Competition, Reinvented: The End Of Competitive Advantage
By Eduardo Íñiguez, Managing Director Growth, Interbrand
Last April, when Apple managed to attract, in less than four days, close to $1 billion following the launch of a new bank deposit offering a 4.15% return per year, some eyebrows were raised in legacy banks.
“Paranoid”. This is how the Chief Executive of American Express admitted being because of “phenomenal” companies such as Apple or Amazon – and their strong relationships with their customer base. For its part, the Financial Times warned: “The question for banks and other providers of financial services is how worried they should be about a ‘technology company’ with 1.2bn iPhone users, a $2.6tn market cap and a history of disruptive innovation making moves on to their territory.”
Apple’s is the latest example of how the volatility of today’s marketplace has challenged one of the most accepted constructs about brands: competition. Since businesses and industries were defined by “what they do”, traditional strategy defined a company’s competition as major players in the same category offering the same type of products and services. Consequently, the focus of any business strategy was to achieve a sustainable competitive advantage. That paradigm is now obsolete.
As Professor Rita McGrath aptly puts it, “Advantages don’t last for very long before competitive entry, imitation and matching erode their edge, or customers move on, or the environment changes in such a way that the advantage becomes irrelevant.” Today, competitive advantages can be easily eroded by competitors thanks to the dramatic drop in entry barriers and technology acceleration, thus creating the need for companies to continually innovate.
Therefore, “Thinking your major competition is within your own industry creates major blind spots,” states McGrath. Currently, brands’ main opportunities and existential threats are less likely to come from the usual suspects at the heart of their industries than from what is about to happen on the margins.
The new competitive paradigm requires brands to stop thinking strategically in traditional categories, sectors, or industries and start thinking about the fundamental needs of the consumer: play, move, express, thrive, etc. This is what we at Interbrand have come to call Arena Thinking, which, instead of putting category conventions or industry norms at the center of strategy, prioritizes human motivation and evolving expectations.
According to McGrath, “Arenas are characterized by a particular connection between consumers and solutions, not by the traditional description of products and services that are almost interchangeable with each other.” In other words: unlike industries, arenas are no longer defined by the capabilities of companies, but by the needs of the consumers to be satisfied.
Let’s think again about Apple or Amazon… is it possible, today, to ascribe them to a single category? They are technology companies. Yes, but not only. Are they entertainment companies? Yes, but not only. A brand like Apple has been able to build an ecosystem of products and services (interconnected with each other) that addresses different consumer needs: from their need to connect with other people, monitor their health, and entertain themselves at home after a day at work, to manage their savings.
Ultimately, this superleague of companies is building the brand first, reversing the traditional approach to brand building. Rather than creating a product or business and then “branding” it, these organizations create exceptional brand ecosystems and then add new products or even businesses around them. Built on a foundation of exceptional experiences and strong integrity, these companies move in multiple directions, increasing their share of customers’ lives, along with their brand equity and market capitalization.
Now it’s your turn. What are the new customers’ needs your brand can address? One thing’s for sure: there’s already someone out there rethinking your category.