the current price level is higher than the entry deterring price, entrants will forecast above-average profits from entry, and entry will occur. Of course the entry deterring price depends on entrants' expectations of the future and not just current conditions.

The threat of entry into an industry can be eliminated if incumbent firms choose or are forced by competition to price below this hypothetical entry deterring price. If they price above it, gains in terms of profitability may be short-lived because they will be dissipated by the cost of fighting or coexisting with new entrants.

Properties of Entry Barriers

There are several additional properties of entry barriers that are crucial from a strategic standpoint. First, entry barriers can and do change as the conditions previously described change. The expiration of Polaroid's basic patents on instant photography, for instance, greatly reduced its absolute cost entry barrier built by proprietary technology. It is not surprising that Kodak plunged into the market. Product differentiation in the magazine printing industry has all but disappeared, reducing barriers. Conversely, in the auto industry, economies of scale increased with post-World War II automation and vertical integration, virtually stopping successful new entry.

Second, although entry barriers sometimes change for reasons largely outside the firm's control, the firm's strategic decisions also can have a major impact. For example, the actions of many U. S. wine producers in the 1960s to step up introductions of new products, raise advertising levels, and undertake national distribution surely increased entry barriers by raising economies of scale in the industry and making access to distribution channels more difficult. Similarly, decisions by members of the recreational vehicle industry to vertically integrate into parts manufacture in order to lower costs have greatly increased the economies of scale there and raised the capital cost barriers.

Finally, some firms may possess resources or skills which allow them to overcome entry barrier into an industry more cheaply than most other firms. For example, Gillette, with well-developed distribution channels for razors and blades, faced lower costs of entry into disposable lighters than did many other firms. The ability to share costs also provides opportunities for low-cost entry. (In Chapter 16 we will explore the implications of factors like these for entry strategy in some detail).

Experience and Scale as Entry Barriers

Although they often coincide, economies of scale and experience have very different properties as entry barriers. The presence of economies of scale always leads to a cost advantage for the large-scale firm (or firm that can share activities) over small-scale firms, presupposing that the former have the most efficient facilities, distribution systems, service organizations, or other functional activities for their size. This cost advantage can be matched only by attaining comparable scale or appropriate diversification to allow cost sharing. The large-scale or diversified firm can spread the fixed costs of operating these efficient facilities over a large number of units, whereas the smaller firm, even if it has technologically efficient facilities, will not fully utilize them.

Some limits to economies of scale as an entry barrier, from the strategic standpoint of incumbents, are as follows:

* Large-scale and hence lower costs may involve trade-offs with other potentially valuable barriers to entry such as product differentiation (scale may work against product image or responsive service, for example) or the ability to develop proprietary technology rapidly.

* Technological change may penalize the large-scale firm if facilities designed to reap scale economies are also more specialized and less flexible in adapting to new technologies.

* Commitment to achieving scale economies by using existing technology may cloud the perception of new technological possibilities or of other new ways of competing that are less dependent on scale.

Experience is a more ethereal entry barrier than scale, because the mere presence of an experience curve does not insure an entry barrier. Another crucial prerequisite is that the experience be proprietary, and not available to competitors and potential entrants through (1) copying, (2) hiring a competitor's employees, or (3) purchasing the latest machinery from equipment suppliers or purchasing know-how from consultants or other firms. Frequently, experience cannot be kept proprietary even when it can, experience may accumulate more rapidly for the second and third firms in the market than it did for the pioneer because followers can observe some aspects of the pioneer's operations. Where experience cannot be kept proprietary, new entrants may actually have an advantage if they can buy the latest equipment or adapt to new methods unencumbered by having operated the old way in the past.

Other limits to the experience curve as an entry barrier are as follows:

* The barrier can be nullified by product or process innovations leading to a substantially new technology and thereby creating an entirely new experience curve. New entrants can leapfrog the industry leaders and alight on the new experience curve, to which the leaders may be poorly positioned to jump.

* Pursuit of low cost through experience may involve trade-offs with other valuable barriers, such as product differentiation through image or technological progressiveness. For example, Hewlett-Packard has erected substantial barriers based on technological progressiveness in industries in which other firms are following strategies based on experience and scale, like calculators and minicomputers.

* If more than one strong company is building its strategy on the experience curve, the consequences for one or more of them can be nearly fatal. By the time only one rival is left pursuing such a strategy, industry growth may have stopped and the prospects of capturing the experience curve benefits long since evaporated.

* Aggressive pursuit of cost declines through experience may draw attention away from market developments in other areas or may cloud perception of new technologies that nullify past experience.


Rivalry among existing competitors takes the familiar form of jockeying for position -- using tactics like price competition, advertising battles, product introductions, and increased customer service or warranties. Rivalry occurs because one or more competitors either feels the pressure or sees the opportunity to improve position. In most industries, competitive moves by one firm have noticeable effects on its competitors and thus may incite retaliation or efforts to counter the move that is, firms are mutually dependent. This pattern of action and reaction may or may not leave the initiating firm and the industry as a whole better off. If moves and countermoves escalate, then all firms in the industry may suffer and be worse off than before.

Some forms of competition, notably price competition, are highly unstable and quite likely to leave the entire industry worse off from the standpoint of profitability. Price cuts are quickly and easily matched by rivals, and once matched they lower revenues for all firms unless industry price elasticity of demand is high enough. Advertising battles, on the other hand, may well expand demand or enhance the level of product differentiation in the industry for the benefit of all firms.

Rivalry in some industries is characterized by such phrases as "warlike," ȫitter," or Ȭutthroat," whereas in other industries it is termed "polite" or "gentlemanly." Intense rivalry is the result of a number of interacting structural factors.

Numerous or Equally Balanced Competitors. When firms are numerous, the likelihood of mavericks is great and some firms may habitually believe they can make moves without being noticed. Even where there are relatively few firms, if they are relatively balanced in terms of size and perceived resources, it creates instability because they may be prone to fight each other and have the resources for sustained and vigorous retaliation. When the industry is highly concentrated or dominated by one or a few firms, on the other hand, then there is little mistaking relative strength, and the leader or leaders can impose discipline as well as play a coordinative role in the industry through devices like price leadership.

In many industries foreign competitors, either exporting into the industry or participating directly through foreign investment, play an important role in industry competition. Foreign competitors, although having some differences that will be noted later, should be treated just like national competitors for purposes of structural analysis.

Slow Industry Growth. Slow industry growth turns competition into a market share game for firms seeking expansion. Market share competition is a great deal more volatile than is the situation in which rapid industry growth insures that firms can improve results just by keeping up with the industry, and where all their financial and managerial resources may be consumed by expanding with the industry.

High Fixed or Storage Costs. High fixed costs create strong pressures for all firms to fill capacity which often lead to rapidly escalating price cutting when excess capacity is present. Many basic materials like paper and aluminum suffer from this problem, for example. The significant characteristic of costs is fixed costs relative to value added, and not fixed costs as a proportion of total costs. Firms purchasing a high proportion of costs in outside inputs (low value added) may feel enormous pressures to fill capacity to break even, despite the fact that the absolute proportion of fixed costs is low.

A situation related to high fixed costs is one in which the product, once produced, is very difficult or costly to store. Here firms will also be vulnerable to temptations to shade prices in order to insure sales. This sort of pressure keeps profits low in industries like lobster fishing and the manufacture of certain hazardous chemicals and some service businesses.

Lack of Differentiation or Switching Costs. Where the product or service is perceived as a commodity or near commodity, choice by the buyer is largely based on price and service, and pressures for intense price and service competition result. These forms of competition are particularly volatile, as has been discussed. Product differentiation, on the other hand, creates layers of insulation against competitive warfare because buyers have preferences and loyalites to particular sellers. Switching costs, described earlier, have the same effect.

Capacity Augmented in Large Increments. Where economies of scale dictate that capacity must be added in large increments, capacity additions can be chronically disruptive to the industry supply/demand balance, particularly where there is a risk of bunching capacity additions. The industry may face recurring periods of overcapacity and price cutting, like those that afflict the manufacture of chlorine, vinyl chloride, and ammonium fertilizer. The conditions leading to chronic overcapacity are discussed in Chapter 15.

Diverse Competitors. Competitors diverse in strategies, origins, personalities, and relationships to their parent companies have differing goals and differing strategies for how to compete and may continually run head on into each other in the process. They may have a hard time reading each other's intentions accurately and agreeing on a set of "rules of the game" for the industry. Strategic choices right for one competitor will be wrong for others.

Foreign competitors often add a great deal of diversity to industries because of their differing circumstances and often differing goals. Owner-operators of small manufacturing or service firms may as well, because they may be satisfied with a subnormal rate of return on their invested capital to maintain the independence of self-ownership, whereas such returns are unacceptable and may appear irrational to a large publicly held competitor. In such an industry, the posture of the small firms may limit the profitability of the larger concern. Similarly, firms viewing a market as an outlet for excess capacity (e.g., in the case of dumping) will adopt policies contrary to those of firms viewing the market as a primary one. Finally, differences in the relationship of competing business units to their corporate parents is an important source of diversity in an industry as well. For example, a business unit that is part of a vertical chain of businesses in its corporate organization may well adopt different and perhaps contradictory goals than a free-standing firm competing in the same industry. Or a business unit that is a ⋊sh cow" in its parent company's portfolio of businesses will behave differently than one that is being developed for long-run growth in view of a lack of other opportunities in the parent. (Some techniques for identifying diversity in competitors will be developed in Chapter 3.)

High Strategic Stakes. Rivalry in an industry becomes even more volatile if a number of firms have high stakes in achieving success there. For example, a diversified firm may place great importance on achieving success in a particular industry in order to further its overall corporate strategy. Or a foreign firm like Bosch, Sony, or Philips may perceive a strong need to establish a solid position in the U. S. market in order to build global prestige or technological credibility. In such situations, the goals of these firms may not only be diverse but even more destabilizing because they are expansionary and involve potential willingness to sacrifice profitability. (Some techniques for assessing strategic stakes will be developed in Chapter 3.)

High Exit Barriers. Exit barriers are economic, strategic, and emotional factors that keep companies competing in businesses even though they may be earning low or even negative returns on investment. The major sources of exit barriers are the following:

* Specialized assets: assets highly specialized to the particular business or location have low liquidation values or high costs of transfer or conversion.

* Fixed costs of exit: these include labor agreements, resettlement costs, maintaining capabilities for spare parts, and so on.

* Strategic interrelationships: interrelationships between the business unit and others in the company in terms of image, marketing ability, access to financial markets, shared facilities, and so on. They cause the firm to attach high strategic importance to being in the business.

* Emotional barriers: management's unwillingness to make economically justified exit decisions is caused by identification with the particular business, loyalty to employees, fear for one's own career, pride, and other reasons.

* Government and social restrictions: these involve government denial or discouragement of exit out of concern for job loss and regional economic effects they are particularly common outside the United States.

When exit barriers are high, excess capacity does not leave the industry, and companies that lose the competitive battle do not give up. Rather, they grimly hang on and, because of their weakness, have to resort to extreme tactics. The profitability of the entire industry can be persistently low as a result.

The factors that determine the intensity of competitive rivalry can and do change. A very common example is the change in industry growth brought about by industry maturity. As an industry matures its growth rate declines, resulting in intensified rivalry, declining profits, and (often) a shake-out. In the booming recreational vehicle industry of the early 1970s nearly every producer did well, but slow growth since then has eliminated the high returns, except for the strongest competitors, not to mention forcing many of the weaker companies out. The same story has been played out in industry after industry: snowmobiles, aerosol packaging, and sports equipment are just a few examples.

Another common change in rivalry occurs when an acquisition introduces a very different personality to an industry, as has been the case with Philip Morris' acquisition of Miller Beer and Procter and Gamble's acquisition of Charmin Paper Company. Also, technological innovation can boost the level of fixed costs in the production process and raise the volatility of rivalry, as it did in the shift from batch to continuous-line photofinishing in the 1960s.

Although a company must live with many of the factors that determine the intensity of industry rivalry -- because they are built into industry economics -- it may have some latitude in improving matters through strategic shifts. For example, it may try to raise buyers' switching costs by providing engineering assistance to customers to design its product into their operations or to make them dependent for technical advice. Or the firm can try to raise product differentiation through new kinds of services, marketing innovations, or product changes. Focusing selling efforts on the fastest growing segments of the industry or on market areas with the lowest fixed costs can reduce the impact of industry rivalry. Also, if it is feasible a company can try to avoid confronting competitors with high exit barriers and can thus sidestep involvement in bitter price cutting, or it can lower its own exit barriers. (Competitive moves will be explored in detail in Chapter 5.)

Exit Barriers and Entry Barriers

Although exit barriers and entry barriers are conceptually different, their joint level is an important aspect of the analysis of an industry. Often exit and entry barriers are related. Substantial economies of scale in production, for example, are usually associated with specialized assets, as is the presence of proprietary technology.

Taking the simplified case in which exit and entry barriers can be either high or low:

The best case from the viewpoint of industry profits is one in which entry barriers are high but exit barriers are low. Here entry will be deterred, and unsuccessful competitors will leave the industry. When both entry and exit barriers are high, profit potential is high but is usually accompanied by more risk. Although entry is deterred, unsuccessful firms will stay and fight in the industry.

The case of low entry and exit barriers is merely unexciting, but the worst case is one in which entry barriers are low and exit barriers are high. Here entry is easy and will be attracted by upturns in economic conditions or other temporary windfalls. However, capacity will not leave the industry when results deteriorate. As a result capacity stacks up in the industry and profitability is usually chronically poor. An industry might be in this unfortunate position, for example, if suppliers or lenders will readily finance entry, but once in, the firm faces substantial fixed financing costs.


All firms in an industry are competing, in a broad sense, with industries producing substitute products. Substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry can profitably charge. The more attractive the price-performance alternative offered by substitutes, the firmer the lid on industry profits.

Sugar producers confronted with the large-scale commercialization of high fructose corn syrup, a sugar substitute, are learning this lesson today, as have the producers of acetylene and rayon who faced extreme competition from alternative, lower-cost materials for many of their respective applications. Substitutes not only limit profits in normal times, but they also reduce the bonanza an industry can reap in boom times. In 1978 the producers of fiberglass insulation enjoyed unprecedented demand as a result of high energy costs and severe winter weather. But the industry's ability to raise prices was tempered by the plethora of insulation substitutes, including cellulose, rock wool, and styrofoam. These substitutes are bound to become an ever stronger limit on profitability once the current round of plant additions has boosted capacity enough to meet demand (and then some).

Identifying substitute products is a matter of searching for other products that can perform the same function as the product of the industry. Sometimes doing so can be a subtle task, and one which leads the analyst into businesses seemingly far removed from the industry. Securities brokers, for example, are being increasingly confronted with such substitutes as real estate, insurance, money market funds, and other ways for the individual to invest capital, accentuated in importance by the poor performance of the equity markets.

Position vis-à-vis substitute products may well be a matter of collective industry actions. For example, although advertising by one firm may not be enough to bolster the industry's position against a substitute, heavy and sustained advertising by all industry participants may well improve the industry's collective position. Similar arguments apply to collective response in areas like product quality improvement, marketing efforts, providing greater product availability, and so on.

Substitute products that deserve the most attention are those that (1) are subject to trends improving their price-performance tradeoff with the industry's product, or (2) are produced by industries earning high profits. In the latter case, substitutes often come rapidly into play if some development increases competition in their industries and causes price reduction or performance improvement. Analysis of such trends can be important in deciding whether to try to head off a substitute strategically or to plan strategy with it as inevitably a key force. In the security guard industry, for example, electronic alarm systems represent a potent substitute. Moreover, they can only become more important since labor-intensive guard services face inevitable cost escalation, whereas electronic systems are highly likely to improve in performance and decline in costs. Here, the appropriate response of security guard firms is probably to offer packages of guards and electronic systems, based on a redefinition of the security guard as a skilled operator, rather than to try to outcompete electronic systems across the board.


Buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other -- all at the expense of industry profitability. The power of each of the industry's important buyer groups depends on a number of characteristics of its market situation and on the relative importance of its purchases from the industry compared with its overall business. A buyer group is powerful if the following circumstances hold true:

It is concentrated or purchases large volumes relative to seller sales. If a large portion of sales is purchased by a given buyer this raises the importance of the buyer's business in results. Large-volume buyers are particularly potent forces if heavy fixed costs characterize the industry -- as they do in corn refining and bulk chemicals, for example -- and raise the stakes to keep capacity filled.

The products it purchases from the industry represent a significant fraction of the buyer's costs or purchases. Here buyers are prone to expend the resources necessary to shop for a favorable price and purchase selectively. When the product sold by the industry in question is a small fraction of buyers' costs, buyers are usually much less price sensitive.

The products it purchases from the industry are standard or undifferentiated. Buyers, sure that they can always find alternative suppliers, may play one company against another, as they do in aluminum extrusion.

It faces few switching costs. Switching costs, defined earlier, lock the buyer to particular sellers. Conversely, the buyer's power is enhanced if the seller faces switching costs.

It earns low profits. Low profits create great incentives to lower purchasing costs. Suppliers to Chrysler, for example, are complaining that they are being pressured for superior terms. Highly profitable buyers, however, are generally less price sensitive (that is, of course, if the item does not represent a large fraction of their costs) and may take a longer run view toward preserving the health of their suppliers.

Buyers pose a credible threat of backward integration. If buyers either are partially integrated or pose a credible threat of backward integration, they are in a position to demand bargaining concessions. The major automobile producers, General Motors and Ford, are well known for using the threat of self-manufacture as a bargaining lever. They engage in the practice of tapered integration, that is, producing some of their needs for a given component in-house and purchasing the rest from outside suppliers. Not only is their threat of further integration particularly credible, but also partial manufacture in-house gives them a detailed knowledge of costs which is a great aid in negotiation. Buyer power can be partially neutralized when firms in the industry offer a threat of forward integration into the buyers' industry.

The industry's product is unimportant to the quality of the buyers' products or services. When the quality of the buyers' products is very much affected by the industry's product, buyers are generally less price sensitive. Industries in which this situation exists include oil-field equipment, where a malfunction can lead to large losses (witness the enormous cost of the recent failure of a blowout preventor in a Mexican offshore oil well), and enclosures for electronic medical and test instruments, where the quality of the enclosure can greatly influence the user's impression about the quality of the equipment inside.

The buyer has full information. Where the buyer has full information about demand, actual market prices, and even supplier costs, this usually yields the buyer greater bargaining leverage than when information is poor. With full information, the buyer is in a greater position to insure that it receives the most favorable prices offered to others and can counter suppliers' claims that their viability is threatened.

Most of these sources of buyer power can be attributed to consumers as well as to industrial and commercial buyers only a modification of the frame of reference is necessary. For example, consumers tend to be more price sensitive if they are purchasing products that are undifferentiated, expensive relative to their incomes, or of a sort where quality is not particularly important to them.

The buyer power of wholesalers and retailers is determined by the same rules, with one important addition. Retailers can gain significant bargaining power over manufacturers when they can influence consumers' purchasing decisions, as they do in audio components, jewelry, appliances, sporting goods, and other products. Wholesalers can gain bargaining power, similarly, if they can influence the purchase decisions of the retailers or other firms to which they sell.

As the factors described above change with time or as a result of a company's strategic decisions, naturally the power of buyers rises or falls. In the ready-to-wear clothing industry, for example, as the buyers (department stores and clothing stores) have become more concentrated and control has passed to large chains, the industry has come under increasing pressure and has suffered falling margins. The industry has been unable to differentiate its product or engender switching costs that lock in its buyers enough to neutralize these trends, and the influx of imports has not helped.

A company's choice of buyer groups to sell to should be viewed as a crucial strategic decision. A company can improve its strategic posture by finding buyers who possess the least power to influence it adversely -- in other words, buyer selection. Rarely do all the buyer groups a company sells to enjoy equal power. Even if a company sells to a single industry, segments usually exist within that industry which exercise less power (and that are therefore less price sensitive) than others. For example, the replacement market for most products is less price sensitive than the OEM market. (I will explore buyer selection as a strategy more fully in Chapter 6.)


Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services. Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost increases in its own prices. By raising their prices, for example, chemical companies have contributed to the erosion of profitability of contract aerosol packagers because the packagers, facing intense competition from self-manufacture by their buyers, accordingly have limited freedom to raise their prices.

The conditions making suppliers powerful tend to mirror those making buyers powerful. A supplier group is powerful if the following apply:

It is dominated by a few companies and is more concentrated than the industry it sells to. Suppliers selling to more fragmented buyers will usually be able to exert considerable influence in prices, quality, and terms.

It is not obliged to contend with other substitute products for sale to the industry. The power of even large, powerful suppliers can be checked if they compete with substitutes. For example, suppliers producing alternative sweeteners compete sharply for many applications even though individual firms are large relative to individual buyers.

The industry is not an important customer of the supplier group. When suppliers sell to a number of industries and a particular industry does not represent a significant fraction of sales, suppliers are much more prone to exert power. If the industry is an important customer, suppliers' fortunes will be closely tied to the industry and they will want to protect it through reasonable pricing and assistance in activities like R&D and lobbying.

The suppliers' product is an important input to the buyer's business. Such an input is important to the success of the buyer's manufacturing process or product quality. This raises the supplier power. This is particularly true where the input is not storable, thus enabling the buyer to build up stocks of inventory.

The supplier group's products are differentiated or it has built up switching costs. Differentiation or switching costs facing the buyers cut off their options to play one supplier against another. If the supplier faces switching costs the effect is the reverse.

The supplier group poses a credible threat of forward integration. This provides a check against the industry's ability to improve the terms on which it purchases.

We usually think of suppliers as other firms, but labor must be recognized as a supplier as well, and one that exerts great power in many industries. There is substantial empirical evidence that scarce, highly skilled employees and/or tightly unionized labor can bargain away a significant fraction of potential profits in an industry. The principles in determining the potential power of labor as a supplier are similar to those just discussed. The key additions in assessing the power of labor are its degree of organization, and whether the supply of scarce varieties of labor can expand. Where the labor force is tightly organized or the supply of scarce labor is constrained from growing, the power of labor can be high.

The conditions determining suppliers' power are not only subject to change but also often out of the firm's control. However, as with buyers' power the firm can sometimes improve its situation through strategy. It can enhance its threat of backward integration, seek to eliminate switching costs, and the like. (Chapter 6 will explore some implications of suppliers' power for purchasing strategy more fully.)

Government as a Force in Industry Competition

Government has been discussed primarily in terms of its possible impact on entry barriers, but in the 1970s and 1980s government at all levels must be recognized as potentially influencing many if not all aspects of industry structure both directly and indirectly. In many industries, government is a buyer or supplier and can influence industry competition by the policies it adopts. For example, government plays a crucial role as a buyer of defense-related products and as a supplier of timber through the Forest Service's control of vast timber reserves in the western United States. Many times government's role as a supplier or buyer is determined more by political factors than by economic circumstances, and this is probably a fact of life. Government regulations can also set limits on the behavior of firms as suppliers or buyers.

Government can also affect the position of an industry with substitutes through regulations, subsidies, or other means. The U. S. government is strongly promoting solar heating, for example, using tax incentives and research grants. Government decontrol of natural gas is quickly eliminating acetylene as a chemical feedstock. Safety and pollution standards affect relative cost and quality of substitutes. Government can also affect rivalry among competitors by influencing industry growth, the cost structure through regulations, and so on.

Thus no structural analysis is complete without a diagnosis of how present and future government policy, at all levels, will affect structural conditions. For purposes of strategic analysis it is usually more illuminating to consider how government affects competition through the five competitive forces than to consider it as a force in and of itself. However, strategy may well involve treating government as an actor to be influenced.

Structural Analysis and Competitive Strategy

Once the forces affecting competition in an industry and their underlying causes have been diagnosed, the firm is in a position to identify its strengths and weaknesses relative to the industry. From a strategic standpoint, the crucial strengths and weaknesses are the firm's posture vis-à-vis the underlying causes of each competitive force. Where does the firm stand against substitutes? Against the sources of entry barriers? In coping with rivalry from established competitors?

An effective competitive strategy takes offensive or defensive action in order to create a defendable position against the five competitive forces. Broadly, this involves a number of possible approaches:

* positioning the firm so that its capabilities provide the best defense against the existing array of competitive forces

* influencing the balance of forces through strategic moves, thereby improving the firm's relative position or

* anticipating shifts in the factors underlying the forces and responding to them, thereby exploiting change by choosing a strategy appropriate to the new competitive balance before rivals recognize it.

The first approach takes the structure of the industry as given and matches the company's strengths and weaknesses to it. Strategy can be viewed as building defenses against the competitive forces or as finding positions in the industry where the forces are weakest.

Knowledge of the company's capabilities and of the causes of the competitive forces will highlight the areas where the company should confront competition and where avoid it. If the company is a low-cost producer, for example, it may choose to sell to powerful buyers while it takes care to sell them only products not vulnerable to competition from substitutes.

A company can devise a strategy that takes the offensive. This posture is designed to do more than merely cope with the forces themselves it is meant to alter their causes.

Innovations in marketing can raise brand identification or otherwise differentiate the product. Capital investments in large-scale facilities or vertical integration affect entry barriers. The balance of forces is partly a result of external factors and partly within a company's control. Structural analysis can be used to identify the key factors driving competition in the particular industry and thus the places where strategic action to influence the balance will yield the greatest payoff.

Industry evolution is important strategically because evolution, of course, brings with it changes in the structural sources of competition. In the familiar product life-cycle pattern of industry development, for example, growth rates change, advertising is said to decline as the business becomes more mature, and the companies tend to integrate vertically.

These trends are not so important in themselves what is critical is whether they affect the structural sources of competition. Consider vertical integration. In the maturing minicomputer industry, extensive vertical integration is taking place, both in manufacturing and in software development. This very significant trend is greatly raising economies of scale as well as the amount of capital necessary to compete in the industry. This in turn is raising barriers to entry and may drive some smaller competitors out of the industry once growth levels off.

Obviously, the trends holding the highest priority from a strategic standpoint are those that affect the most important sources of competition in the industry and those that bring new structural factors to the forefront. In contract aerosol packaging, for example, the trend toward less product differentiation is now dominant. This trend has increased buyers' powers, lowered the barriers to entry, and intensified rivalry.

Structural analysis can be used to predict the eventual profitability of an industry. In long-range planning the task is to examine each competitive force, forecast the magnitude of each underlying cause, and then construct a composite picture of the probable profit potential of the industry.

The outcome of such an exercise may differ a great deal from the existing industry structure. Today, for example, the solar heating business is populated by dozens and perhaps hundreds of companies, none with a major market position. Entry is easy, and competitors are battling to establish solar heating as a superior substitute for conventional heating methods.

The potential of solar heating will depend largely on the shape of the future barriers to entry, the improvement of the industry's position relative to substitutes, the ultimate intensity of competition, and the power captured by buyers and suppliers. These characteristics will, in turn, be influenced by such factors as the likelihood of establishment of brand identities, whether significant economies of scale or experience curves in equipment manufacture will be created by technological change, what will be the ultimate capital costs to enter, and the eventual extent of fixed costs in production facilities. (The process of industry structural evolution and the forces driving it will be explored in detail in Chapter 8.)

The framework for analyzing industry competition can be used in setting diversification strategy. It provides a guide for answering the extremely difficult question inherent in diversification decisions: "What is the potential of this business?" The framework may allow a company to spot an industry with a good future before this good future is reflected in the prices of acquisition candidates.

The framework can also help identify particularly valuable types of relatedness in diversification. For example, relatedness that allows the firm to overcome key entry barriers through shared functions or pre-existing relationships with distribution channels can be a fruitful basis for diversification. All these issues will be explored in more detail in Chapter 16.

Structural Analysis and Industry Definition

A great deal of attention has been directed at defining the relevant industry as a crucial step in competitive strategy formulation. Numerous writers have also stressed the need to look beyond product to function in defining a business, beyond national boundaries to potential international competition, and beyond the ranks of one's competitors today to those that may become competitors tomorrow. As a result of these urgings, the proper definition of a company's industry or industries has become an endlessly debated subject. An important motive in this debate is the fear of overlooking latent sources of competition that may someday threaten the industry.

Structural analysis, by focusing broadly on competition well beyond existing rivals, should reduce the need for debates on where to draw industry boundaries. Any definition of an industry is essentially a choice of where to draw the line between established competitors and substitute products, between existing firms and potential entrants, and between existing firms and suppliers and buyers. Drawing these lines is inherently a matter of degree that has little to do with the choice of strategy.

If these broad sources of competition are recognized, however, and their relative impact assessed, then where the lines are actually drawn becomes more or less irrelevant to strategy formulation. Latent sources of competition will not be overlooked, nor will key dimensions of competition.

Definition of an industry is not the same as definition of where the firm wants to compete (defining its business), however. Just because the industry is defined broadly, for example, does not mean that the firm can or should compete broadly and there may be strong benefits to competing in a group of related industries, as has been discussed. Decoupling industry definition and that of the businesses the firm wants to be in will go far in eliminating needless confusion in drawing industry boundaries.

Use of Structural Analysis

This chapter has identified a large number of factors that can potentially have an impact on industry competition. Not all of them will be important in any one industry. Rather the framework can be used to identify rapidly what are the crucial structural features determining the nature of competition in a particular industry. This is where the bulk of the analytical and strategic attention should be focused.

Copyright &copy 1998 by The Free Press --This text refers to an alternate kindle_edition edition.


In 1984, Apple's "1984" Super Bowl advertisement was created by advertising agency ChiatDay. In 1986, CEO John Sculley replaced ChiatDay with BBDO. [6] In 1997, under CEO Gil Amelio, BBDO pitched to an internal marketing meeting at the then struggling Apple, a new brand campaign with the slogan "We're back." Reportedly everyone in the meeting expressed approval with the exception of the recently returned Jobs who said "the slogan was stupid because Apple wasn't [yet] back." [7]

Jobs then invited three advertising agencies to present new ideas that reflected the philosophy he thought had to be reinforced within the company he had co-founded. ChiatDay was one of them. [8]

The script was written by Rob Siltanen with participation of Lee Clow and many others on his creative team. The slogan "Think different" was created by Craig Tanimoto, an art director at ChiatDay, who also contributed to the initial concept work. The look and feel of the print, outdoor and the photography used was researched, curated, and visually developed by art & design director Jessica (Schulman) Edelstein who, together with Lee Clow, met weekly with Steve Jobs and the team at Apple to hone the campaign in its many forms. Susan Alinsangan and Margaret (Midgett) Keene were also instrumental in developing the campaign further as it progressed and spread throughout the world. Great contributions were made by professionals in all agency departments from account services, to art buying, to production, to contract negotiators and media buyers who secured key placements. The commercial's music was composed by Chip Jenkins for Elias Arts. [8] The sheer size of the team involved, both at the agency and at Apple, proved that work of this magnitude is truly a group effort of many hours and dedication.

The full text of the various versions of this script were co-written by creative director Rob Siltanen and creative director Ken Segall, along with input from many on the team at the agency and at Apple. While Jobs thought the creative concept "brilliant", he originally hated the words of the television commercial, but then changed his mind. According to Rob Siltanen:

Steve was highly involved with the advertising and every facet of Apple's business. But he was far from the mastermind behind the renowned launch spot. While Steve Jobs didn’t create the advertising concepts, he does deserve an incredible amount of credit. He was fully responsible for ultimately pulling the trigger on the right ad campaign from the right agency, and he used his significant influence to secure talent and rally people like no one I've ever seen before. Without Steve Jobs there's not a shot in hell that a campaign as monstrously big as this one would get even close to flying off the ground. it got an audience that once thought of Apple as semi-cool, but semi-stupid to suddenly think about the brand in a whole new way. [8]

Craig Tanimoto is also credited with opting for "Think different" rather than "Think differently," which was considered but rejected by Lee Clow. Jobs insisted that he wanted "different" to be used as a noun, as in "think victory" or "think beauty". He specifically said that "think differently" wouldn't have the same meaning to him. He wanted to make it sound colloquial, like the phrase "think big". [9]

Jobs was crucial to the selection of the historical subjects pictured in the campaign, many of whom had never been featured in advertising, or never would have done so with any other company. He enabled the selection and the speed of negotiation with them or their surviving estates. Some of the particular iconic subjects were chosen because of his personal relationships, calling the families of Jim Henson and John F. Kennedy and flying to New York City to visit Yoko Ono. [10] For the television narration, he called Robin Williams who was well known to be against appearing in advertising and whose wife refused to forward the call anyway, and Tom Hanks was then considered, but Richard Dreyfuss was an Apple fan. [11]

Two versions of the narration in the television ad were created in the development process: one narrated by Jobs and one by Dreyfuss. [11] [9] [12] Lee Clow argued that it would be "really powerful" for Jobs to narrate the piece, as a symbol of his return to the company and of reclaiming the Apple brand. [11] On the morning of the first air date, Jobs decided to go with the Dreyfuss version, stating that it was about Apple, not about himself. [8]

It was edited at Venice Beach Editorial, by Dan Bootzin, ChiatDay's in-house editor, [8] and post-produced by Hunter Conner.

Jobs said the following in a 1994 interview with the Santa Clara Valley Historical Association:

When you grow up you tend to get told the world is the way it is and your job is just to live your life inside the world. Try not to bash into the walls too much. Try to have a nice family life, have fun, save a little money.

That's a very limited life. Life can be much broader once you discover one simple fact, and that is - everything around you that you call life, was made up by people that were no smarter than you. And you can change it, you can influence it, you can build your own things that other people can use.

The minute that you understand that you can poke life and actually something will, you know if you push in, something will pop out the other side, that you can change it, you can mold it. That's maybe the most important thing. It's to shake off this erroneous notion that life is there and you're just gonna live in it, versus embrace it, change it, improve it, make your mark upon it.

I think that’s very important and however you learn that, once you learn it, you'll want to change life and make it better, cause it's kind of messed up, in a lot of ways. Once you learn that, you'll never be the same again.

The Steve Jobs version of the ad was played at Apple's in-house memorial for him in 2011.

Television Edit

Significantly shortened versions of the advertisement script were used in two television advertisements, known as "Crazy Ones", directed by ChiatDay's Jennifer Golub who also shared the art director credit with Jessica Schulman Edelstein and Yvonne Smith.

The one-minute ad featured black-and-white footage of 17 iconic 20th-century personalities, in this order of appearance: Albert Einstein, Bob Dylan, Martin Luther King Jr., Richard Branson, John Lennon (with Yoko Ono), Buckminster Fuller, Thomas Edison, Muhammad Ali, Ted Turner, Maria Callas, Mahatma Gandhi, Amelia Earhart, Alfred Hitchcock, Martha Graham, Jim Henson (with Kermit the Frog), Frank Lloyd Wright, and Pablo Picasso. The advertisement ends with an image of a young girl opening her closed eyes, as if making a wish. The final clip is taken from the All Around The World version of the "Sweet Lullaby" music video, directed by Tarsem Singh the young girl is Shaan Sahota, Singh's niece. [13]

The thirty-second advertisement was a shorter version of the previous one, using 11 of the 17 personalities, but closed with Jerry Seinfeld, instead of the young girl. In order of appearance: Albert Einstein, Bob Dylan, Martin Luther King Jr., John Lennon, Martha Graham, Muhammad Ali, Alfred Hitchcock, Mahatma Gandhi, Jim Henson, Maria Callas, Pablo Picasso, and Jerry Seinfeld. This version aired only once, during the series finale of Seinfeld.

Another early example of the Think different ads is on February 4, 1998, months before switching the colored apple logo to solid white, where an ad aired with a snail carrying an Intel Pentium II chip on its back moving slowly, as the Power Macintosh G3 claims that it is twice as fast as Intel's Pentium II Processor. [14]

Print Edit

Print advertisements from the campaign were published in many mainstream magazines such as Newsweek and Time. Their style was predominantly traditional, prominently featuring the company's computers or consumer electronics along with the slogan.

There was also another series of print ads which were more focused on brand image than specific products. Those featured a portrait of one historic figure, with a small Apple logo and the words "Think different" in one corner, with no reference to the company's products. Creative geniuses whose thinking and work actively changed their respective fields where honored and included: Jimi Hendrix, Richard Clayderman, Miles Davis, Billy Graham, Bryan Adams, Cesar Chavez, John Lennon, Laurence Gartel, Mahatma Gandhi, Eleanor Roosevelt and others. [15]

Posters Edit

Promotional posters from the campaign were produced in small numbers in 24 x 36 inch sizes. They feature the portrait of one historic figure, with a small Apple logo and the words "Think different" in one corner. The original long version of the ad script appears on some of them. The posters were produced between 1997 and 1998.

There were at least 29 "Think different" posters created. The sets were as follows: [ citation needed ]

Set 5 (The Directors set, never officially released)

In addition, around the year 2000, Apple produced the ten, 11x17 poster set often referred to as The Educators Set, which was distributed through their Education Channels. Apple sent out boxes (the cover of which is a copy of the "Crazy Ones" original TD poster) that each contained 3 packs (sealed in plastic) of 10 small or miniature Think different posters.

During a special event held on October 14, 1998 at the Flint Center in Cupertino California, a limited edition 11" x 14" softbound book was given to employees and affiliates of Apple Computer, Inc. to commemorate the first year of the ad campaign. The 50 page book contained a foreword by Steve Jobs, the text of the original Think different ad, and illustrations of many of the posters used in the campaign along with narratives describing each person.

Upon release, the "Think different" Campaign proved to be an enormous success for Apple and TBWAChiatDay. Critically acclaimed, the spot would garner numerous awards and accolades, including the 1998 Emmy Award for Best Commercial and the 2000 Grand Effie Award for most effective campaign in America.

In retrospect, the new ad campaign marked the beginning of Apple's re-emergence as a marketing powerhouse. In the years leading up to the ad Apple had lost market share to the Wintel ecosystem which offered lower prices, more software choices, and higher-performance CPUs. Worse for Apple's reputation was the high-profile failure of the Apple Newton, a billion-dollar project that proved to be a technical and commercial dud. The success of the "Think different" campaign, along with the return of Steve Jobs, bolstered the Apple brand and reestablished the "counter-culture" aura of its earlier days, setting the stage for the immensely successful iMac all-in-one personal computer and later the Mac OS X (now named macOS) operating system.

Product packaging Edit

Since late 2009, the box packaging specification sheet for iMac computers has included the following footnote:

In previous Macintosh packaging, Apple's website URL was printed below the specifications list.

The apparent explanation for this inconspicuous usage is that Apple wished to maintain its trademark registrations on both terms – in most jurisdictions, a company must show continued use of a trademark on its products in order to maintain registration, but neither trademark is widely used in the company's current marketing. This packaging was used as the required specimen of use when Apple filed to re-register "Think different" as a U.S. trademark in 2009. [16]

MacOS Edit

Apple has continued to include portions of the "Crazy Ones" text as Easter eggs in a range of places in macOS. This includes the high-resolution icon for TextEdit introduced in Leopard, the "All My Files" Finder icon introduced in Lion, the high-resolution icon for Notes in Mountain Lion and Mavericks and on the new Color LCD Display preferences menu introduced for MacBook Pro with Retina Display.

Apple Color Emoji Edit

Several emoji glyphs in Apple's Apple Color Emoji font contain portions of the text of "Crazy Ones”, including 1F4CB ‘Clipboard’, 1F4C3 ‘Page with Curl’, 1F4C4 ‘Page facing up’, 1F4D1 ‘Bookmark Tabs’ and 1FA99 ‘Coin’.

Apple.com Edit

On at least five separate occasions, the Apple homepage featured images of notable figures not originally part of the campaign alongside the "Think different" slogan:

  • In 2001, when George Harrison died
  • In 2002, when Jimmy Carter won the Nobel Peace Prize
  • In 2003, when Gregory Hines died
  • In 2005, when Rosa Parks died

Similar portraits were also posted without the "Think different" text on at least seven additional occasions:

  • In 2007, when Al Gore received the Nobel Peace Prize
  • In 2010, when Jerry York died
  • In 2011, when Steve Jobs died [17]
  • In 2013, when Nelson Mandela died [18]
  • In 2014, when the Macintosh turned 30 on January 24, 2014 [19]
  • In 2014, when Robin Williams died
  • In 2016, when Muhammad Ali died [20]

Other media Edit

A portion of the text is recited in the trailer for Jobs, a biographical drama film of Steve Jobs' life. [21] Ashton Kutcher, as Jobs, is shown recording the audio for the trailer in the film's final scene.

The Richard Dreyfuss audio version is used in the introduction of the first episode of The Crazy Ones, [22] a podcast provided by Ricochet, [23] hosted by Owen Brennan and Patrick Jones. [24]

The Simpsons episode "Mypods and Boomsticks" pokes fun at the slogan, writing it "Think differently", which is grammatically correct.

For Steam's release on Mac OS X, Valve has released a Left 4 Dead–themed advertisement featuring Francis, whose in-game spoken lines involve him hating various things. The given slogan is "I hate different." [25] [26] Subsequently, for Team Fortress 2 ' s release on Mac, a trailer was released which concludes with "Think bullets". [27]

Aiura parodies this through the use of "Think Crabing" in its opening. [28]

In the musical Nerds, which depicts a fictionalized account of the lives of Steve Jobs and Bill Gates, there is a song titled "Think Different" in which Jobs hallucinates an anthropomorphized Oracle dancing with him and urging him to fight back against the Microsoft empire. [29]

In the animated show Gravity Falls in episode "A Tale of Two Stans", a poster with the words "Ponder alternatively" and a strawberry colored in a similar fashion as the old Apple logo shows in the background. [30]

In the movie Monster's Inc., If you catch it, at the end of the movie, the character Mike Wazowski picks up a magazine and on the back, there is a picture of a computer with a caption underneath it saying, "Scare Different." [31]


Foundation Edit

The name 'De Beers' was derived from the two Dutch settlers, brothers Diederik Arnoldus De Beer (25 December 1825 – 1878) and Johannes Nicolaas De Beer (6 December 1830 – 20 June 1883), who owned a South African farm named Vooruitzicht (Dutch for "prospect" or "outlook") near Zandfontein in the Boshof District of Orange Free State. After they discovered diamonds on their land, the increasing demands of the British government forced them to sell their farm on 31 July 1871 to merchant Alfred Johnson Ebden (1820–1908) for £6,600. Vooruitzicht would become the site of the Big Hole and the De Beers mine, two successful diamond mines. Their name, which was given to one of the mines, subsequently became associated with the company. [12]

Cecil Rhodes, the founder of the British South Africa Company, got his start by renting water pumps to miners during the diamond rush that started in 1869, [13] [14] when an 83.5 carat diamond called the 'Star of South Africa' was found at Hopetown near the Orange River in South Africa. [14] [15] [16] He invested the profits of this operation into buying up claims of small mining operators, with his operations soon expanding into a separate mining company. [17] He soon secured funding from the Rothschild family, who would finance his business expansion. [18] [19] De Beers Consolidated Mines was formed in 1888 by the merger of the companies of Barney Barnato and Cecil Rhodes, by which time the company was the sole owner of all diamond mining operations in the country. [17] [20] [21] In 1889, Rhodes negotiated a strategic agreement with the London-based Diamond Syndicate, which agreed to purchase a fixed quantity of diamonds at an agreed price, thereby regulating output and maintaining prices. [19] [22] The agreement soon proved to be very successful – for example, during the trade slump of 1891–1892, supply was simply curtailed to maintain the price. [23] Rhodes was concerned about the break-up of the new monopoly, stating to shareholders in 1896 that the company's "only risk is the sudden discovery of new mines, which human nature will work recklessly to the detriment of us all". [19]

The Second Boer War proved to be a challenging time for the company. Kimberley was besieged as soon as war broke out, thereby threatening the company's valuable mines. Rhodes personally moved into the city at the onset of the siege in order to put political pressure on the British government to divert military resources towards relieving the siege rather than more strategic war objectives. [ citation needed ] Despite being at odds with the military, [24] Rhodes placed the full resources of the company at the disposal of the defenders, manufacturing shells, defences, an armoured train and a gun named Long Cecil in the company workshops. [25]

Oppenheimer control Edit

In 1898, diamonds were discovered on farms near Pretoria, Transvaal. One led to the discovery of the Premier Mine. The Premier Mine was registered in 1902 and the Cullinan Diamond, the largest rough diamond ever discovered, was found there in 1905. [26] (The Premier Mine was renamed the Cullinan Mine in 2003). However, its owner refused to join the [27] De Beers cartel. [28] Instead, the mine started selling to a pair of independent dealers named Bernard and Ernest Oppenheimer, thereby weakening the De Beers stronghold. [29] Francis Oats, who became Chairman of De Beers in 1908, was dismissive of the threats from the Premier mine and the finds in German South West Africa. [30] However, production soon equalled all of the De Beers mines combined. Ernest Oppenheimer was appointed the local agent for the powerful London Syndicate, rising to the position of mayor of Kimberley within 10 years. He understood the core principle that underpinned De Beers' success, stating in 1910 that "common sense tells us that the only way to increase the value of diamonds is to make them scarce, that is to reduce production". [28]

During World War I, the Premier mine was finally absorbed into De Beers. When Rhodes died in 1902, De Beers controlled 90% of the world's diamond production. Ernest Oppenheimer took over the chairmanship of the company in 1929, [31] after buying shares and being appointed to the board in 1926. [29] [32] [8] Oppenheimer was very concerned about the discovery of diamonds in 1908 in German South West Africa, fearing that the increased supply would swamp the market and force prices down. [9] [10]

Former CIA chief Admiral Stansfield Turner claimed that De Beers restricted US access to industrial diamonds needed for the country's war effort during World War II. [33]

In May 1955, Ernest Oppenheimer opened the new headquarters which combined the operations of Anglo American and the De Beers group. [34] After Ernest died in November 1957, operation of Anglo and De Beers were passed on to his son, Harry Oppenheimer. [35] Under Harry, the company expanded to several different countries around the globe, including Canada, Australia, Malaysia, Portugal, Zambia, and Tanzania. [36] In South Africa, Harry opposed apartheid, arguing that it hindered economic growth. [37] Despite this, De Beers has been criticized for profiting from the system during the apartheid period. [27] By 1973, Anglo and De Beers accounted for 10 percent of South Africa's gross national product and 30 percent of the country's exports. [38]

Throughout the 1960s and '70s, De Beers attempted to secretly enter the United States' diamond market, being forced to divest its American assets in 1975 to avoid the risk of violating anti-trust laws. [39] Harry Oppenheimer stepped down as the chairman and director of Anglo-American and De Beers in December 1982. [40]

21st-century changes Edit

During the 20th century, De Beers used several methods to leverage its dominant position to influence the international diamond market. [17] [41] First, it attempted to convince independent producers to join its single channel monopoly. When that did not work, it flooded the market with diamonds similar to those of producers who refused to join in, depressing their price and undermining return for the resistant. It also purchased and stockpiled diamonds produced by other manufacturers as well as surplus diamonds in order to control prices by limiting supply. [42] Finally, it bought diamonds when prices fell considerably naturally, to constrict supply and drive their value back up, such as during the Great Depression. [43]

In 2000, the De Beers business model changed [42] because of factors such as the decision by producers in Canada and Australia to distribute diamonds outside the De Beers channel, [17] [41] as well as increasingly negative publicity surrounding blood diamonds, which forced De Beers to protect its image by limiting sales to its own mined products. [44]

The combination of a more fragmented and thus more competitive diamond market, increased transparency, and greater liquidity, [45] caused De Beers' market share of rough diamonds to fall from as high as 90% in the 1980s to 29.5% in 2019. [46]

Seeing these developing trends, the Oppenheimer family announced in November 2011 its intention to sell its entire 40% stake in De Beers to Anglo American plc, thereby increasing Anglo American's ownership of the company to 85% (with the remaining 15% owned by the Government of the Republic of Botswana). [3] The transaction was worth £3.2 billion (US$5.1 billion) in cash and ended the Oppenheimer dynasty's 80-year ownership of De Beers. [2] [47]

Marketing Edit

De Beers successfully advertised diamonds to manipulate consumer demand. One of the most effective marketing strategies has been the marketing of diamonds as a symbol of love and commitment. [48] A copywriter working for N. W. Ayer & Son, Frances Gerety (1916–1999), coined the famous advertising slogan, 'A Diamond is Forever', in 1947. [49] In 2000, Advertising Age magazine named 'A Diamond is Forever' the best advertising slogan of the 20th century. [50]

Other successful campaigns include the 'eternity ring' (meant as a symbol of continuing affection and appreciation), [48] the 'trilogy ring' (meant to represent the past, present, and future of a relationship) and the 'right hand ring' (meant to be bought and worn by women as a symbol of independence). [51]

De Beers ran television advertisements featuring silhouettes of people wearing diamonds, set to the music of 'Palladio' by Karl Jenkins. The campaign, titled "Shadows and Lights" first ran in the spring of 1993. The song would later inspire a compilation album, 'Diamond Music,' released in 1996, which features the 'Palladio' suite. A 2010 commercial for Verizon Wireless parodied the De Beers spots. [52]

In May 2018, De Beers introduced a new brand called "Lightbox" that are made with synthetic diamonds. The synthetic stones start at $200 for a quarter carat to $800 for full carat diamond. The new lab-grown diamond retail for about one-tenth the cost of naturally occurring diamonds. The new brand began selling in September 2018 and are produced in Gresham, Oregon, a $94 million facility using the region's cheap electricity, which opened in 2018 with the capacity for 500,000 rough carats of diamonds per year. [53] [54] [55]

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