DISTINCTIONS THAT APPEAL TO A BROAD AUDIENCE Example: American Airlines

After de-regulation of the airlines in 1978, many carriers quickly became mired in price competition and service cutbacks that shortchanged the mainstay of the airline business -the business traveler. Although American used frequent-flier coupons to attract pleasure travelers, the company decided the best way to hold regular prices firm and retain business travelers was to sell service, not prices. It pioneered a two-tier wage structure that held down labor costs, and still managed to stay at the top of the industry in on-time performance, safety and luggage handling. It’s advertising emphasized those statistics, along with the promise to coddle passengers with the best in-flight service possible. American’s market share grew without the company having to resort to cut-throat price competition that knocked some of its competitors out of the air.

DISTINCTIONS THAT APPEAL TO A NARROW AUDIENCE Example: Cray Research Inc.

Cray made its reputation – and its fortune – selling the fastest computers in the world. Sales of slower, smaller “mini-supercomputers,” made by rivals, have been growing fast. But Cray, a Minnesota-based company, has resisted the temptation to make anything less than the fastest, state-of-the-art supercomputers despite hot internal debates and criticism from Wall Street. Cray has decided it should sell a unique product to a narrow group of customers who will pay almost any price for what Cray has to sell. In the high end of the supercomputer markets, profits are fat and the competition is thin. Cray risks losing ground if competitors gradually build bigger and faster machines, but so far its strategy has paid off.