COMPETITIVE MARKET STRATEGY
THE BIG PICTURE ON COMPETITIVE MARKET STRATEGY
- 1. Get the Big Picture Right If you don't understand market dynamics, it will be hard to become the dominate market leader.
- 2. It's All About Competitive Positioning If you beat current and future competitors at the customer value game, you'll win.
- 3. Learn the Tools Adoption curves, PESTLE, and 5 Forces will help you identify market issues and opportunities.
- 4. Dominate your Market First If you aren't winning in your current market, don't try and compete in new markets.
when you analyze a market, focus on two questions:
1. Where are there market opportunities?
2. What is your market strategy / competitive positioning to capitalize on those opportunities?
When answering these questions realize while there are helpful tools and concepts, there is no right way to answer them. You do need to be hypothesis-driven, so you don't "boil the ocean." And, it takes a lot of thinking and synthesis.
SIMPLE WINS THE GAME
Southwest Airline's market strategy started on the back of a napkin. Back in the 60's, Herb Kelleher and Rollin King were having a cocktail at a bar, when Rollin said, "Herb, I've got an idea for a better airline." He wrote Dallas, San Antonio and Houston on a napkin and then connected the three cities with a triangle, proclaiming "There's the business plan."
While the competition was focused on the hub and spoke route model, Herb and Rollin thought a high utilization, low-cost airline with excellent service and a point-to-point route model could win the market. After 50 years of competing, Southwest is the largest U.S. domestic airline.
WHAT IS A MARKET AND MARKET STRATEGY?
1. A market defines the solution space a business competes in
2. Market strategy defines how a business is positioned in a market
3. Successful businesses differentiate and align their business model to their market positioning
Markets and market strategy are often nebulous concepts since they are based on how you look at and frame a competitive space. Two similar competitors can look at their market in very different ways, which, over time, will drive them to create distinct strategies and actions. One competitor will often do better than the other based on how they frame the market and their market strategy.
THERE ARE 3 STRATEGIC OPTIONS TO MARKET STRATEGY
There are three strategic options with markets:
1. Define the market strategy better
2. Rationalize the number of markets
3. Expand into new markets
Most companies need to better define their market and market strategy. Some companies compete in too many markets, and need to rationalize and exit markets. While other companies have the golden opportunity to expand into a new market or even create a new market out of nothing. Here are some tips for each one of these options.
1. DEFINE MARKET STRATEGY
- What most companies need to do
- Need to answer the questions of "how are you going to drive better customer value than competitors and what are the sources of sustainable competitive advantage?"
2. RATIONALIZE MARKETS
- Too many markets, not much synergy
- Hard decision to make, but typically the right one
- Will help focus the organization, decision making, and the value proposition
3. EXPAND INTO NEW MARKET
- You better have a killer value proposition in your existing market, before expanding into new markets
- Opportunity to create superior value proposition in new market, while generating substantial go-to-market and operational synergies with existing business model
THERE ARE 4 REASONS TO EVALUATE A MARKET
Market strategy is big picture stuff, and sometimes you need to understand what your goal is in evaluating a market. Below are 4 reasons, the typical drivers and some company examples.
2 out of 3 business fail within 10 years
The first challenge to evaluating a market is how you define your market
How you define your market is just as important as your evaluation of the market. If you define it too broadly, it may be more difficult to find compelling opportunities and create a differentiated position. If you define it too narrowly, it may not be big enough to pursue. Below is an example of a market map on the battery power markets. As you think about how to define your market, can you subsegment the market by geography, customer segment, solution, use case, product or service? If you subsegment the market correctly, you might identify white spaces, and better understand current and future competitive dynamics.
THE NEXT STEP TO EVALUATING A MARKET IS TO UNDERSTAND WHERE THE MARKET IS ON IT'S ADOPTION CURVE
Every market has an adoption curve, where the y-axis is the total percent adoption of a solution, and the x-axis is time. It is insightful to understand where your market is on its adoption curve, and what the market will max out regarding percent adoption. The first time I saw an adoption curve was one of those big "aha" learning moments.
Why is understanding your market's adoption curve important? Because it will explain a lot about the competitive dynamics and help you focus on what is vital to grow market share. An adoption curve has four main stages - 1. Innovators, 2. Fast Followers, 3. Consolidators, 4. Cash Cows. Where is your market on its adoption curve?
ADOPTION CURVE EXAMPLE - MOVIE RENTAL MARKET
To bring adoption curves to life, let's use the movie rental market. In 1977, George Atkinson took out an ad in the Los Angeles Times for video cassette rentals, and the movie rental market was born. George capitalized on his success by growing The Video Station into a 600 store chain. The next few years, the Innovators tweaked the value proposition, had decent profits, and some engaged in a race to scale.
In the early 1980s, the movie rental market hit the Fast Followers stage, with thousands of entrepreneurs wanting to capitalize on the early success of the innovators. By 1985, the movie rental market was $1.8 billion in revenue, with 15,000 stores and many regional chains vying for scale economics.
One of the fast followers was Blockbuster, opening their first store in Dallas, Texas on October 19th, 1985 (pictured below). Blockbuster differentiated with a clean and well-organized store format and by being one of the first to leverage a database to understand rental trends and localize movie inventory.
In the mid and late 1980s, the movie rental market entered the Consolidators stage, where the winning business models continued to scale and consolidate the market. In 1987, Wayne Huizenga, who had founded Waste Management, took a controlling stake in Blockbuster, and quickly initiated a massive scaling of Blockbuster, opening a store a day and acquiring many regional rivals. By 1995, the movie rental market was $10 billion, with Blockbuster owning almost 25% market share with $2.4 billion in revenue. In 1994, Viacom acquired Blockbuster for $8.4 billion. Not bad for a 9-year-old company.
From the mid 1990s to the early 2000s, the movie rental market was in the Cash Cow stage. Market growth slowed, and Blockbuster and Hollywood Video dominated market share. In 2001, Blockbuster generated over $5.6 billion in revenue, with over $1 billion of that in late fees, which customers despised. They took their eye off the customer value ball, as often happens in mature markets, and they invited innovators into their space.
In 1997, Reed Hastings started Netflix, driven, in part, because he generated $40 in Blockbuster late fees from returning Apollo 13 late. For $20 a month, Netflix let customers rent as many movies as they could mail back and forth in a month. With a superior customer value proposition, Netflix rapidly grew revenue, but struggled with profitability. In 2000, Reed approached Blockbuster to buy them for $50 million. The CEO of Blockbuster dismissed the idea, thinking DVD rental through the mail was a small niche. Imagine the market today if Blockbuster had bought Netflix.
In 2003, another innovator entered the market. Redbox, incubated within McDonalds, launched its DVD rental kiosk concept, where you could rent a movie for a day for $1. With kiosks in grocery stores and at McDonalds, customer flocked to Redbox's value proposition of convenience and price.
While Blockbuster tried to emulate both Netflix and Redbox, with similar services, they ultimately failed and went bankrupt in 2010. Below, you can see the adoption curves of Blockbuster, Netflix and Redbox represented in their revenues.
How Netflix wins with market strategy
Market strategy is about understanding the how the market will evolve and then navigating to the end state by architecting a differentiated and superior value proposition and business model, which Netflix does with a "take no prisoners" precision and magnitude. Netflix's leadership is very strategic. Understanding that DVD usage would decline as Internet bandwidth grew, they started their subscription streaming service in 2007. Recognizing the end-game of entertainment is compelling content, they began to finance proprietary content in 2013, with the launch of House of Cards. In 2017, they spent over $6 billion on original exclusive content. So, as you think about market strategy, first think about the logical end state of the market, and then think through how you can grow the customer value wedge.
Assessing MARKET TRENDS - PESTLE Analysis
PESTLE Analysis is effective in thinking through the trends that will drive the end state of a market.
It is a simple framework that covers the Political, Economic, Social, Technological, Legal and Environmental dimensions of macro trends.
Below is a starter list of the potential trends that can affect the market dynamics and lead to threats or opportunities. In your PESTLE analysis, it is up to you to understand the importance, nature, driver, impact, and magnitude of the trends. And, even more important, how you will navigate and capitalize on these trends through your market strategy.
Competitive Dynamics - PORTER's 5 Forces
Launched in 1979, Porter's Five Forces is still an essential market assessment framework. Porter's 5 Forces analysis starts with assessing supplier power and buyer power, in terms of their strengths, weaknesses, consolidation, dynamics. Next is assessing the threat of potential entrants and substitutes. The level of supplier and buyer power, potential entrants and substitutes determines the industry or competitive rivalry in the market. A strong Porter's 5 Forces analysis generates insights into market dynamics, M&A opportunities, and market positioning.
Sustainable competitive advantage
To dominate a market, a company not only needs a solid value proposition, but also sustainable competitive advantage, creating a competitive moat around its business model.
There are eight main sources of sustainable competitive advantage and we go more in-depth on the topic here. Companies that end up dominating a market, typically have deliberate strategies to grow their sources of sustainable competitive advantage.
Final Thoughts on Market Strategy
Market strategy is truly a chess match, with infinite possibilities and your competitor's intentions difficult to reveal. To truly unravel the future of a market and architect strategies to navigate to the pot of gold at the end is the nirvana of strategy. With the right framing, problem solving and analysis, you can build a killer market strategy.
To go over more on competitive and market dynamics, click here.