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Texas Instruments (TI) fell into the irrelevance trap in calculators and watches. By relentlessly building volume, driving down costs, and lowering prices, TI achieved leading market share in both products. Retail prices for watches and calculators plunged below $15, and TI dominated the volume channels, including supermarkets and discount stores. Casio, Sharp, and Seiko—all Japanese companies—followed TI’s lead in pursuing volume by slashing prices and designing costs out of the products and their manufacturing. But, as prices sank, the Japanese companies introduced new products with many more features than TI’s offerings. Prices were so low, consumers were willing to pay a few dollars extra for features such as solar power, more mathematical functions for calculators, and styling features for watches. Before long, TI’s relentless pursuit of higher volumes and lower costs became irrelevant to consumers, and the Japanese companies took over the categories. If you have not examined your costs, in detail, within the past five years—or if you believe your competitors have not—it is very likely that there exists, lurking somewhere in your cost structure, a major opportunity to improve your profits, weaken your competitor, and expand your influence. There are limits to cost-raising strategy. As important as price is to your customers, they care about other things as well, including product features, quality, time, and status. So, even as you pursue this hardball strategy with gusto, remember the mortal words of Dirty Harry: “A man’s got to know his limitations.”2
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George Stalk Jr. (Hardball: Are You Playing to Play or Playing to Win?)