For a long time, Ford, Chrysler, and GM followed the same strategy: they built big gas-guzzlers. Asian competitors attacked that model, took market share, and transformed the U.S. automobile industry.
Also for a long time, Yahoo and AOL offered email customers 4MB of storage. Google came out with Gmail and provided a free 1GB email account (250 times as much). Many switched.
In both cases, the new entrants attacked a reliable business model and disrupted a market in which the incumbents competed by cooperating, tacitly agreeing to procedures that ensured that the industry as a whole remained continuously healthy. Indeed, terms like “win-win” and “coopetition” are very common in our contemporary business lexicons. But in many cases, firms fail to separate the necessity of preserving their industries from developing individual survival strategies. They become docile and follow one another. From wireless carriers to broadcast TV, casinos to airlines, we often see an ordered communality within industries. They move in packs regarding features, services, and prices.
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This carries a major risk: an entire complacent industry can be attacked from the outside. It’s not easy, but when it happens, it often reshapes an industry, with major consequences to the old players. In his classic “The Five Competitive Forces That Shape Strategy“, Michael E. Porter showed how you don’t see much innovation when “degree of rivalry” is very low in an industry. Why? Because the entrenched players are depending largely on a communal strategy. Industries where the players are not innovating are easily disrupted by new entrants.
Industries cannot drive consumers as easily as they used to. The customers have more information and exert much more influence in the market. Technology disrupts our needs a lot faster and makes it possible that trends arrive and fade quicker. This is in line with my earlier post that focusing on customer needs is a recipe for disaster; rather, firms must focus on meeting the perception of customers. As social media, technology, and globalization better inform consumers, firms must resist the urge to herd. When everyone does the same thing, new ideas will easily attack the entire industry, not just a particular firm. How did the foreign car brands take away market share from the U.S. Big Three? They built smaller cars and that alone was enough. It might have been harder if Ford, Chrysler, or GM followed different strategies. The foreign brands had only one strategy to beat.
In the airline industry, we have seen Ryanair and other budget carriers in Europe disrupt the industry with very low prices that took market share from the traditional carriers. Sometimes firms give customers more when they should give less, and vice versa. Mastering that balance helps a firm lead and differentiate in its industry. If you provide a competitive price and take away some services, customers will adjust accordingly to your clear differentiation. But if you align your strategies to what everyone else does, be assured that a single business bullet will take you all down.
Author: Ndubuisi Ekekwe