3c-model

3C Analysis Business Model In A Nutshell

The 3C Analysis Business Model was developed by Japanese business strategist Kenichi Ohmae. The 3C Model is a marketing tool that focuses on customers, competitors, and the company. At the intersection of these three variables lies an effective marketing strategy to gain a potential competitive advantage and build a lasting company.

Understanding the 3C Analysis Business Model

The 3C analysis business model was developed by Japanese business strategist and organizational theorist Kenichi Ohmae in 1982. 

The model first appeared in Ohmae’s book The Mind of the Strategist: The Art of Japanese Business, where he discussed the thinking processes and planning techniques of some of the world’s most successful companies. 

The book was well-received for its ability to empower modern decision-makers to be courageous, innovative, problem-solvers. Indeed, Harvard Business School Professor Michael Porter said that Ohmae’s book was “A fascinating window into the mind of one of Japan’s premier strategists…full of ideas about how to improve strategic thinking.

In essence, Ohmae posited that business success was based on a mix of:

  • The needs of the customer.
  • The strengths of the corporation, and
  • The products and services offered by competitors.

When a firm takes the time to integrate all three components in harmony, it can then develop a sustainable competitive advantage. However, when one of these components is not in balance, the success of the company may be jeopardized.

In the following sections, we’ll take a look at customers, corporations, and competitors in more detail.

Customers

Customers are the most important of the three components, for without customers there can be no company nor any way to gain a competitive advantage. Ohmae believed that customers were the foundation for any strategy and that the goal of any business should be to support the interests of the customer and not shareholders, for example.

Businesses must know their customers intimately so that their marketing strategies resonate with them on a meaningful level. This starts with research and a few questions such as:

  • What is the demographic of the target audience? In other words, who are the customers that a business wants to target? 
  • Why do they make buying decisions? Are they motivated by value, economy, or status? What other problems might they be trying to solve?
  • What are the different segments of a target audience and how might be they marketed to effectively? For example, a consumer who drinks coffee to stay awake will need a different strategy than one who drinks it socially in a café. 

Competitors

A business must know where it stands in relation to its competitors. Is it bigger? Smaller? Is the competition trying to take market share from the business, or is the opposite true?

According to Ohmae, competitor-based marketing strategies involve looking for a point of difference in purchasing, engineering, sales, or servicing. 

This can be achieved in several ways:

Investing in brand image

Ohmae noted that companies such as Sony and Honda were able to sell more than their competitors in the Japanese market because of heavy investment in advertising and consumer relations.

Hito-kane-mono

Japanese business planners believe in the concept of hito-kane-mono, loosely translated as people, money, and things (assets). As a point of competitive differentiation, businesses can ensure these resources are in balance without waste or surplus. For example, managers who are given more money than they can competently spend tend to waste that money unnecessarily. In this case, Ohmae argues that managers should first define their ideas and then adapt a budget to suit.

Profit and cost-structure differences

Different sources of profit can also be exploited, such as the profit seen in new product sales or value-adding services. Large companies with lower fixed-cost ratios can also lower their prices in a stagnant market to gain market share.

Company

The company itself must also look inwardly to design strategies aimed at maximizing strengths relative to the competition. This involves a combination of short and long-term strategies, including:

Specialization

A business should always identify one or two areas of expertise, instead of trying to specialize in everything.

Produce or procure

In terms of manufacturing, a business has two options. It can take advantage of backward integration and take control of its supply chain in the process. Or, it can outsource non-value-adding activities to a third party.

Cost-effectiveness

This is a relatively simple way of gaining a competitive advantage. Businesses can reduce basic operating costs by focusing on processes that have the highest potential for automation or streamlining. Longer-term, businesses can combine resources and knowledge with others in their industry to develop a competitive advantage.

Interpreting the 3C analysis

Interpreting the 3C analysis means taking a look at how each circle overlaps and interacts with the other circles. To better understand these interactions, we have provided a basic explanation of each below:

Customer/company overlap

This provides a competitive advantage in the market where a product is positively perceived by consumers who are more importantly willing to pay for it.

Customer/company/competition overlap

At the intersection of all three circles there is likely to be a price war. In other words, there is little differentiation between the products and services of one company and alternatives from another. With consumers unable differentiate a value proposition, a price war may ensue.

Customer/competition overlap

An undesirable situation where consumers prefer the products and services of a competitor and are willing to pay for them.

Competition/company overlap

When the circles representing competition and company intersect, this may signify an illegal price-fixing situation.

Implementing the 3C analysis

For best results, decision-makers must not attempt to implement each of three components simultaneously. Aside from the unnecessary stress and logistical issues that may arise, a better approach is to focus on the customers first and work from there. Making customers a priority does not mean shareholders are rejected. In fact, a company that has authentic interest in its customers will find that shareholder interests are taken care of automatically.

Once the needs, wants, and demands of the consumer have been identified, the business should then concern itself with other matters. In other words, how does the consumer base perceive its products and services? How does it perceive competitor products? This provides insight into what the competition is capable of doing in the market.

From there, the business must direct resources in such a way that its strengths are maximized and competitive advantage is created. For the model to be effective, it is important to note that the business does not need to excel in every area. It can start with a decisive edge in just one key function and then set about enhancing the other functions.

The 3C model is not complex or convoluted, but it does encourage decision-makers to simplify operations by focusing on customers, competitors, and the corporation at all times.

Key takeaways:

  • The 3C Analysis Business Model suggests a business focuses on three key factors for success – company, customer, and the competition.
  • The strengths of the 3C Analysis Business Model lie in its simplicity, practicality, and emphasis on efficiency to reduce wastage.
  • Customers are crucial to the success of the 3C Analysis Business Model, dictating the strategies formulated for competitors and the company.

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