Markets are increasingly facing uncertainty as they become challenged from two directions: the big platform-based companies that are expanding into new categories and the new challenger brands providing innovative offerings. The giants and the start-ups share one common distinction: they solve people’s problems. Johan Ekelin and Emma Barrebo of Lynxeye recommend four tactics to help brands remain relevant and avoid getting squeezed in the middle
A man becomes the new CEO of an international multimillion-dollar corporation and decides to turn it upside down to change the mobile communications industry. By doing so, he justified the company’s right to exist in the future. When John Legere became CEO of T-Mobile, he realised that the mobile communications industry was failing to deliver the very things that people love about mobility; in fact, it was delivering the antithesis: long-term contracts, termination fees and overage charges. In a brave move that would double the number of customers in just four years, he started the Un-carrier movement.
The Un-carrier manifesto reads: “We’re in the changing-the-phone-company business. Un-satisfied with the status quo. Un-afraid to innovate.” The turnaround led to the elimination of service contracts, unlimited data-free streaming, and simplified business pricing. “It was about finding and solving customer pain points in an attempt to fix a stupid, broken, arrogant industry”, Legere said in an interview.
Growing uncertainty about many future markets makes this sort of brave and consumer-centric movement more important and more likely. Take car manufacturers, for example, who have traditionally competed with each other, but are now facing new challenges. BMW’s big marketing budgets and incrementally improved models are designed to beat Volkswagen, Audi and Ford. As the industry gets ready for the prophesised coming of autonomous vehicles, however, competition becomes increasingly diverse and unpredictable. Internet giants like Google and Baidu are entering the market from one direction, while the taxi and carpooling service Uber enters from another.
More and more markets are facing similar uncertainty as they become challenged from two directions. On the one hand, big platform-based companies like Google, Amazon and Facebook are expanding into new categories. They already have people’s goodwill and/or habit of use, which makes expansion relatively easy. As a result, consumers are consolidating their brand engagement to a few brands by using these platforms to perform more and more tasks.
On the other hand, lower barriers to entry mean that new challenger companies are appearing every day. These players often enter markets with innovative offerings and business models. In cases where a beta version user base is an important first-mover advantage, incumbents will find it difficult to compete. Innovative business models are often even more difficult to replicate.
The importance of a scalable business model can be illustrated by comparing Alibaba with traditional retailers. An important advantage that the Chinese e-commerce company has is that its business model does not rely on having warehouses or keeping any stock, making its potential practically unlimited. In August 2017, Alibaba surpassed Amazon in terms of market capitalisation.
Successful market entries by giants like Facebook and Alibaba as well as new start-ups have one thing in common: they become relevant because they solve people’s problems better than traditional brands. Quoting T-Mobile CEO John Legere: “If you ask your customers what they want, and you give it to them, you shouldn’t be shocked if they love it.”
Start-ups are often founded on one or a number of revolutionising insights into people’s pain points. Similarly, big platform-based brands can consolidate and develop offerings based on extensive user data. These insights into people’s pain points are a resource that is used to create and offer relevant brand value.
To gain more insight into consumers’ frustrations and which brands have the right to solve them, Lynxeye conducted a study called Disruptions of Tomorrow for which 2,000 consumers in Sweden, Singapore, China and Vietnam were asked to rate over 300 pain points. Respondents were then asked to name the brands they thought would best solve them.
The results support the view described above. People gave brands like Google, Apple and Alibaba the mandate to solve problems in most categories. This indicates that the basis for their expansion into new categories is not only sheer strength of resources but also high brand credibility and relevance. Relevant challenger brands have high preference overall, but have the right to solve problems in fewer categories (Figure 1).
As a result of giants and challengers entering new markets, many brands risk becoming squeezed in the middle. Take traditional retailers, for example. Many of them are at a crossroads today. It is tempting to distribute products via big platforms where millions of people shop every day. The risk, however, is losing control over the relationship with the consumer. By entrusting the transaction to these platforms, companies have less say over, for example, pricing, aftersales communication, and customer experience. It also limits access to valuable customer and user data.
To ensure future growth, companies need to maintain their relationship with their customers. Using one or a combination of the following four tactics can help brands achieve exactly this.
1. Be proactive about solving problems in each category
When incumbent brands ignore or fail to solve consumers’ frustration, it opens the door to new players with innovative solutions. Uber is a shining example of this.
It was no secret that bad value and lack of transparency were big pain points for taxi customers. However, only sporadic improvement efforts were made. With the
launch of the ride-hailing app, Uber gave more power to the riders.
Business leaders often have a prime understanding of what works and what doesn’t in a particular industry. By leveraging these valuable insights, they can become better at developing their offerings and the nature of the business category. This can result in new revenue streams or a complete revision of old business models.
One successful example of an innovative solution is Swish. The app enables quick transactions based on users’ phone numbers. When developing the service, six of Sweden’s largest banks set aside their competitive efforts to collaborate. Today, Swish is viewed as Sweden’s most purposeful brand, ahead of Google and IKEA. Swish will probably act as a barrier to Apple if it launches its new Apple Pay Cash service in Sweden.
2. Make meaningful and positive contributions to the role of indirect stakeholders in each business model
As more and more people enjoy high living standards, they are looking for ways to consume sustainably. Companies that manage to include a ‘for the greater good’ aspect with ‘for me’ selling points are often rewarded with higher preference. Companies that are perceived as meaningful are often seen as more visionary, new thinking, future-proof, responsible and trustworthy than others.
Every year, Whole Foods gives at least 5% of its total net profits to the communities it supports. Similarly, Walmart donated $50 million to hunger relief in 2017. However, Whole Foods has been far more successful at branding itself as a sustainable company. A big reason for this is that the ‘do good’ aspect is ingrained in the company’s business model. Fresh products are sourced locally to improve the social, economic and environmental health of the community. This coherency has helped build a company worth over $13 billion.
3. Servicify your offering
The access, or sharing, economy and gig economy are terms that have been given much attention in recent years. This is a result of people wanting to improve their value/time equation, consuming more and more services. Both parts of the equation can be improved by prioritising services over products. Meal home delivery services, for example, both reduce the time needed for grocery shopping and increase the variety, and often the quality, of meals. Similarly, many services also help people get the most out of things they own. One example of this is the Nike+ Run Club.
Moreover, the number and quality of customer interactions are generally higher for services than for physical products. By adding services to their offerings, companies can gain new revenue streams as well as the relevance and engagement needed to build lasting consumer relationships. The risk of losing control over the transaction to a third party is also smaller with services, since there are significantly more places to trade physical products. There are currently many interesting examples of companies adding services to their offerings or completely sidestepping their traditional business model to better cater to the access economy.
“To remain relevant in an uncertain future, brands need to understand people’s pain points, make meaningful contributions to the world, think solutions instead of products, and build a strong identity based on shared values”
Faced with a likely future characterised by decreasing living space and ownership, IKEA has acquired the on-demand gig hiring platform TaskRabbit. This is likely to result in new revenue streams for the company that are well in line with their vision to create a better everyday life for many people.
Car manufacturers are similarly working proactively to ensure future relevance by redefining themselves as mobility service providers. Mercedes-Benz, Audi and General Motors are competing with their traditional car sales by offering services such as car2go, Audi on Demand and Maven.
4. Build a strong identity and take a curating role
People with a large social media following, also known as influencers, are becoming increasingly powerful. Because consumers identify with them as peers or even friends, they trust them when they evaluate, filter and define which offerings are relevant. As a result, influencers are becoming increasingly important to the inspirational first phases of the purchasing process.
Companies that manage to play a similar role have a better chance of ensuring future relevance. Part of the trust people feel for influencers comes from the coherent, values-based identity they communicate every day. To become a credible curator, a brand must similarly build a clear identity based on values shared with the target group.
Patagonia is one of the most successful examples of this. The brand is built around an insight relevant to many consumers of outdoor gear products: that a love of wild and beautiful places demands participation in the fight to save them. Patagonia has kept this insight at the core of its business for the past 30 years. This has resulted in a clear and credible identity that makes people across the world turn to the brand for lifestyle wear, travel inspiration and food, as well as outdoor gear.
The idea that a company’s relevance is justified by its ability to offer its customers value is as old as business itself. Yet many companies fail to remember that this means constant soul-searching, self-improvement and sometimes even totally reshaping what is at the core of the business, namely the business models and customer relationships.
To remain relevant in an uncertain future, brands need to understand people’s pain points, make meaningful contributions to the world, think solutions instead of products, and build a strong identity based on shared values.
Do you want to learn more about disruptions of tomorrow? Read our guide.