Monday, January 19, 2015

Strategic Planning Analogy #544: Competitor or Co-Conspirator

For decades—in fact for most of the 20th Century—baseball was America’s sport. It captivated the minds of the people and was their sporting passion. Nothing else came close.

There was all sorts of competition in baseball, with the players battling it out over the summer to see which team would come out on top and win the World Series Championship. The fans were captivated by every nuance in every game.

But gradually, over the latter part of the century, American Football started winning over the hearts of the sports enthusiasts. Today, football has become America’s sport. Sports enthusiasts are captivated by every nuance in every football game. Outside of New York City and Boston, most sports fans really only get a bit interested in baseball in the post-season. Television viewership of baseball during the season is miniscule compared to the ratings for football.

It makes you wonder…where did the real competitive battle in baseball take place? Was it on the field between baseball teams or was it in the hearts and minds of the sports fan at home? They may still be winning baseball games, but they lost the battle in the mind.

An important aspect of business strategy is competitive strategy. The idea is to develop a plan to win share versus the competition. Why? Winners tend to reap the majority of the financial rewards, so the goal is to find a way to beat the competition and win. The result is a strategy with a focus on the competition.

The problem is that the competition are not the ones purchasing products. The consumer is. The consumer is the one who ultimately determines your success, not the competition.

If you are not careful, you could end up in the situation like baseball. You could become so focused with beating the competition (the other baseball teams), that you fail to see that the consumer (the sports fan) is abandoning baseball and consuming football. You may win the baseball game, but lose the fan, which is the greater loss.

In business, Kodak was so focused on beating Fuji that it failed to act sufficiently on the customer abandoning both and moving to digital imaging. Target and Walmart were so busy battling each other that they let Amazon grab a huge chunk of the market. Pepsi and Coke spent years fighting each other while the market for cola in the US was shrinking and the customer was abandoning colas for coffee, tea and healthier alternatives.

Competitive strategies may be nice, but consumer strategies are better.

The principle here is that the real competition are not the companies that tend to look and act a lot like you. Instead, the real competitor is the one who can render your entire product category obsolete (or at least a lot less relevant). In baseball, the real competition was not other teams that wore similar baseball uniforms and played a similar game of baseball. No, the real competitor wore something a lot different (football uniforms) and played something a lot different (football).

In fact, I will contend that those who look like you really aren’t your competition, but are more like a co-conspirator. You actually work together to keep your category relevant. The noise you both make in the marketplace usually doesn’t change market share all that much. But is does draw attention to the category. So, in a sense, you are both working together on the same side—the side that wants customers to still be in love with your category.

Mature Market Stability
The more mature the market, the more this principle is true. Just look at the mature product categories found in the supermarket. Executives at the companies in these mature categories (like cereal and canned goods) go crazy with celebration when they can move their market share a small fraction of 1%.

Why are they so excited about so little? It is because mature markets tend to be very stable. Brand images are set, habits are ingrained, and preferences between brands in the category are etched in stone. There is little that can be done to move the needle, so any movement, even small ones, are celebrated.

We’re even starting to see this now in traditional computers. The market rankings are becoming stable and changes in share from quarter to quarter are hardly noticeable. The only sizable movement is from consumers moving their purchasing to other devices, like smartphones. So who is the real competition for computers? It’s the devices that don’t look like computers. That’s where the real gains and losses occur.

In fact, the vast majority of business categories are fairly mature. Rapid competitive movement is rare in most sectors. Unless someone comes up with a major technological breakthrough, share doesn’t move much. And even then, the gain is usually temporary as the others find a way to catch up.

The only meaningful movement is between categories. It’s a battle between teams wearing entirely different uniforms and playing different games.

The Response
With this in mind, how should companies respond?

First, they need to define themselves by what consumer needs they are satisfying rather than what product they sell. As mentioned earlier, the consumer is the one who decides the winner, not the competition. The customer is purchasing solutions to problems. If an entirely different product better solves their problem, then they will abandon their old category for an entirely new one. So if you want to win, see the world like the consumer and take off those product category blinders.

For example, Bausch & Lomb defined itself as being in the vision solution business rather than the lens manufacturing business. Bausch & Lomb saw its competition not as other lens makers but as anyone who was improving vision. As a result, when newer, non-lens businesses started offering better vision (like Lasik surgery), Bausch & Lomb was there, establishing a leading position.

If you define yourself by your product, your firm will die when your product category is replaced by something new. If you define yourself by consumer solutions, you will always have relevancy.

Second, don’t just focus on the same old competitors who are similar to you. Keep one eye on the periphery. Look for what the leading edge people are doing…what is coming next. Look for the new thing that will make you the obsolete thing. Look for the exciting thing wearing a different uniform. Look for the new rules that turn the tables.

Rarely is the real action taking place between competitors approaching the market in a similar way. Instead, the big action is between dis-similar solutions to the same problem. In fact, your traditional competition is more like a co-conspirator, working with you to create interest in your product category. Therefore, focus more of your effort on aligning with the consumer rather than beating up the similar competition. After all, the consumer is doing the spending, not the competition. And they aren’t limited to spending it just in your category.

I suppose that someday American Football will be replaced in popularity by something else. The wheel of change never stops.

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