Recent Posts

Archive

Tags

No tags yet.

Cumulative vs. Disruptive Advantage

Mihai Ionescu, Senior Strategy Consultant, Owner Balanced Scorecard Romania

In the Jan-Feb 2017 issue, Harvard Business Review has published a spotlight package, titled Cumulative Advantage, including the articles ❶ Customer Loyalty is Overrated, by A.G. Lafley and Roger Martin, the authors of Playing to Win, and the counterpoint ❷ Old Habits Die Hard, but They Do Die, by Rita Gunther McGrath, the author of The End of Competitive Advantage.

Let's see what the two articles say, picking the most relevant statements and ideas.

The Cumulative Advantage

❶ "Robust where-to-play and how-to-win choices [...] are still essential to strategy.

Without a value proposition superior to those of other companies that are attempting to appeal to the same customers, a company has nothing to build on. But if it is to extend that initial competitive advantage, the company must invest in turning its proposition into a habit rather than a choice."

The basic idea in the first article is that instead of customer loyalty, companies should focus on the purchase habit that they've created for the customers to buy their branded products or services. Of course, this is not related only to the brand (or the 'brand strategy', as the marketers are calling it), but mostly to the habit of using the products or services that the customers subconsciously choose to buy, due to the comfort of familiarity, or the products or services that 'feel the right ones'.

One of the counter-examples given in the first article relates to Procter & Gamble's decision to launch their liquid detergents product line under a different brand ...

"Arguably the first great detergent innovation after Tide’s launch was the development of liquid detergents. P&G’s first response was to launch a new brand, called Era, in 1975. With no cumulative advantage behind it, Era failed to become a major brand despite consumers’ increasing substitution of liquid for powdered detergent."

Conclusion #1

It is undoubtedly that ALL THINGS BEING EQUAL, the purchase habit beats the conscious choice. What do we mean by 'all things being equal'? For example, imagine that we have various brands on the shop shelf in front of us, in the same product category. Nearly always, we'll pick the one that our purchase habit comfort zone will subconsciously tell us to.

Furthermore, based on the Cumulative Advantage concept, the advice for a company would be this: If your brand equity and market share has translated in customers' habit of purchasing your products or services, you should develop your product/service line along the same customer purchasing habits, rather than taking them out of the comfort zone, with products or services that they would have to choose based on a conscious decision.

The Disruptive Advantage

❷ "The theory of cumulative advantage makes a lot of sense in [...] a classical strategic setting, one in which industry boundaries are clearly delineated, the basis of competition is stable, the environment experiences no major disruptions, and a strong competitive position, once created, can be sustained."

But to a growing number of companies, those conditions don’t apply. Their industry boundaries aren’t clearly delineated - in fact, they’re totally blurry. [...] Their environments aren’t stable - companies can be disrupted by entrants from below, as Clayton Christensen has pointed out, but also by competitors using a different business model or moving over from an adjacent industry."

The basic idea is that the customer isn't always presented with equal characteristics and usability benefits (like being simpler to buy or use, lasting longer, etc.), and sometimes such differences are strong enough to drive the customer to buy based on a conscious decision, rather than on his/her buying and use habits.

An example

Do you think that IKEA benefits from a long-lasting Cumulative Advantage, based on their brand an on their customers' habits of buying their furniture in disassembled parts, then take it home and assemble it by themselves? You'd probably agree, but now think about this imaginary example:

How do you know that a new business concept that would let people get low-cost furniture from interchangeable components, like some LEGO of furniture, allowing them to design their self-customized furniture in minutes, in a fun and creativity-stimulating store environment, and than take the components home and assemble the furniture by themselves, fitting perfectly their room layout and style, will not beat IKEA's business concept?

The Job-to-Be-Done

In an article published by Harvard Business Review in September 2016, Know Your Customers' "Jobs to Be Done", Clayton Christensen states this:

"We’ve come to the conclusion that the focus on correlation - and on knowing more and more about customers - is taking firms in the wrong direction. What they really need to home in on is the progress that the customer is trying to make in a given circumstance - what the customer hopes to accomplish. This is what we’ve come to call the Job-to-Be Done."

Conclusion #2

Today's reality is that THINGS GET LESS AND LESS EQUAL, every day (related to 'all things being equal'). It turns out, more and more, that customers' JOBS can be DONE in NEW WAYS than it has been habitual for so may years.

As Rita Gunther McGrath rightly observed, as long as customer's JOB, but also THE WAY IT IS DONE, remain the same, the Cumulative Advantage works fine and the strongest brands will get even stronger, as they develop their products or services.

But as soon as a more accessible, adaptive, flexible, simple, or ingenious WAY OF DOING the same JOB is brought to the market, the Cumulative Advantage always gets killed by the Disruptive Advantage. Why? Because, in such cases, all things are not equal anymore and the same subconscious mid instantly tells the buyer that the new product or service is a BETTER WAY OF DOING THEIR JOB than the one that they used to buy, driven by their purchasing habits.

And the NEW product or service 'feel the right one' now.

Do you have any thoughts or feedback on this subject? What kind of Competitive Advantage is your business built on: a Cumulative, or a Disruptive one?

Do you have any thoughts or feedback on this subject? What kind of Competitive Advantage is your business built on: a Cumulative, or a Disruptive one?