Building and maintaining a competitive advantage in any industry is difficult. I want to make that clear so that what I am about to say is not misinterpreted. If you are charged with building and maintaining a competitive advantage in a mature industry, it is extraordinarily more difficult to be unique than in other industries.
In mature industries, everybody tends to know what everybody else knows. Insights that uncover strategic advantages happen, though they usually lead to gains that are short-lived and more time is spent figuring out how to react than is spent enjoying the advantages. It is no wonder then that many insights uncovered are not leveraged with much urgency: nine times out of 10, it's simply not worth the cost.
So, what if we could identify the one insight out of 10 that is actually worth the cost? From a research perspective it means forecasting the benefits of what we learn. From a management perspective it means breaking out of the shackles and thinking like an entrepreneur.
The catch
Let me start with the catch. The process and assumptions that I am about to explain only seem to apply to mature industries. That being the case let me lay out some characteristics of "mature."
- Success is defined as protecting and/or stealing market share. There are no more adopters.
- Competitive advantage is built by matching and edging the competition.
- Consumers tend to focus on differences between brands more than benefits of the product.
As a result of some of these market constrictions, firms often have a tendency to extrapolate those restrictions onto themselves. This is not always true but it is common. Firms start to operate under the belief that industry structure is a given and that it constrains their actions.
- Customer segments are fixed and differences have to be leveraged.
- Products and benefits are changed incrementally.
- Increasing functionality is almost immediately followed by decreasing prices.
Risk involved
There is risk involved when any brand tries to change the game. On the off chance that you do not have 10 ideas handy that will change the face of your industry, a useful tool to help brainstorm and operationalize ideas is the v-curve, or value curve.
Here are the guiding principles of the v-curve:
- Think like you're new to the industry. This can be really difficult so brainstorm with an intern if necessary.
- Industry conditions can be shaped. Worry about how to do that when you have an idea worth the effort.
- Do not measure against the competition. Worry about them when you have something worth comparing.
- Do not constrain yourself with current capabilities. Worry about it when you have to.
In sum, focus on determining the ideal customer product and on common attributes customers value - not differences.
Be practical
It's fun to have maxims like those outlined above but they have to be practical. So what does it look like in the real world? Here are a few steps to help turn lofty ideas into something that may yield tangible results.
1. Select a mass customer market.
A little counterintuitive, maybe, but it's best to start with your largest customer groups; after all if you're going to really do something big, you want to appeal to a big group. So start with your largest two customer segments.
It's best to use at least two segments so that your ideas do not turn into just the best solutions for a single group of people. The goal is to create a solution that works for many different types of people.
2. Understand buyer experience and cycles.
This is where research is going to come in very handy. You want to make sure that you understand how the segments are interacting with your product/service through the full life cycle of their engagement. What does their interaction look like? Describe each portion of their brand interaction.
Focus groups or IDIs are a common and very useful tool here that will let you define the specifics on each of the following customer interactions: purchase, delivery, use, supplements, maintenance and disposal.
Out of all the steps this is the one that trips up the most people. As managers in these types of industries, you know your businesses better than anyone. However, the questions that need to be answered are not really about your business but about how your customers perceive your business.
3. Identify standard experience attributes.
When you are done with your focus groups, you should walk away with a maximum of 10-14 macro factors for each customer segment. This part can be a little tricky too because macro factors are attributes used to articulate customer experiences and are not inherently important or unimportant. So while some of these factors will be things that are critical to the segment, many may not be important at all.
Over the course of brainstorming and research you will probably have a list of close to 100 attributes for each segment that you simply "must" consider. This will not be helpful to you because we are trying to find big ideas. It's way too early to be dealing with specifics. After you have your list of macro factors for each segment, start to compare your factors between segments to see which they have in common. This is the part that makes it important to have at least two segments participating so that you have multiple customer perspectives.
Your list of factors that apply across segments should have seven or eight attributes; once you have them, you are ready to start some basic measuring.
4. Find your starting point.
Once you have your list of factors that apply across segments, you are ready to start some basic measuring. While this is a separate step, it is nothing elaborate. In fact, the more basic you make this, the more helpful it will be.
Take all of the factors that you identified in step three and place them across the x-axis of a simple x/y graph. Now, rate yourself on the y-axis on how well you do on each
factor. Remember, this is supposed to be simple, so "good," "OK" and "bad" ratings will work just fine.
After you have rated yourself, rate your top two or three competitors for the sake of comparison.
5. Create a new v-curve.
After you have your basic ratings plotted, you are ready to start thinking about your new value curve. In a perfect world, you would start this by running a quantitative study to understand the importance of each of your factors within all of your segments.
I can already hear the protests and see the cost- and time-cutting ideas popping into your head. Here is the thing: Focus groups are not measurement tools; they are focusing tools. It does not do you much good to measure importance among such a small group. The goal of this quantitative portion is to correctly identify the mutually-important attributes among your segments. This is not the same as finding your macro factors. Where before we were looking for common-but-neutral factors that contribute to customer experience, now we need to know which of those factors are more important than the others.
Again, some of you probably think you already know what matters and maybe you do; though in an effort to dissuade you from strategy by gut feeling I will say that while most of these studies come back making intuitive sense, the outcomes are almost never predicted correctly.
Once you determine what is important to your segments as a whole, rate them on the same chart that you had plotted your performance on the same factors. Connect the plots and take a look at your new value curve.
The things that matter
Now you have something real that lets you focus on the things that matter and gives you some permission to walk away from the money pits that don't matter at all. If we focus all of our energy on delivering the things that matter and start ignoring the things that don't we put ourselves in a position to deliver the best possible product for our customers with less effort.
The practical implication of this tool is that it allows you to identify all of the things that are distracting your brand from delivering on the few things that matter. In its purest form, this tool says to take all the resources being used to be OK at a lot of things and just focus on being excellent at a few things. Like many good ideas, it's easier said than done so the trick is knowing what few things are worth that effort.