Friday, February 21, 2014

Different: Escaping The Competitive Herd

Harvard Business School Professor Moon provides us with an interesting take on the direction of corporate competition in her book, Different.

The main point she makes is that despite the fact that most companies are interested in differentiating their products, the process most of these companies follow in order to do that results in the exact opposite result. The path to differentiation these companies take is predictable: they segment their markets as much as possible, and they advance on the dimensions in which they believe their customers are interested (a model which reminded me a lot of the one on which The Innovator's Dilemma is based). For example, razors have three blades? They'll "innovate" by making it four.

The problem is that every company follows this method, and they all copy each other in the process. The result is a proliferation of products that dizzies the customer, with ultimately no differentiation in the customer's mind. For example, each company ends up with several products containing four blades, and the consumer is numb as to which one is better, and the category is now commoditized.

One thing that didn't seem to be covered is that proliferation might be very profitable for companies, especially those that do it better than their competition. A new product, or at least the perception of one, may allow for premium pricing at introduction. Furthermore, a company that is the best at choosing the dimensions customers will want and executing on those can likely make substantial profits, even if the competition will soon copy (so-called "arbitrage profits" as per The Dhandho Investor). But Moon completely ignores financials, instead making us take her on her word that there's a better way.

Moon then goes on to discuss companies that are true differentiators, and what makes them so. Instead of competing by pushing out some dimension, they actually find new ways to make customers happy. Instead of proliferation, the answer is often counter-intuitive simplification. I think what she's saying does make a lot of sense, but I also felt like she force-fit her narrative onto some of her example companies.

For example, in the search engine space, she discusses how when they first came on the scene, it was a race to offer as much info and as many services as possible. Yahoo! is a great example, as their page is so cluttered with choices (weather, games, sports, stocks etc) that it eventually starts to turn off the consumer. Moon's argument then is that Google changed all that with a simple homepage that provided consumers the one thing they wanted. While that may be true, I don't think that's what led to Google's success. At least, from my own experience, I recall switching to Google because it was just so much better at searching. Of course, I could be wrong, and it could be that I perceived it provided a better search because of the simplicity of the page...

This is also a great example of a book that could convey its information in far fewer words. Moon has added a number of personal anecdotes about her home life which I just didn't need to hear. Still, I think she makes some good points about the nature of competition, and I would recommend it to those interested in this topic. Apparently, she teaches this content in her MBA marketing class.

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