Is sustainable competitive advantage extinct?
Organizations respond in real-time to the explosion of choice ever smarter customers are confronted with. Business models, strategies, communications, etc. are proactively reviewed in increasingly shorter cycles. An explosion of choice? In March 2017, Android users could choose from 2.8 million apps, while the Apple App Store offered 2.2 million apps[i].
Nowadays, according to Credit Suisse, the average lifespan of a S&P 500 company is less than 20 years. In the 1950’s it was 60 years. The disruptive force of technology kills off older companies faster and earlier. Disruption itself is not new, opines the experts at Credit Suisse. What is new is its speed, complexity and global reach. A number of industries currently suffer from disruptive forces that occur simultaneously[ii].
The consequences for organizations and entrepreneurs are severe: whenever one meets a challenge and tries to adapt to it, one risks being left behind by a new technology or trend. A product or a business that took years to develop can become obsolete overnight.
Do you remember who invented the digital camera? Kodak. Unfortunately, Kodak’s management did not see the value of it. They only figured it out when it was too late[iii]. It seems logical that new thinking in management arguments that no competitive advantage is sustainable, and that business models and strategies need to be continually updated. After all, any organization needs to keep its customers and attract new ones. Remaining relevant and excellent is the key.
This is no easy feat, as evidence shows. Customer retention declines globally; from 61% in 2015 to a projected 51% in 2018[iv]. 8 out of 10 start-ups do not survive[v]. 50% to 75% -depending on the source- of all new product launches fail. Regardless of the source, one can agree that the failure rate is too high and too costly. These failures are a result of a lack of insight into current and future customer behavior. New products mainly fail due to institutionalized insufficiencies in the use of the sciences that are best geared to understand and predict customer behavior[vi]. The main reason why start-ups fail is because the market is not ready (yet). Start-ups focus more on solving technological problems than on effectively responding to are creating a market need. In other words, technology for the sake of technology instead of using technology to make the execution of a job-to-be-done so much easier for the customer. Retention, new products or services, start-ups…, the moral of the story is the absence of or a lack of emotional and functional connection with current and future customer behavior.
However, Lafley and Martin (2017) claim there is enough evidence that shows sustainable competitive advantage is not extinct. The authors drew on modern behavioral research to back up their claim. They come up with an interesting conclusion: a competitive advantage is not maintained by offering the customer the perfect choice, but by offering the easiest one.
Customer retention is not achieved by continually adapting to changes in order to remain the best emotional and rational fit for the customer. It is achieved by “helping customers avoid having to make yet another choice”. One succeeds by creating a ‘cumulative advantage’. A cumulative advantage is the layer an organization relentlessly build on top of its initial competitive advantage. It does so by increasingly making its products and services the instinctive, comfortable choice for the customer. The idea that purchase decisions are grounded in conscious choice flies in the face of research in behavioral sciences[vii].
What our brains love most is automaticity. Instead of making a conscious effort, our brains love to do same things over and over again in auto-pilot mode. Although conscious thought and actions is what makes us human and is crucial in our daily lives, only 5% of our cognition occurs consciously. We are not aware of 95% of our cognition[viii]. When we do make the effort of conscious thought, we gladly choose the path of least resistance. This is the reason why, as a consumer, we often choose a leading product in the market; it’s the easy and familiar way.
Every time we choose something, that choice gains an advantage over what we did not choose. Every time we prefer a certain product or service, and as long as it continues to meet our expectations, its advantage over the products or services we didn’t choose accumulates. It becomes increasingly difficult to choose or even consider an alternative. The growth of cumulative advantage relentlessly continues until it is stopped in its tracks by a change that disrupts habit and/or familiarity and forces a conscious re-evaluation.
A value proposition -the articulation of a competitive advantage- can persuade somebody to become a customer. The continual development of cumulative advantage retains the customer. Bottom line: a sustainable competitive advantage is far from extinct. Mastering the customer culture disciplines of customer insight and foresight allows an organization to achieve it.
[i] https://clearbridgemobile.com/youre-doing-it-wrong-the-top-6-reasons-why-apps-fail/. April 21, 2018.
[ii] https://www.cnbc.com/2017/08/24/technology-killing-off-corporations-average-lifespan-of-company-under-20-years.html. April 21, 2018.
[iii] Dr. Linden R. Brown and Chris L. Brown, The Customer Culture Imperative (New York: McGraw-Hill Education, 2014) p. 102.
[iv] Verint, Defining the Human Age: A Reflection on Customer Service in 2030 (Verint, 2018)
[v] https://www.cbinsights.com/research/startup-failure-reasons-top/. April 22, 2018.
[vi] Garmt Dijksterhuis, New product failure: Five potential sources discussed. (Elsevier, 2016)
[vii] A.G. Lafley and Roger L. Martin, Customer Loyalty is Overrated (Harvard Business Review, Jan-Feb 2017)
[viii] Gerald Zaltman, How Customers Think: Essential Insights into the Mind of the Market (Boston: Harvard Business School Press, 2003)