The Nature of Competition

Experience is the only thing that creates a sustainable competitive advantage. This is the nature of competition.

Economists have argued for centuries about that nature of competition.

According to Adam Smith in the 18th century, every individual “intends only his own gain.” Therefore, he exchanges what he produces with others who sufficiently value what he has to offer. One thing many economists agree on is the elusive nature of individual utility. What one man values, others often ignore. This simple fact is what drives human innovation and ingenuity.

I was taught many things about competition and positioning in the course of earning my MBA, We read about Michael Porter’s five-forces model, Jerome McCarthy’s 4 P’s of Marketing, and a few other generic frameworks which invariably describe the relationship between cost and target positioning. One which stuck with me, as I have seen it used countless times in business, is a more traditional contextual model for determining the positioning of your product, your services and ultimately for your firm called “The Tradeoff Triangle.”

In the software development and project management industries, it is called the “Iron Triangle” and it is used to force conversations about constraints and compromises which must be dealt with when running a project or a business. It may serve as an important contextual model in those spaces for having “in-the moment” discussions about tradeoffs. The three components of the triangle are speed or convenience, quality and price or cost. We are told we must purposefully choose two of the three to focus on because it is not possible to dominate in all three.

I believe this line of thinking might have been useful in a previous age where slow, massive advertising led almost all sales. Today, however, much has changed. The competitive playing field has been leveled as Thomas Friedman’s work in “The World is Flat” unequivocally demonstrates. But we are in a complicated race. Let me explain.

Speed or Convenience: In a world in which we are always connected and always on, immediate gratification is expected.

If you are not capable of providing your product or service to your customer when and where they need you your competitor will. If you are not fast and you are not convenient, you will not be slow and inconvenient for very long. You will be gone. Everyone has a cell phone in their pocket with instant access to all of your competitors. They don’t even have to press a button, they can just ask their device for it.

Quality: In a world of hyper connected social media, product or service quality is expected.

People make decisions around crowd-sourced rating data every day and consumers are not afraid to speak out on social media for the world to hear when you drop the ball. Your customers can find each other and have conversations with a few simple clicks. There is nowhere to hide if your products and services suck. You simply have to be great at what you do to compete in the future.

Price: In a world of near perfect information symmetry between marketers, consumers and competitors, pricing your product or service fairly is necessary.

You can be more expensive than your competitors, but you must be able to rationalize the difference in the value you provide. While many services are being commoditized and you cannot get away with price gouging, we are not all on a race to zero. Chris Anderson in his book “Free: The future of a radical price,” the author talks a lot about the things being commoditized. But there is one thing is difficult to sustainably commoditize.

Sustainable competitive advantage comes from the way you make your customer’s feel.

But there is one thing that has never been commoditize-able: Experience

Experience is the final frontier of competition.

Howard Shultz, Jeff Bezos, Steve Jobs and Walt Disney all built successful companies by focusing on their most important goal, which is to build advocates through memorable and thoughtful customer experiences.

With Apple, for example, the performance specs on their hardware devices aren’t near what you can get built into other comparable devices at a similar price. When you buy their products, you are even locked into their closed ecosystem and are forced to use the ever changing and proprietary connection systems which Apple puts into their products. However, Apple consistently provides the best in class experience for their consumers. It is an experience competitors have found difficult to replicate even though they are fervently trying. From pre-sales to purchase, to opening the box, all the way to product upgrades when their product reaches the end of its useful life, Apple has mastered the consumer experience. Amazon also takes this customer focused and experience-based approach to everything they build because it works.

Starbucks doesn’t sell a cup of coffee. They have mastered experience as a competitive differentiator and have created a tribe of consistently loyal customers with their service.

“Starbucks is not an advertiser; people think we are a great marketing company, but in fact we spend very little money on marketing and more money on training our people than advertising.” — Howard Schultz”

Think about the last time you saw a Starbucks advertisement. Starbucks makes sure every detail around your experience and every person in their firm is trained and hyper-focused on the customer experience.

Experience is the differentiator with the most transformative and disruptive power.

It explains why Starbucks, as well as Disney, Amazon and Apple are such powerful brands. The products these companies produce are not much better than their competition. They have, however, figured out how to compete on experience. As a result, their consumers are happy to pay a fair premium for the products and services those companies provide.

The same is true of most successful companies today. Not only do the leaders obsess about their customers and the experience their firms produce for them, they purposefully create a culture which purposefully puts people at the center of everything they do and they work to create a great experience for all of them.

So yes, quality, speed and price do matter. It also matters to some of your customers whether or not your product is available in fire-engine red or lilac lavender. Some will also decide to buy your product today based upon the available feature set. But at the end of the day, you create a sustainable competitive advantage when you focus on understanding your customers and the problems you are capable of solving for them in ways which will convert as many of them as possible into advocates. In the graph below, I show how staying as focused as possible on the core group of people whom you can turn into advocates is a key.

When you do this well, the puzzle pieces fit together for your community of core advocates and you have your sustainable competitive advantage.

To compete tomorrow, we need to think about how we are making our customers feel today.

If you like this and find it valuable, please share it. If you use it, please let me know what you learn!

Originally published here: https://medium.com/@TheSeanFlaherty/the-nature-of-competition-edce70771b1a

References and further reading:

The World is Flat by Thomas Friedman

Free: The future of a radical price by Chris Anderson

An Inquiry into the Nature and Causes of the Wealth of Nations by Adam Smith

Competitive Advantage by Michael Porter

Basic Marketing by Jr. William D. Perreault, Joseph P. Cannon, E. Jerome McCarthy

Howard Shultz Video

Jeff Bezos Video

Steve Jobs Video