Tuesday, March 10, 2009

The most popular (and least successful competitive strategy)


Without a doubt the most common competitive strategy that you'll see in the valley is the drag race. It's also the least successful and imaginative.

When companies engage in a drag race they are telling customers that they have similar solutions and the choice should be made based on who has the best features right now. Product Management and Engineering is driven by an endless cycle of trying to 1-up the competition, and often the leader will flip-flop as they each strive to catch up and pass each other.

Ultimately this strategy will always fail. Why? Because all products reach a point of maturity where they do enough for most users. The extra bells and whistles only appeal to a small number of users - while the mainstream now sees that each product as essentially equal.
When you can't compete on extra "gee-whizz" functionality, the inevitable outcome is price competition, and product commoditization. A good example of this is the portable music (MP3) player market (let's ignore the Apple iPOD for the moment) - open up a flyer from your favorite electronics store, and you'll see an endless price battle between the various MP3 player manufacturers - consumers believe that these players all do essentially the same thing - allow you to upload, organize and play music.

There is an alternative - smart companies create their own unique market where nobody else can compete. W. Chan Kim and Renée Mauborgne coined the term Blue Ocean Strategy - "The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant."

Their book and framework for describing strategy is essential reading for any business person - why compete when you can create your own unique market space.

Back to the MP3 player example - Apple created a Blue Ocean by linking the iPOD to iTunes, and creating a business selling music (and other entertainment online). No other MP3 player can compete with the iPOD, simply because they do not have access to iTunes, and cannot deliver the complete experience. It doesn't matter to me what features an iPOD has, as I want to use iTunes - so I don't even compare the competitors - Apple has made them all irrelevant.

Selling a Blue Ocean strategy inside your company is often difficult, as you have to first stop the drag race - a lot of communication and education is required, especially when the sales force has been accustomed to feature selling, and expects a new slew of "competitor killer" features ever quarter or two. Remember that the aim is for the customer to not even want to evaluate the competition, as they see only you can deliver what they need.

You've got to get the sales force and SEs on-side, and you likely will still need to deliver some drag race features until you can deliver on the blue ocean. Find some sales people who succeed at selling a Blue Ocean model and make examples out of them - show the others how they made a sale without getting involved in a long competitive shoot-out.

There are countless more examples of successful Blue Ocean strategies, and my advice to everyone is to head to Amazon and grab a copy of the book. Why not buy a whole lot of them for the marketing team, and the organize a workshop on possible Blue Ocean Strategies.

4 comments:

  1. Hi Phil. Nice post.

    The first time you explain this concept to others, the common first reaction is "we have X, Y, and Z features that are better."

    As you stated, it's more about innovative positioning and selling. Sometimes better articulating the problem and solution is enough, and sometimes you need to target a different (and unserved) buyer. In the book, they talk about "value innovation" and that's the key. Shortening and smoothing the customer's path to realize value is always a winning strategy.

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  2. Phil,
    I enjoyed reading this. The metaphor of the drag race reminds me of the short term focus we would have as children flinging our soap box derby cars down the driveway or nearest hill to see who would "win". Now, I still enjoy car racing (NASCAR, F1, A1, etc.) but now its about the driver/team that I develop loyalty to because of their branding, their style and their race strategies. It's no longer about one race, but the "season"....and next "season" too. The parallels to what you described in consumer buying behaviour with iTunes or enterprise buying behaviour are profound. It is what distinguishes leaders form also-rans.
    Dennis

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  3. And of course the other danger to the drag race strategy is that the company with the largest engineering staff is most likely to win. Smaller companies end up distracting themselves with drag race features instead of focusing on sustainable differentiation.

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  4. Only few companies have done comprehensive researches. Recently I came across this site - ecompetitors.com, which apparently has quality information on many industries. It has got information on the top 10,000 industries. They have created an online model of the global economy which enables quick analysis of one industry or a group of industries.

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