Chapter 4: Business-Level Strategy 115may lose its customers to competitors whose products can provide more value to the focal
firm’s customers. It is also recognized that consumer needs and desires have been changing
in recent years. For example, more consumers desire to have an experience rather than to
simply purchase a good or service. As a result, one of Starbucks’ goals has been to provide an
experience, not just a cup of coffee. Customers also prefer to receive customized goods and
services. Again, Starbucks has been doing this for some time, allowing customers to design
their own drinks, within their menus (which have become rather extensive over time).
Customers also demand fast service. Chipotle Mexican Grill, as noted in the Opening
Case, is a leader in the fast-casual dining segment catering to the millennial generation.
This fast-casual segment, including Chipotle, Panera Bread, Five Guys Burgers and Fries,
Panda Express, and others, has been increasing their presence, as well as growth per
outlet, compared to McDonald’s who has had a difficult time maintaining a level play-
ing field against the fast-casual service speed and per outlet growth. Also, one observer
noted: “A decade ago, there were 9,000 fast-casual restaurants in the U.S., versus nearly
14,000 McDonald’s. Now, fast-casual restaurants number more than 21,000 ... while
McDonald’s U.S. restaurant count has risen only slightly.”^31 Unhappy consumers lead to
lost sales—both theirs and those of others who learn of their dissatisfaction. Therefore,
it is important to maintain customer satisfaction by meeting and satisfying their needs.^324-1e How: Determining Core Competencies Necessary
to Satisfy Customer Needs
After deciding who the firm will serve and the specific needs of those customers, the
firm is prepared to determine how to use its capabilities and competencies to develop
products that can satisfy the needs of its target customers. As explained in Chapters 1
and 3, core competencies are resources and capabilities that serve as a source of compet-
itive advantage for the firm over its rivals. Firms use core competencies (how) to imple-
ment value-creating strategies, thereby satisfying customers’ needs. Only those firms
with the capacity to continuously improve, innovate, and upgrade their competencies can
expect to meet and hopefully exceed customers’ expectations across time.^33 Firms must
continuously upgrade their capabilities to ensure that they maintain the advantage over
their rivals by providing customers with a superior product.^34 Often these capabilities are
difficult for competitors to imitate, partly because they are constantly being upgraded,
but also because they are integrated and used as configurations of capabilities to perform
an important activity (e.g., R&D).^35
Companies draw from a wide range of core competencies to produce goods or ser-
vices that can satisfy customers’ needs. For example, Merck & Co., Inc. is a large pharma-
ceutical firm well-known for its research and development (R&D) capabilities. In recent
times, Merck has been building on these capabilities by investing heavily in R&D. The
new drugs Merck intends to produce are directed at meeting the needs of consumers and
to sustain Merck’s competitive advantage in the industry.^36
SAS Institute Inc. is the world’s largest, privately owned software company and is
the leader in business intelligence and analytics. Customers use SAS programs for data
warehousing, data mining, and decision support purposes. SAS serves 60,000 sites in
139 countries and serves 93 percent of the top Fortune 100 firms. Allocating approxi-
mately 23 percent of revenues to R&D in 2014, a percentage exceeding those allocated
by its competitors, SAS relies on its core competence in R&D to satisfy the data-related
needs of such customers as the U.S. Census Bureau and a host of consumer goods firms
(e.g., hotels, banks, and catalog companies).^37
Many types of firms now emphasize innovation, not only those in high technology
industries. This innovation appears to be driven by customers, along with providing
a product or service that satisfies their customers’ needs in a manner superior to that