Threats of Invisible and Indirect Competition – Case Studies from m-Pesa, Apple, Uber and Amazon

Till recently, competition was visible and direct. Car manufacturers competed with other car manufacturers and at best with other four-wheelers like jeeps, or two-wheelers. In most cases, competition was benign—a company would get ample opportunity to respond and recover.

That is no longer the case. Competition has become invisible, indirect and lethal. Nokia, Motorola and BlackBerry are cases in point; they lost ground heavily to Apple, a “cross-industry” competitor.

 

[Photograph by Alper Çugun under Creative Commons]

 

 

Cross-industry competitors are powered by technology; they can come from anywhere and deliver knockout punches. Here are some examples from across industries:

  • Banking: In Kenya, M-Pesa, a mobile phone-based money transfer service launched by mobile network Safaricom (Vodafone owns 40% of Safaricom) in 2007, has become a dominant way of transferring funds. It is giving traditional bricks-and-mortar banking institutions that have existed for centuries, a run for their money. In India, the Reserve Bank of India has given an in-principle approval, valid for 18 months, to 11 companies including Vodafone, Airtel, Department of Post and Reliance Industries to set up payment banks to provide basic savings, deposit, payment and remittance services. This will enable Vodafone to further extend its M-Pesa service in India. Result: traditional bricks-and-mortar banks, often called ‘universal’ banks, will face stiff competition from these cross-industry competitors.
  • Taxi business: This decades-old industry is facing survival issues across the world since the advent of taxi aggregators spearheaded by Uber. Uber, the poster child of the on-demand economy, makes a simple promises: reliable and affordable transportation at the push of a button.
  • Retail: Walmart is ranked No. 1 in the Fortune 500 list of companies (turnover: $486 billion in fiscal 2014). It too is facing stiff competition from a cross-industry competitor, Amazon. To put the challenger in perspective, Amazon’s turnover is merely $96 billion (fiscal 2014). Yet its market cap, which reflects Wall Street’s confidence in its future, is $250 billion (as of July 2015), compared with Walmart’s $230 billion (July 2015). If one were to go with Wall Street’s optimism, Amazon has a better future than Walmart.
  • Watch industry: It is under attack from a cross-industry competitor powered by technology—Apple again, with its Apple Watch. Apple Watch is threatening to dethrone the century-old watch companies, that too within months of its launch.

From technology-powered cross-industry competitors, let’s move to the world of Coca-Cola and McDonald’s. Coca-Cola is arguably one of the most valuable brands in the world. It is ranked No. 4 in Forbes magazine’s list of most valuable brands, 2015 (estimated brand value: $56 billion). During its over 125 years of existence it steamrolled all types of competitors that crossed swords with it. However, of late, one source of competition seems to have tripped it dangerously: emerging trends in consumer behaviour.

Young people are showing an increased inclination to shun taste in favour of health and wellbeing. Unfortunately, Coca-Cola is perceived as being tasty but harmful for health. Therefore millennials (born between 1982 and 2000) are shunning Coca-Cola in favour of healthier beverage options. Result: Coca-Cola is facing unprecedented pressure, both on its top line and bottom line.

McDonald’s, like Coca-Cola, has successfully won many a battle against competitors over its 75 years of existence and has chalked impressive growth. Now it too finds itself helpless as millennials shun taste in favour of wellbeing. Like Coca-Cola, McDonald’s is perceived as being unhealthy and is facing strong headwinds. Who is gaining at its expense? Subway, which promises fresh and healthy food.

Trends, which are indirect and invisible, are emerging as yet another source of competition that is delivering swift, knockout punches to all those who come in its path.

However, trends evolve and Subway isn’t safe either.

The preference for healthy foods is evolving to a preference for foods that are also produced with integrity and ethics.

So, Subway, which finds itself short on this factor, is facing intense competitive pressure from Chipotle Mexican Grill, which promises to serve “food with integrity”. This means that it uses eggs from free-range hens that were not cooped up in a pen, but were allowed to roam freely. And the meat is from animals treated ethically—their horns are not sawed off nor their tails cut; they are not fed chemicals to artificially fatten them.

Gillette is another example of shifting trends threatening competitive advantage. For decades it has established global dominance in the men’s saving market by offering the best a man can get by investing heavily in R&D and non-stop innovation. Today it finds a challenge in the form of a global fashion trend that has young men sporting a stubble or maintaining a beard.

This new source of competition—trends—is faceless. When it strikes, the ones at the receiving end are left in a state of disarray.

Winston Churchill, arguably one of the finest orators, had said: “A lie gets halfway around the world before the truth has a chance to get its pants on.”

Diet Coke, much to the brand managers’ chagrin, seems to be at the receiving end of this insight. An internet rumour that has gone viral holds aspartame to be carcinogenic. Most diet cola contains aspartame, as does Diet Coke. Result: millennials, who are constantly on the internet, are exposed to this rumour and are acting on it—by shunning Diet Coke.

That brings us to a new source of competition: rumours.

What should your response be when faced with these indirect, invisible and lethal sources of competition?

To begin with, becoming “competitor focused” and single-mindedly drawing up strategies to outwit them is futile. Remember, these new age competitors are versatile and strike you when you least expect it. To checkmate them, shift your focus towards the customer. Become customer obsessed. Endeavour to make your product so attractive, it wins their hearts and establishes an emotional relationship with them. Once that happens, even invisible and indirect competitors will find it difficult to steal them away from you.

Are there any other strategies to slaughter this new hydra-headed competition? Indeed there is. It involves becoming your own fiercest competitor, and disrupting and destroying your own business to emerge in a more formidable avatar. Has any company followed such a strategy? Several have, including Wikipedia, YouTube, Netflix and Gillette.

Every few years, Gillette launches a razor that makes the earlier version redundant. In effect, it actively destroys its own razor. It started with a single-blade safety razor, then launched a double-blade razor, followed it up with a three-blade razor and now its Fusion Razor has five blades.

If the disrupt and destroy strategy sounds too “violent”, another strategic path is to buy out competition. That is what Facebook did to an emerging competitor, WhatsApp. Needless to say, this strategic move will leave a hole in your pocket.

Competition cannot be wished away. To paraphrase Gianni Versace, permit it to push you to become better.

 

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Read everything by Rajesh Srivastava here

 

(Reproduced with permission from Founding Fuel Publishing Pvt Ltd. This episode is part of a special weekly show The New Rules of Business, hosted by business strategist Rajesh Srivastava for Founding Fuel, a new generation digital media and learning platform for the entrepreneurial community. Rajesh has a related column with every episode, which can be accessed here)

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