Three kinds of competition to have on your radar

In traditional strategic thinking, beating the competition, by finding an attractive position in an attractive industry, is the name of the game. An updated perspective suggests you need to be paying attention to at least three categories of competition.

Traditional strategy textbooks would describe competitors as those making products or offering services that are near-substitutes for whatever you are doing. That is, of course, important! I mean, if you’re selling widgets, of course other widget-makers should be part of your strategic analysis. The encouragement of this short piece (hey, it’s summer vacation season) is not to stop there.

Traditional competition

Traditional competitors occupy a lot of the mind-share of strategy groups, and are often the subject of much maneuvering as rivals seek to gain an advantage over others. Entire strategy texts have been focused on how you can use pricing, positioning, advertising, and clever market entry to gain an advantage over these kinds of competitors.

A terrific podcast that focuses on competition of this nature is Business Wars.   Tesla vs. Detroit. Haagen Dazs vs. Ben & Jerry’s. Gucci vs. Louis Vuitton. This podcast features the maneuvers, the feints, the finances and the emotions behind traditional competition. It makes for riveting listening.

Some of my own work has featured traditional competition, with the idea being that you can sometimes act in such a way that you influence your competitors’ behavior. Using the three qualities of visibility, salience and market power, you can construct a kind of chess board of potential moves. A highly visible move in an arena that your competitor really cares about (for whatever reason) is much more likely to provoke a response than a quiet move in a space they aren’t bothered about. This can sometimes let you change the game by causing them to spend resources in a way that might not have been their strategic preference.

For instance, back in the day (1993), Marlboro brand cigarettes made a decision that baffled many observers – to cut the price of the world’s best-selling cigarette by 20%. It shaved about $10 billion off the value of the company. Strange behavior? Well, not if you look at the big picture. The move totally upended the business models of the low-and-medium tier manufacturers, leading American Tobacco to quit the business altogether and establishing price stability in what was a declining market. On top of that, Philip Morris built additional capacity where demand was growing – in Eastern Europe and Asia.

Emerging / Disruptive Competition

Source : Medium

Clayton Christensen and Joe Bower first introduced the idea of disruptive competition in a 1995 Harvard Business Review article. The theory has become so popular that it is vastly misunderstood, so let’s provide an overview of the basics.

In any sector, there is typically a dominant criteria of competition. For instance, in microprocessors, for years the main criterion was chip speed, because that determine how capable the devices using the chips were – how powerful the software they ran could be, for instance.  As a category evolves, the natural motivation for providers is to get better and better at that dominant criterion, because the best customers will buy more and pay more for it. BUT (here’s the tricky part), eventually incumbents “overshoot” the market and offer so much of that criterion that nobody can use the increased capability. Here’s the unfair part – customers then change what they’re looking for! So we wanted speed, speed, speed, from our chips, but once they got so fast we couldn’t notice any improvement in the software we used, we changed our minds and wanted light weight, long battery life and even fashionable form factors!

This puts traditional competitors at a disadvantage because what used to provide an edge no longer does. Meanwhile, somewhere in the background is a new player who isn’t very good at what the traditional players did, but is good at something else that customers only discover they want once the traditional needs have been met. So chips that consumed very little energy but were slower (gasp) than the best Intel could produce became attractive. That’s the insight that landed Clay on the front cover of Fortune with Andy Grove and catapulted his theory into the heart of business conversation. You can watch an interview with Clay and Des Dearlove of Thinkers50 fame here.

So, ironically, serving your best customers well, in the face of a shift in competitive criteria can undermine the very advantage you so painstakingly built.

Oblique Competition

Finally, we have a category of competition that is particularly germane today. These are oblique, or indirect, competitors. They may not make the same product or service you do. They may not be in your traditional “industry.” They may not be in your line of sight at all. And yet, they can make what you do unnecessary, unattractive or irrelevant. And they can do it in surprisingly short order.

For instance, most newspaper companies were caught entirely by surprise by the rapid erosion of their classified-ads business once Internet-based advertising and free resources such as Craigslist provided the same benefit to users in a more convenient and easy to use approach.

The company formerly known as TransferWise (now Wise) took on traditional international currency trading by figuring out how to perform the effective equivalent of actual currency trading by making local markets. So I’m in Europe and I need British Pounds. Well, there are people in Europe willing to trade those for the Euro that I might have. What TransferWise did (brilliant!) was figure out how to connect those two kinds of buyers. Goodbye, traditional high-fee transaction trading and hello democratization of the currency exchanges.

And of course all those direct-to-consumer businesses that bypass conventional retail are making that way of getting goods and services less relevant across a whole host of categories. Not that these are necessarily good businesses, as I’ve written about before because they have so few entry barriers.

One of my go-to texts on oblique competition is George Stalk’s brilliant book “Hardball.” You can watch our Friday Fireside Chat in which we discuss the principles here.

The encouragement here is not to just focus on your traditional competitors – it can create dangerous blind spots.

Meanwhile, at Valize

We are gearing up for our Fall class cohort for our Customer Insight / Discovery Driven Growth program. It includes 6 rich on-line mini-courses and 6 live sessions with me for an affordable price. We’re also releasing our courses on a single-course only option for those of you that just want the knowledge but don’t have time for the whole shebang.

We’re also advising organizations that want to create new growth programs on how to set up the Discovery Driven Growth system. Reach out at [email protected] to set up a conversation – we’d be delighted to chat with you.