Intro
In this episode of Planet Money, titled “Summer School 2: Competition and the cheaper sneaker,” the hosts explore the concept of differentiation in a crowded marketplace. They discuss how companies can set themselves apart by offering unique features or low prices. The episode focuses on the story of Stefan Marbury and his Starbury sneakers, which aimed to provide high-quality sneakers at an affordable price. The hosts also delve into the Bell Wars, a decades-long battle between two bell companies over different bell designs. Through these stories, listeners gain insights into the importance of differentiation and its impact on competition.
Main Takeaways
Differentiation through Quality and Cost
- Differentiation is key to competing in a crowded marketplace.
- Two primary ways to differentiate are quality and cost.
- Quality differentiation refers to creating a product or service with a unique feature.
- Cost differentiation refers to selling a product or service at a low price.
Stefan Marbury and the Starbury Sneakers
- Stefan Marbury’s Starbury sneakers differentiated themselves by being high quality at a low cost, making them affordable for low-income families and kids.
- Stefan Marbury was inspired to create affordable high-quality sneakers after his mother couldn’t afford to buy him expensive Air Jordans as a child.
- Famous basketball player endorsement deals led to high-priced sneakers, but Stefan wondered if there could be a different way.
- Stefan met Howard Schachter, who worked for a clothing company called Steve and Berries, which sold clothes at low prices by cutting out the middleman and having no advertising budget.
- Steve and Berries wanted to get into the athletic sneaker market and approached Stefan for a collaboration.
- Stefan’s Starbury sneakers differentiated themselves by being high quality at a low cost, making them affordable for low-income families and kids.
- The Starbury line also included clothes that were all $15 or less.
- The sneaker had a price signaling problem, with people thinking that a $15 sneaker couldn’t be good quality.
- Stefan challenged people to try the Starbury and see that it was not 10 times worse than more expensive sneakers.
- The ultimate test was whether an NBA player could wear the $15 sneaker in a real NBA game, which was proven when Marbury wore them in a game on November 1st, 2006.
- Stefan Marbury wore a $15 sneaker in an NBA game, proving its quality and success.
- The sales of the StarBerry sneaker took off, with around 4 million pairs sold in the next year and a half.
- Stefan Marbury earned around $8 million in royalties off of clothes and shoes.
- The $15 sneaker experiment was done when Stephen Berry’s filed for bankruptcy in 2008.
- Stefan Marbury had a second career playing in China, where he became a huge star again and brought back the shoe for a while, but it did not catch on.
- “We actually this little company nobody ever heard of. We made it. We got this NBA star is wearing the sneaker we thought about on court.” – Howard Shactor
- “For the entire season, Stefan Marbury wore a $15 sneaker. The experiment was a success. It had worked.” – Kenny Malone
- “When it comes to differentiation, a lot of it has to do with making sure that all of your choices that you’re making are aligned to the essential feature that’s going to make you distinct.” – Professor Dan Wong
- Jordans differentiate themselves from competitors through high pricing and status symbol.
- Generic sneaker makers are not threatened by Starberries due to affordability difference.
The Bell Wars
- Jake Malta started a new bell company, Mallmark, with a bell design that produced a pure sound by cutting off the tang.
- Schillmerk and Mallmark engaged in a decades-long war over their different bell designs.
- Schillmerich claimed that their original bells with the tang were better, while Mallmark touted the tangless bell as a new concept in handbell design tuning and performance.
- Both sides agreed not to compare their bells to the others’ bells, but salespeople found a workaround by using special awkward phrases to indirectly trash talk the other side.
- Some bell ringers got swept up in the Bell Wars and took sides, with incidents of condescension between customers of each side.
- Jake Malta, head of Mallmark, was eventually awarded $2 million in a legal settlement, which he put into a handbell education fund.
Creating Customer Loyalty and Ecosystems
- Companies can create emotional associations between customers and their product to encourage loyalty.
- Creating a group mentality can also lock in customers to a particular brand.
- Businesses can create an ecosystem of products and accessories to enhance the core product.
Avoiding Direct Competition
- Perfect competition can lead to a race to the bottom in terms of pricing.
- Companies should make choices that differentiate them from competitors to avoid direct competition.
- Differentiation is the main concept for companies to avoid direct competition.
- Companies should offer something of value that their competitors don’t have.
- Perfect competition is when companies can’t differentiate and have to lower their prices, which can bankrupt them.
- Plano Money Summer School differentiates by offering the most efficient business school education in the world for free.
- Listeners can send their business ideas to PlanetMoney at npr.org for a chance to be featured on the final graduation episode.
Summary
Differentiation in a Crowded Marketplace
In a crowded marketplace, companies need to differentiate themselves to stand out. This can be achieved through quality differentiation or cost differentiation. Quality differentiation involves creating a product or service with a unique feature that sets it apart from competitors. Cost differentiation, on the other hand, refers to selling a product or service at a low price. Stefan Marbury’s Starbury sneakers exemplify both quality and cost differentiation, as they offered high-quality sneakers at an affordable price, making them accessible to low-income families and kids.
The Success of the Starbury Sneakers
Stefan Marbury’s collaboration with Steve and Berries resulted in the creation of the Starbury sneakers, which were priced at $15 and offered the same quality as more expensive sneakers. Despite initial skepticism, Marbury wore the $15 sneakers in an NBA game, proving their quality and success. The Starbury sneakers gained popularity, with millions of pairs sold. However, the venture faced challenges, and eventually, the company filed for bankruptcy. Stefan Marbury’s story highlights the power of differentiation and the potential for success in offering affordable, high-quality products.
The Bell Wars: Differentiation and Competition
The Bell Wars between Schillmerk and Mallmark demonstrate the fierce competition that can arise from differentiating products. Both companies had distinct bell designs and engaged in a decades-long battle over their superiority. The conflict even extended to customers, with incidents of condescension between supporters of each brand. Ultimately, Mallmark’s founder, Jake Malta, was awarded $2 million in a legal settlement. This story underscores the importance of differentiation in establishing a competitive edge and the lengths companies may go to protect their unique offerings.
Creating Customer Loyalty and Avoiding Direct Competition
Companies can create customer loyalty by establishing emotional associations and fostering a sense of belonging. Additionally, building an ecosystem of products and accessories around a core product can enhance customer satisfaction and loyalty. By differentiating themselves from competitors, companies can avoid direct competition and the race to the bottom in terms of pricing. Perfect competition, where companies are unable to differentiate, can lead to financial challenges and even bankruptcy. Planet Money’s Summer School offers a differentiated approach to business education, providing efficient and free learning opportunities for aspiring entrepreneurs.
Conclusion
Differentiation is crucial in a crowded marketplace, whether through offering unique features or competitive pricing. Stefan Marbury’s Starbury sneakers and the Bell Wars between Schillmerk and Mallmark exemplify the power of differentiation in establishing a competitive edge. By creating emotional associations, fostering loyalty, and avoiding direct competition, companies can thrive in the marketplace. Planet Money’s Summer School provides valuable insights into the world of business and entrepreneurship, encouraging listeners to explore their own innovative ideas.
