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. The reason is that 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 implement than there is time enjoying the advantaged.
It is no wonder than that many of insights uncovered are not leveraged with much urgency…9 out of 10 times, it’s simply not worth the cost.
So, what if we could identify the 1 out of 10 insights that actually are 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.
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…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, often firms have a tendency to extrapolate those restrictions onto themselves. Granted, this is not always true but it is common. Firms start to operate under the belief that industry structure is now ‘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
There is risk involved when any brand tries to change the game. Think about the airline industry. A while back, Southwest very successfully changed the way the industry operated and became wildly successful (within the context of the industry). Then we look at JetBlue, a company that was started with the intentions of changing the industry based on some of the very same principals and they just couldn’t make it work the same way.
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:
- 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 when you have an idea worth the effort)
- Do not measure against competition (worry about them when you have something worth comparing)
- Do not constrain yourself with current capabilities (worry about it when you have to)
- FOCUS ON DETERMINING THE IDEAL CUSTOMER PRODUCT
- FOCUS ON COMMON ATTRIBUTES CUSTOMERS VALUE…NOT DIFFERNCES
It’s fun to have maxims like that. Here is what that looks like in the real world, or at least these are the steps to help turn lofty ideas into something that may yield something tangible.
1. Select a MASS Customer Market
A little counter-intuitive maybe but its 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 2 customer segments.
It really is best to use at least 2 segments so that your ideas do not turn into just the best solutions for a single group of people…our 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 lifecycle of their engagement.
- What does their interaction look like?
- Describe each portion of their brand interaction.
Qualitative focus groups or IDI’s are a common and very useful tool here that will let you define the specifics on each of the following customer interactions:
Out of all the steps this is the one the 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. There can be a thousand reasons that giving consumer digital rights to music can’t work, but if consumers don’t understand that…none of those reasons really matter.
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.
For example, an airline may walk away with the following for a single segment:
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 is 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 2 segments participating so that you have multiple customer perspectives.
Your list of factors that apply across segments should have about 7-8 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 work just fine.
After you have rated yourself, rate your top 2 or 3 competitors for the sake of comparison. To continue the airline example I have plotted 8 of the attributes listed above in the graph below. For the purposes of explanation, only one competitor will be compared.
5. Create 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 heads. 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 offer up that while most of these studies come back making intuitive sense, the outcomes are almost never predicted correctly. This is probably an argument heard over and over so I’ll leave it at that.
Also, measuring importance has its own set of assumptions and best practices. I’ll have to leave most of it for another time though I will say that asking a thousand people to rank the importance of the attributes is not the most reliable way to get this information.
Back to the Process
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.
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. For example, look at ‘Food Price’. It’s wonderful that our airline rates highly but it is not impacting the customers’ experience…so why waste the money? Or how about out ‘Waiting Lounge Area’? We do an OK job with it but our customers don’t care so why spend that money?
If we focus all of our energy delivering on 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 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 is easier to say than it is do, so the trick is knowing what few things are worth that effort.