32. The Law of Concentration

The Laws of Business Success

Under the Laws of Business

Market success comes from concentrating single-mindedly on selling to those customers
you have segmented as being the ones who can most benefit immediately from the unique product or service features you offer in your area of specialization.

To return to the examples of Lexus and Infiniti, these two cars compete in a specific market niche or segment, and their marketing efforts are concentrated on selling to those men and women who can and will pay for a luxury car in the $35,000-$55,000 price range. These are generally well-paid, upwardly mobile, collegee-ducated, white-collar professionals. These are men and women who admire the BMW and the Mercedes-Benz but for whom these cars are out of their price range.

Lexus and Infiniti know that the farther down the price curve they can go with their offerings, the greater the number of potential customers there are within this market segment who will buy the product. While BMW and Mercedes fight it out for the customers who can pay $50,000 to $75,000, Lexus and Infiniti have decided to price their products below those of Jaguar and position themselves in the same area as the highest priced American cars. And their strategy is working for them remarkably well.

The first corollary of the Law of Concentration is
The best high-profit strategy is to dominate a specific market niche with the best product available for those customers in that niche.

An example of dominating a specific market niche is the strategy pursued by the Cross Pen Company. The company has man-aged to position the Cross pen in the minds of American business-people as the premier, high-quality American business pen. The company has pens that range from inexpensive black models through medium-cost silver and all the way up to 18-karat, all-gold luxury writing instruments. No matter how much Parker or Mont Blanc pens attempt to make inroads in the business market, the Cross pen is considered worldwide to be the quality pen for that particular market niche. This dominance has made the Cross Pen Company one of the most successful and profitable small companies in the world.

The second corollary of the Law of Concentration is
Concentration on high-profit market segments with high-profit products and services gives the highest return on sales, return on investment, and return on equity.

The most profitable companies are those selling high-profit products in high-profit markets. They focus on dominating their markets and continually seek ways to innovate and improve their
offerings.

American car companies make their largest unit profits on cars such as the Chrysler Imperial, the Ford Lincoln Continental, and the Cadillac by General Motors. The companies that manufacture the very best, highest quality, most expensive products invariably earn the highest possible profits on the sales of those products. Rolex Watch Company is another example of this.

How you can apply this law immediately:

1. Examine your entire range of product or service offerings. Which of these are the most expensive and which are the most profitable? Are these the same? How could you sell more of your highest profit products or services?

2. Analyze each of your products and services to determine exactly how much it costs you to produce, sell, and service. Then determine exactly how much net profit you realize from the sale of each item. Which products or services represent a lot of economic activity but yield low net profits?

Source: Brian Tracy, The 100 Absolutely Unbreakable Laws of Business Success, Berrett-Koehler Publishers, Inc, (San Francisco, 2000).