Do you know who your competition really is?
Customer attitudes, preferences and behaviors naturally change over time. But in the last 10 years – given the enormous economic volatilities, the political uncertainties we now face, and the ways social media and mobile technologies are revolutionizing how we interact and transact – attitudes and behaviors have been changing faster and more precipitously than ever before!
These kinds of dramatic shifts have the potential to be lethal to businesses – as they have nearly been for both Netflix and Nest. In each case, miscalculations that have wreaked havoc on their stock prices and reputations were completely avoidable. The sad truth is both companies got locked into their own perceptions of value, and lost track of what it is their customers valued about their offerings.
In Netflix’s case this was truly bone-headed because the company had been an early leader in using analytics to understand customer viewing preferences. But it didn’t bother to examine what its customers wanted or would accept when it came to pricing and packaging. While Netflix has ] of late begun to develop its own television programming content, its mail-order subscription revenues have severely dwindled.
In the case of Nest, which was started by former Apple designers, backed by Apple’s money, and sold through Apple’s retail stores, the company made an impressive initial brand splash, even causing market leader Honeywell to question its place in the home thermostat and control market. Before fully developing its product roadmap strategy for the Nest Thermostat, however, Nest decided to expand its offerings into the home safety alert space with its “Nest Protect” product for smoke and carbon monoxide detection. But Nest Protect had serious design flaws that the company failed to resolve or disclose.
Although the Apple Stores carried the Nest Thermostat, the stores were unwilling to sell the Nest Protect. This all happened at the point in time when Google was looking to make its mark in the Smart Home space. In the 2 years since it was acquired, despite a purchase price of $3.2B and $30M to beef up Nest Labs, the Brand and the products have failed to deliver on Google’s strategy.
We recently completed an engagement for a client that for the last decade or so has been a leader in its market niche, and which by most measures, including revenues, had a great year in 2014. But when we looked closely at how the preferences and buying behaviors of its target clients have been changing over the last few years, we recognized that our client’s business was in serious jeopardy.
The company was forced to accept that their core market’s needs, problems, and risks had changed dramatically in just a few short years. As a result, even though our client has a highly rated best-of-breed solution, it is now at risk of being locked out of critical conversations with customers and partners.
Fortunately, our research showed that our client did not have fundamental issues with its offerings or technologies. Our analysis proved that its problems lie in how it viewed its market, its relationships, and its perceptions of how it creates, delivers, and communicates value. We saw that our client needed to take action to change how it thought about its customers’ problems, how it talked about the kinds of outcomes it could enable, how its team members communicated the company’s value proposition, and – most important of all – to whom they chose to tell their story.
Our two most important strategic recommendations to this client were as follows:
First, we recommended: “Stop looking at your market as if through a keyhole.” The company had always positioned itself as a provider of specialized niche solutions – a niche that it had successfully defended for many years because of the high quality of its offerings. But in a market where buyer preferences were rapidly shifting away from best-of-breed and toward enterprise solutions, our client was at risk. It needed to be able to see a bigger picture, the whole picture in fact, and tell a more convincing enterprise-wide story.
Our research showed that much larger competitors were rapidly encroaching on our client’s space. More troubling, competitors were also masterfully shifting the conversation away from any focus on the kinds of problems that our client addresses and toward a focus on problems that competitors were better positioned to solve. In the process competitors were not just redirecting the conversation, they were also locking up spend decisions.
Second, we recommended: “Start looking at the whole chess board, not just the niche in which you play.” Although our client recognized it was facing a new kind of competitive threat, the management and sales team didn’t know what to do about this other than to try to compete more aggressively. But, based on experience, we knew that smarter, more strategic plays always trump plays that are simply more aggressive.
To give you a frame of reference about what we recommended, watch the following short YouTube™ video excerpt from the TV show The West Wing™: “Look at the whole board”.
Playing a strategy game in chess requires knowing a lot more than simply what moves you can make on any given play. It requires being able to think many moves ahead so that you can anticipate and execute a series of plays that will position you for competitive advantage. It also requires thinking about getting into the head of your opponents as you play. It’s much more difficult, but your chances of success go up exponentially when you can play this kind of game.
The chessboard analogy is particularly apt when it comes to dealing with changing buyer preferences and behaviors. One move by a key competitor or one set of moves by a group of angry customers can turn a company’s prospects of future success completely on end. But smart strategies – ones that take into consideration the whole chessboard – executed by smart leaders – people who know how to read the whole board and play strategically – make it possible for firms to anticipate, as well as plan, execute, and respond effectively when shifts occur.