Winning Without Playing: Taylor Swift, Tesla Car and Market Competition
Competitive advantage is a myth
What’s the difference between a Tesla Car and Taylor Swift?
No sign can clearly show whether or not a company will be successful. But one indication tells me that a company may be I trouble – its leaders' reasoning about ‘competitive advantages.’
The nature of competition or Coffee-spilled laptop
Imagine that you’ve just spilled coffee on your laptop (I’ve done it, so I know how awful it feels). It’s not showing vital signs.
You have deadlines to meet, so you rush to a computer store for a new laptop.
You know for sure that you need a laptop – not a tablet, for instance. And you have, say, only $1000 in your pocket.
So, a brand offering you the best portable computer for $1000 will have a ‘competitive advantage’ – and your money.
In this particular case, the classic economic theory works by the book. But it happens only if all four conditions are met:
Customers clearly realize their needs (a laptop)
Their resources are indeed limited ($1000), and competitors in the market compete for them
Consumers believe they know the best solution (to buy a laptop in the store) for their task
The best solution is only one (the best laptop for $1000)
But in many situations in which these conditions don’t work. And you may use it to succeed.
1. Customers and their needs
All humans, including you and me, share the same sixteen basic needs. But they rarely realize these needs. Moreover, they often don’t understand how much they want what they want.
For instance, we are social creatures. We love to communicate. We constantly compare ourselves with others in the hope that we are better than them – or out of fear that we are worse.
Centuries ago, we lived in small groups. We didn’t care about what happened in neighboring villages, let alone across the ocean. Face-to-face conversation and gossiping were the only ways to fulfill our social needs.
We had no idea we could become fans of Skype, Zoom, cell phones, WhatsApp, Instagram, TikTok, or email. But entrepreneurs who brought smartphones and social platforms into our lives were thinking deeper. They understood the power of basic needs and leveraged them.
They didn’t think much of a competitive advantage because they had no competitors.
Why exactly do you need a new laptop? Why do you need to meet those deadlines? I’ll expand on this below in the article.
Conclusion #1
Dive deeply into these needs. Find those that might be satisfied better or more effectively.
2. Are a customer’s resources really limited?
Richard Thaler is an American economist. He won the Nobel Prize for proving that consumers aren’t rational creatures. His book Misbehaving: The Making of Behavioral Economics became a big hit.
Have you seen people who buy the trendiest smartphones or cars while having mortgage debts or struggling to pay rent? Have you ever spent more than planned on shoes, gadgets, or furniture?
When a customer is going to buy a product or service, they have the idea of the fair price for it in their mind.
Fair price = resources they are willing to expend on solving the problem.
But it doesn’t mean it never changes.
Many years ago, when I was the CEO of a large company, I was choosing an ERP system. I had a vision of how much money I was willing to invest in it.
However, after a series of meetings with software developers, I changed my mind and decided to invest more resources in the hope of getting better outcomes.
It may also happen that when you come to a computer store with only $1000 in your pocket, you’ll change your mind and by a more expensive but more powerful laptop.
Conclusion #2
Competitive advantage is a battle between different companies for scarce resources. But Customers have more resources than they think (and you think) they do.
If you can convince them that your solution covers their needs, they will be willing to pay more.
3. The best solution – does it exist? Is it the only one?
When you go to a store for a new laptop, your reasoning is straightforward.
I have some work to do –> I need a computer to do it –> my laptop has broken down –> I need to buy a new one.
So, a ‘competitive advantage’ would be the best computer for your tasks.
But:
Amazon didn’t have competitors in 1995.
Uber didn’t have competitors in 2010.
Dropbox didn’t have competitors in 2008.
These businesses didn’t dwell on ‘competitive advantages.’ Their founders thought about customers and their needs. And they offered new solutions for old problems.
But now let me give you another example.
Hydraulic hammer attachments and Customer needs
One of my customers used to sell attachments for construction equipment.
For instance, an excavator can dig holes in the ground. But if you attach a hydraulic hammer to the machine, it can also crash big stones. My customer sold these hydraulic hammers, drills, and other ugly-looking large metal doodads.
When we delved into their customers’ needs, we discovered they didn’t need machines or attachments. Quite predictably, they required holes in the ground, broken stones, or drilled holes.
At first, my customer started renting out the attachments. And they were the first in the market to do that. Then, they began to offer services instead of machines. If their customer needed a hole in the ground, they would come and dig it.
They didn’t have a ‘competitive advantage’ and didn’t seek it. They listened to their customers.
Conclusion #3
When Henry Ford allegedly said that ‘if he asked customers they’d ask for a faster horse,’ he missed the point. Consumers didn’t need a faster horse, they looked for a way to move faster. ‘Faster’ was the key word, not ‘horse.’
So, Mr. Ford disproved his thesis himself by building up the Ford Model T.
4. One more thing – a non-zero-sum game
Are Taylor Swift and Beyoncé competitors? According to the classical economic theory, they are. They compete for our scarce resources – time, money, and attention.
You have a limited amount of time to listen to music. You have a job and a family to take care of. Unfortunately, you can’t spend entire days singing along to pop hits or going to concerts.
However, we can easily imagine an individual who likes both Taylor Swift and Beyoncé. My friend’s playlist, for example, contains their songs along with tracks from Metallica and Beethoven. He’s a versatile person.
So, Taylor Swift and Beyoncé don’t only seem to be friends in life. They don’t compete with each other from the economic perspective.
On September 21, 1983, the FCC approved the DynaTAC 8000X phone by Motorola, the world’s first commercial portable cell phone.
Do cell phones compete with landlines? Yes and no.
Landlines are still around. Revenue in the Landline Phones market amounts to US$8.3bn in 2023. The market is expected to grow annually by 1.70% (source). Chinese users generate the most revenue, though every single person in the country has a smartphone in their pocket.
Smartphones and tablets compete with computers but haven’t killed them so far.
Internet and social media compete with TV, cinema, and shows but haven’t killed them.
Competition is rarely a zero-sum game. If you win the competition, it doesn’t always mean somebody loses.
But some exceptions do exist.
Few people have several homes or cars, but not because they don’t want to. These items are just too expensive for most of them. So, if a customer buys a Tesla car, she is unlikely to become a customer of Ford, GM, or other car makers, at least for a few years.
If a factory needs a certain amount of raw materials, and one supplier has already covered this demand, its rivals must find other customers.
So, in some cases, you need a competitive advantage. But the best way is to avoid direct competition.
Conclusion
Words matter.
When we focus on competitive advantage, we inadvertently narrow our scope of thinking. Providing the best solution in a market is not the same as being the best for customers.
What can you do?
– Talk to your customers – both existing and potential ones. Do it as often as possible
– Identify their basic needs
– Look for a way to resolve their problems differently.
– Dig deep into their experience. Use Customer Journey Maps.
– Use lateral marketing to come up with new solutions
Should you ignore your competitors? No, you shouldn’t.
But use their product not as a basis for your product decisions.
If you have a successful competitor, it is only a sign that:
Many customers face problems they solve using this product
They are satisfied with the way they do it
A rival’s success is the prove that customers have a need. But you can find a better way to satisfy it.
Absolutely nailed it! Great analysis of the real world consumer behaviour that should guide strategising.
This was really helpful and encouraging, thanks!