INSIGHT

THE BOTTOM LINE BLOG

How many times have you taken a step back to think about what industry your company or product/service is playing in? Where do you compete?

Being really clear about what we call your “competitive frame of reference” is critical as it defines your current and potential future competitors and should drive your product/service innovation strategy.

If you define your competitive frame of reference too broadly, your product/service will lack relevance or context to your customers; if you define it too narrowly, you might miss competitors who can deliver what you do in a more disruptive or customer-centric way.

Below we provide some examples of companies that have done a great job of defining their competitive frame of reference and others that, by failing to truly understand the business they’re in, have either lost significant market share or frankly, no longer exist.

The Good

Starbucks is one of the best examples of a brand using its competitive frame of reference, and flawlessly delivering against it, to disrupt what had been a moribund, relatively low margin category – the coffee shop. When Starbucks launched back in 1971, the world was not in need of another “coffee shop”, especially one selling coffee for over $2.00 per cup. Starbucks quickly decided that while coffee was the “product”, it was the overall experience that defined the brand. By creating a place that has become many a businessperson’s, mom’s, student’s and many other’s “third home” (outside of where you live and where you work/go to school), Starbucks defined its competitive frame of reference as an overall experience that people wanted to come and hang out in. Music, comfortable seating, Wi-Fi, plenty of electrical outlets, air conditioning and oh yeah, coffee, all support the overall brand experience that has become its competitive frame of reference.

Apple is another great example. In their case, near extinction forced them to redefine their competitive frame of reference away from being just a computer/hardware brand, as many other early PC manufacturers (e.g. Gateway, Acer, etc.) had done. Steve Jobs had the vision to create a hardware/software ecosystem that would surround Apple’s customers with, over time, access to an unlimited range of entertainment, business and “everyday” services. While most of the early stage “computer companies” are gone, as the core product became commoditized, Apple focused on simplifying their customers lives with better experiences in mobile phones and introducing new categories altogether, such as tablets. Their entire focus has been to strategically expand their frame of reference in the context of always adding substantial value to the customer experience. Now with its broad definition of its competitive frame of reference, Apple has continued to thrive and has provided its generation of a loyal customers a continual stream of innovation.

The Not So Good

Blockbuster, of course, is the poster child for companies that failed to correctly strategically define their competitive frame of reference. Positioned as a “retail video rental” company, Blockbuster didn’t see threat from on-line content streaming services (e.g., Netflix, Hulu, etc.). Their reference point was the glacial pace of Cable TV’s On Demand service which had been seen as the disruptor since the mid-80’s. The real issue was Blockbuster’s bad customer experience. With your favorite videos often unavailable and exorbitant late fees, Netflix home delivery model was superior.

In the end, Blockbuster was really a content distribution company with a bad business model who competitors quickly overtook. By the time Blockbuster tried to enter the mail delivery and later content streaming business, it was too late…there is now only one remaining Blockbuster retail location in Bend Oregon, which has more nostalgic value than anything.

“Any” hotel or taxi cab company (pick one) also got complacent when defining their industries and their competitive sets. Each narrowly defined their competition as their direct competitors (e.g., Marriott vs. Hyatt and local cab company vs. other local cab companies). By doing so, each has been blindsided as disruptive innovators such as Airbnb and Uber capitalized on the “shared economy” allowing anyone with an extra bedroom or a car with some spare time on their hands to compete in what had been highly capital-intensive industries with relatively high labor costs. To add insult to injury Online Travel Agents like Expedia commoditize hotel rooms by pushing price competition. Legacy competitors in both industries are still struggling to figure out ways to add meaningful value, and in the case of hotels, fighting battles on multiple fronts, to profitably compete in their newly redefined categories.

What Industries May Be Next?

While we don’t claim to be prognosticators, two industries to keep an eye on are public parking and sit-down dining restaurants. With respect to public parking, and the massive development effort around self-driving cars, could you imagine a scenario where the family car takes mom or dad to work, then returns home to take the kids to school, then takes the other parent to work and then returns home until being called for its next “delivery”? Where does the need for the public parking lot fit in? And with the growing popularity of shared riding services like Uber and Lyft, more and more millennials and other generations no longer drive for a night out on the town or to special events. How can the public parking industry redefine itself to add the commensurate value demanded by consumers? We’re not sure.

And finally, sit-down dining restaurants are under siege from services like Grubhub, Door Dash and Uber Eats who eat into a restaurant’s margins and eliminate the highly profitable beverage and alcohol purchases. For some, the eat-in experience has lost its luster and people are willing to experience the great food in the confines of their homes with a tailored at-home entertainment experience. Similar to the public parking industry, restaurants will need to find ways to deliver a superior dining experience to attract and retain future customers.

So, What Are You and Where Do You Compete?

Sure, you can list your direct competitors but do you have a clear understanding about your indirect or potential future competitors – that is, companies that can deliver the same benefits with a different product or service, or business model? Think broadly and creatively and never pooh pooh an idea because it sounds too far-fetched. It may take years for your industry to be disrupted by an innovative competitor, but trust that someone has put a target on your back and is coming after your customers. What will you do next?

Tell us about your industry or competitive challenges and if you’d like help thinking through these challenging strategic issues, we’re here to help!

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