At a recent business dinner, executives from several corporations bravely shared a common concern. Each company had lost market share to new rivals. And with each case, it happened fast. By the time they recognized the threat, the newcomers had won the battle.
Today, it’s not enough to say you’re '110% committed to innovation.' Nor will you protect your market share by pledging to “disrupt your own industry.” These statements, even when supported by actions, won’t stop a new competitor with an attractive, fresh approach from drawing in your core customers.
Your competitor’s attack could come from below as a disruption, where a competitor launches an initially inferior product at a substantially lower price. Once established, the newcomers can move upward into your sweet spot and take your core customers. Or the threat may come from the side, appealing directly to your existing customer base with what can be considered a superior product or service for a similar price. Or perhaps, it starts as a high-priced, luxury alternative at the top of the market and then swoops down to a price more competitive to your own and attracts your highest-paid and most profitable customers.
All three types of competition can shift or 'dislocate' a given market – either from below, the side or above an existing market. Dislocations surface regularly in markets and it’s important for incumbents to respond quickly and, most importantly, with the right strategy when they appear. We’ve identified four strategies that can help companies survive different dislocations, whether the challenge comes from the top, middle or bottom of the market. If you don’t pick the right strategy for your situation, you may be sharing your own tale of woe.
We have identified these strategies based on an in-depth analysis of scores of companies in six major global industries. We interviewed more than two dozen executives, industry analysts, entrepreneurs and innovation specialists as well as reviewed thousands of data points. The full study is described in more detail in an article called 'Diagnosing Dislocation,' but we will walk through the four strategies here at a topline level.
Strategy 1: Match the Threat
If your company can match what a newcomer does at the same price, you are unlikely to lose many customers. Matching the threat works when the new competition comes from above, below or the side.
If the new entrant comes from the top or the side, the incumbent must change its core products to keep the core customers. The catch is that it won’t work in all situations.
For example, if a disruptive new player comes from underneath and initially attracts only low-end customers that you were purposely ignoring, you must first ask if you really want those customers. You might keep the startup from advancing into your core market, but you also may cannibalize your own revenue if some of your higher profit customers shift to the cheaper new product.
Strategy 2: Absorb the Threat
You’ve heard the saying, 'if you can’t beat ‘em, join ‘em.' Let’s alter that a bit: 'If you can’t beat ‘em, ask them to join you.' If you see a new competitor that is offering a new and attractive way of doing what you do, you may want to add them to your line of goods and services. So why not absorb the threat instead of fighting back? A partnership could range from an acquisition to simply forming a temporary alliance.
Absorbing the threat is how Facebook neutralized the danger of WhatsApp. While Facebook paid what was viewed as a large premium at the time, the valuation has been justified by the social network’s uninterrupted growth in both revenue and users.
Once again, this strategy can work to counter dislocations from any direction, but it requires a keen sense of timing, careful valuation of rival technology and a sincere commitment to blend the new approach with your existing processes. One more caveat: no company should buy another simply to scuttle the new threat. This only encourages other startups to take the same action.
Strategy 3: Leapfrog the Threat
When the threat comes from the side or above, you can try to offer something even better. This is more than simple market differentiation. It means committing yourself to extend your goods and services in response to an imminent threat, and failure could weigh heavily on your top line sales.
In our study, we looked at how room-sharing companies like FlipKey, Airbnb and HomeAway brought a new, low-overhead model to bear on the well-established hospitality industry. Today, millions of rooms are available at competitive prices for lodgers who prefer a homier feel while on the road. Traditional hotels with large staffs and costly facilities could respond by building their own branded networks of private accommodations and throw in some incentives like free food-delivery service, airport shuttles, and the corporate loyalty program.
In the cable TV business, streaming has allowed customers to time-shift their viewing habits, binge-watch entire series and view premium programs at a cost less than basic cable. Industry analysts believe that cable companies may soon focus more on their lucrative roles as reliable internet service providers and offer custom viewing packages. Some entertainment networks, meanwhile, are launching their own streaming operations that carry original programming.
Strategy 4: Ignore the Threat
The secret to 'ignoring' the threat is not to ignore it at all. This is really a strategy of watchful waiting. And it works best with potentially disruptive companies at the bottom of the market. Consider this: most young companies fail. Even if they have a great concept, they may lack the management and/or capital to reach the point where it presents an existential threat to your core customer base. Many startups have good ideas, but few have the capital and market expertise to scale-up their operations.
We began by talking about companies that waited too long to respond to threats in their industries. If they had watched closely enough to know when the danger was real, they could have responded quickly when the new challenger moved onto their turf. Instead, by the time they developed a response, it was already too late.
Certainly, in the years to come, we’ll recognize new types of threats and new measures to address them. Today, however, if more companies would analyze potential dislocations and adopt one of the strategies we’ve outlined, they could be far more confident they’ll survive any threat.
So how would you fare when faced with an innovative threat, and how do your unique leadership skills impact how you would respond? Great innovation requires two types of business leaders: those who challenge the status quo and those who defend the castle. Both skills are vital, but few executives are both challengers and defenders. Whichever strategy you choose to stay ahead, you should ensure your team is strong on offense and defense. To determine immediately where your personal skills lie, take a nine-question quiz, then ask your teammates to do the same. This simple exercise may help you prepare for the day when your company faces dislocation.