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March 31, 2007
Competitive Separation vs. Competitive Advantage
Posted by my colleague, Bob Cooper, for Driving Organic Growth group.
In an effort to further the discussion comparing competitive advantage vs. separation, I would like to introduce a very powerful tool developed by McGrath and MacMillan that is summarized in perhaps the greatest business book ever written – The Entrepreneurial Mindset. The tool is the Attribute Map and it shows the dynamic nature of how your target customers react to your offering’s attributes:
The labels going down the table POSITIVE, NEGATIVE, OR NEUTRAL describe the type of reaction from the customers. Obviously, the more positive and less negative the better. The labels on the top of the table BASIC, DISCRIMINATORS, and/or ENERGIZERS define the intensity of the reaction.
For the BASIC category:
- A POSITIVE defines table stakes – you need these attributes to play and you are conspicuous by their absence (Non Negotiable)
- A NEGATIVE defines attributes that the customer is willing to tolerate (Tolerable) if there is no other alternative.
- A NEUTRAL is one that has no or little impact (So What) on the customer but does add cost
The DISCRIMINATORS
- Differentiate between competitors to influence the purchase decision. The POSITIVE (Differentiator) attribute is in the positive direction and the NEGATIVE (Dissatisfier) is in the negative direction.
- The NEUTRAL is an influencer to the purchase decision but is not directly related to the purchase
The ENERGIZER:
- Attributes are so powerful that they overwhelm the purchase decision either positively –the Exciter – or negatively – the Enrager
An example, I usually illustrate the power of the Attribute Map using the history of the Big 3 auto dealers in the 70”s and 80”s when the Japanese initiated their onslaught of the U.S. market. At this time the U.S. consumer TOLERATED the poor quality of their automobiles from Detroit because there was no alternative. The Japanese came in pushing their superior quality and created a revolution since their new offering EXCITED the U.S. consumer toward their cars and shifted the attitude towards the Big 3 from TOLERABLE to a negative DISCRIMINATOR or even to ENRAGERS. Your ideal move against competition is to EXCITE your customers with a new offering while at the same time shifting their attitude towards the competitors to the negative. Interestingly, car quality is now considered a BASIC attribute. This dynamic shift usually occurs over time – this dynamic is what drives the Fair Value Line discussed in the last positing to the right in the Value Map.
Now lets discuss competitive advantaged vs. competitive separation in the context of the Attribute Map. If you have a strong competitive advantage, i.e., you are superior to competition, in an attribute that is considered a DISCRIMINATOR or an ENERGIZER by your customers, then you will achieve competitive separation. If your advantage is in an attribute that is BASIC or even worse, a NEUTRAL, you will not achieve competitive separation!! The goal should be competitive separation, not just advantage. Never assess your competitive position without real insight into what your customer really wants/needs.
Another issue is when is “just good enough” ok versus “best in class” or “unique in class”; the latter two usually costs vs. the first. Again, realizing that competitive separation is the goal, you should focus your added efforts to achieve “best or unique in class” for DISCRIMINATOR or ENERGIZER attributes, not BASIC or NEUTRAL categories.
Posted by market at 11:10 PM | Comments (0)
March 18, 2007
Is Web 2.0 a bubble?
I was recently asked to comment on whether Web 2.0 is a 'bubble' - here's what I think.
Both web 2.0 and the dot.com surge are/were driven by a common human bias: this is to over-state the implications of major societal/business/regulatory changes in the short term and to under-state them in the longer term. The dot.com era companies were, in many cases, prescient. The problem was that they did not quite factor in how long the changes would require to generate cash flows in the near term.
If you look at the statistics, a lot of the predictions made for the dot.com era have by now come true. The Web is destabilizing industries ranging from media to retail to telephony. More and more people all over the world are buying via e-commerce. I believe something like 30% of retail transactions have some e-commerce aspect to them (whether it is searching or getting information as well as actually ordering on line). Efficient markets for everything from the stuff in your closet (eBay) to obscure sound tracks (ITunes and other sites) and even your mate (think match.com) have been facilitated by the Web. It just took 13 years, not 3, for the changes anticipated to become a reality.
The other big myth is that first-mover advantage will go to the biggest and earliest entrant. We found it wasn’t true in the Dot.com era (think Value America or WebVan), and I predict it won’t be true in the social networking/YouTube/Myspace era either. The extent to which a model is sticky is vastly over-estimated in my opinion. If all my friends are on Myspace and I go there because of that, what happens when they all move to another place? What’s to prevent them? More importantly, what happens when a site like myspace is
...so yesterday, my kid sister is on that...
and the hunt begins for a newer cooler place to be?
A lot of the flurry over web 2.0 is simply the realization of the power of the Internet and the maturing of some business models (eg, advertising based models) that were NOT foreseen during the dot.com era. Indeed, remember when everyone was so hot on eyeballs but nobody knew why? My poster child on this one is the $780 million Excite@home paid for Blue Mountain Arts, a free greeting card site that had 54 million unique subscribers, but no revenue model. Well, we’ve now found the revenue model and it is advertising. Excite had to sell the site for a humiliating $25 million a short time later to American Greetings. Today, it’s Provide Commerce selling roses to go with the cards that is racking it in, affiliated with the Blue Mountain site.
So what you are seeing now is a resurgence of investment and interest because the Internet-based revenue model (like the TV and radio models that came before it) promise to redirect the billions companies spend on advertising to where users are actually spending time.
Will it have some bubble like features? Absolutely. This unfortunately seems to be how we learn as a society about new business models in a major way. Bubbles have accompanied just about every major technological transition in our economy. Are there some differences between the dot.com era and now? Yes.
Some differences:
There is more emphasis today on having a revenue model and something to actually sell
More and more young companies are building up to be bought out, rather than to go IPO. This means that they are targeting a useful innovation for another company (like Google) rather than trying to lure investors into a big-bang IPO.
There is a bit more maturity about the whole Web phenomenon and investors are looking more for the fundamentals.
Many smaller businesses can now be started for a song, so the downside is lower if they fail.
Are there some dangerous similarities we should be alert to? You betcha
Waaaaay too much money sloshing around looking for a home. When $50 billion companies are in play by hedge funds and private equity investment firms, you know that some big investors, desperate for higher returns, are going to start getting a little careless about their investment standards just to get/keep the deals flowing. That behavior feeds a bubble in almost all cases.
This has the effect, counter-intuitively, on making normal M&A too expensive for normal companies. What that does is begin to put a premium on organic innovation (growth from within through corporate venturing) as well as smaller acquisitions to create new capabilities for established companies.
While all of this works as long as the party continues, once we start to see some of those debt-ridden large companies stall in the market or there is more regulation of these investment vehicles or interest rates come up, or risk appetites sharply drop, it’s like a game of musical chairs – the last investor standing will be dealing with a sharp loss of value.
Posted by Rita at 07:22 PM | Comments (0)
Swiss Re goes 'green'
Swiss Reinsurance, one of Rita's clients, has capitalized on a brilliant play in what we've sometimes called new market tectonics. What's come together is the increasing relevance and urgency around global warming with a market mechanism that creates financial incentives for trading in carbon credits. The Swiss Re folks realized that the Kyoto Protocol imposes legally binding commitments to reduce or offset greenhouse gases on the 36 countries that have joined. Where does Swiss Re come in? Realizing that some projects may fail to meet Kyoto targets and providing protection for investors. This further's Swiss Re's traditional role of making risky projects more affordable, while at the same time supporting investment in green projects. A great MarketBusting move!
Posted by Rita at 07:16 PM | Comments (0)
