The Advantage of Scale part 1

All of these strategies should be pursued together. It is possible to gain additional benefits by building scale, amplifying the effects of hard-to-copy innovations by spreading them across multiple products. (See “Design for Frugal Growth,” by Jaya Pandrangi, Steffen Lauster, and Gary L. Neilson, s+b, Autumn 2008.) For instance, a breakthrough technology or process can be applied to a number of products or categories, as Frito-Lay Inc. (a subsidiary of PepsiCo) did with its “baked” chips innovation. The process allowed the company to produce lower-calorie, less-greasy chips, and it was implemented across the Doritos, Tostitos, Lay’s, and Ruffles brands. Scale can be built up internationally by employing a common platform across geographies, as Nicorette (a brand within Pharmacia AB’s international portfolio at the time) managed to do with its nicotine replacement therapy smoking cessation products. The brand dominates this category in large part because of its coordinated cross-border strategy, encompassing logistics, distribution, regulatory compliance, and consistent messaging that respects local sensitivities.
It’s even possible to gain scale of a kind with a highly nimble, prolific innovation organization. Launching a steady stream of good ideas, as P&G has done in home products in recent years, can give a brand a reputation for fresh thinking that transcends the individual ideas and translates into market share gains. (See “P&G’s Innovation Culture,” by A.G. Lafley, s+b, Autumn 2008.) The rules still apply; any new product must be difficult to copy or it will not maintain its value. But the whole can be greater than the sum of the parts. The brand itself can benefit from an aura of originality that translates into consumer preference and sales.
Finally, we fully recognize that ideas that are difficult to copy are difficult to develop, and mature companies also need a strategy for when such ideas are in short supply. Here, we suggest defying conventional wisdom about being first to market. If a product can be copied, it’s often more profitable to be the copier. Consider the Spanish-owned clothing retailer Zara International Inc. (a subsidiary of Inditex), which has become one of the world’s fastest-growing retailers by combining an efficient supply chain with a successful knockoff strategy. This formidable one–two punch caused LVMH Moet Hennessy Louis Vuitton SA’s Daniel Piette to call it “possibly the most innovative and devastating retailer in the world.”