Being Competitively Different
On Monday morning, I attended a presentation by Professor Youngme Moon on how companies differentiate themselves from their competitors. Similar to her colleague, Clayton Christensen, Moon points out the danger of listening too much to your customers. Her point is that doing so will lead competitors to move towards a point where they look like each other and become part of a "herd". According to Moon, Volvo, known for its safety features but boring styling, creates advertisements aimed at presenting their vehicles as exciting to drive. Audi, know for exciting cars to drive, creates advertisements aimed at presenting their products as safe. The result is the two manufacturers moving towards each other and into a "herd" of indistinguishable competitors.
In her presentation, she talks about "flocking" and how competitors move to prevent each other from gaining a lead in any direction (even if it is the wrong direction). In her book, Different: Escaping the Competitive Herd, she tells the story of a programmer who is interested in how birds flock. In order to better understand flocking phenomena, he built a simulation to explain this behavior. For the simulation, he developed three simple rules:
- try not to bump into each other
- move towards each other
- try to fly at the same speed as other birds.
He then created a number of randomly located virtual birds and ran the simple simulation. Amazing, the virtual birds moved into a flock.
So consider some industries and competitors that have moved into "flocks". One of Moon's examples was the furniture retailing category. Next time you are watching TV, try and differentiate Leon's from the Brick or any other large furniture retailers. Think about where they have moved into a herd and whether you really want what they offer. She says her research indicates that consumers do not like buying furniture. One reason is that they don't know what style of furniture will fit the design of their house. The retailers' solution was to create big box stores that carry every possible styling and colour. Consumers also complained that they can't vision how the furniture will look in their home. The retailers' responded by building mock creations of rooms within houses within their stores and to hire interior designers and consultants to serve the consumers every question. Next retailers discovered that Consumers shy away from big tickets purchases. As a result many retailers offer "don't pay a cent events" and other financing and payment deferral options. Finally, customers complained that they don't have a means to transport their purchases home. Retailers again responded by offering free delivery and setup. The result of these consumer objections and retailer reactions is an industry of identical competitors, each with expensive offerings to support sales, and each having copied the others' innovation in order to prevent a competitor from pulling away from the pack.
The Consumer's Reaction: They are confused by the vast array of selection, don't like the pushy sales people hired to help them and are suspicious of all the financial incentives provided. Based on research, listening to customers and moving towards each other, the furniture sales industry has created an expensive sales model that consumers don't value.
Now consider the outlier from the herd. This is a store that carries only one style of furniture and doesn't offer delivery but rather makes you cart everything home yourself. To make this possible, they also make you assemble your own furniture. While in this store, they make you weave through what seems like miles of maze-like corridors to get to what you want to buy and their sales associates, when you can find them, are more than likely to be driving a fork lift than wearing a suit and tie. This store also has limited locations as compared to their competitors so customers often have to drive miles to shop there. Yet this store is an industry leader with fanatically loyal customers. It, of course, is IKEA.
And while IKEA has said "NO" where other retailers said have said "YES", IKEA has said "YES" to things others don't provide such as quirky advertisements, competitive or even lowest prices, in-store daycare, a restaurant café that serves smoked salmon and unique colourful gadgets, not found anywhere else.
Consider another one of her examples. In the early 2000's, while North American car buyers are having a love affair with Hummers and big SUV's, along came a car that was popular in Europe but two feet shorter than the smallest North American sub-compact car. While other marketeers would have attempted to try and convince the public that their car wasn't that small, they choose to embrace the difference. Do you remember the billboard:
XXL XL L M S Mini
Or the picture of the Mini Cooper mounted on the side of a wall or the top of an SUV. They too went away from the herd and inspired a loyal following.
Dr Moon next asked the audience to consider Twitter. When it debuted, it was ridiculed for limiting its communications to 140 characters. "What could anyone possibility communicate in 140 characters?" What about Google ads when it debuted over a decade ago. "Who ever heard of ads where the advertisers could not use images, were limited to the same colour and font as everyone else and had no creative control over the ad?" In their time, these were both considered as crazy ideas, radically different from their competitors. The problem Dr Moon identifies is that brilliant ideas may look a lot like crazy, bad ideas in their infancy. Her message was: "If you want to be different, you have to be willing to embrace your negatives and in fact, the genius is in your negatives". You also have to create a culture to take chances on what may appear to be crazy or bad ideas.
Her presentation led me to think about the tech and software industry and the companies for which I have worked. My years at PeopleSoft were a race to fill in product gaps. In 1995, SAP was the leader in Financial Management and Supply Chain systems. PeopleSoft was the 800 pound gorilla in HR. By 2000, we were basically the same when it came to product comparison. When it came to the product's "Bells and Whistles", one had a Bell, the other a Whistle, but they both basically accomplished the same thing. We tried to differentiate on company culture and cost of implementation, but most customers viewed our solutions as though either could solve their problems and price commoditization in the ERP space began.
I look at the current competition in the Talent Management Space. Five years ago Taleo was the leader in recruiting, SuccessFactors the leader in Performance Management, and Saba, the leader in Learning Management. Today, it is much more difficult to tell them apart. A year ago, Facebook was viewed (at least by me) as in the Consumer Social Media space, while LinkedIn was in the Business Social Media space. Today, I wonder how long it will be before we can't tell them apart.
So my question to you is, are you moving towards the flock? Or are you going to say YES where other say NO and NO where others say YES in order to separate your company from the herd? If you do, I think the rewards will be in customer loyalty, stickiness (especially important if you are SaaS-based) and avoidance of price commoditization. Your cost may be some prospective customers who want to buy into the herd but overall, I will choose the benefits of being different every time.