New realities of competitive advantage

This week’s purchase of Yahoo suggests Verizon’s strategy department thinks much the same way as myriad other organisations; “size matters”. Whether it’s about minimising risk or increasing economies of scale, such logic has steered many companies to successful tenures. However, there are new trends in the marketplace that make such aphorisms more and more contentious.

It was a couple of years ago now that Rita McGrath wrote about “the end of sustainable competitive advantage”. Prior to this, the arrival of digital was, in general, supposed to have done away with such things. But perhaps the most recognisable face of the digital revolution over the past decade has been none other than Facebook. Facebook has consistently maintained competitive advantage through a savvy use of lock-in via network effects and an aggressive proclivity to buy out any competition (see Instagram, Whatsapp). Users spend about 50 minutes per day across these platforms.

What about organisations outside of TMT? For several years now, Zeitgeist has seen qual data showing the waning power of branding. As we’ve written extensively about in previous posts, this is partly to do with information asymmetry. In the early days of advertising, it wasn’t easy for an average person to be able to know much about a product like Colgate; a brand identity was a quick way to communicate what expectations a consumer should have. Nowadays, almost entirely due to the internet and digital communication, we are able to quickly ascertain what products meet our requirements (what size tube do I need), which are bullshitting (how much whiter teeth?) and which our friends use (still ranked as the most important data point for trying a new product). Companies like Colgate sit in the Consumer Packaged Goods [CPG] category, where most of the world’s most instantly recognisable brands reside. But according to research from Boston Consulting Group, between 2011 and 2015, CPG companies lost nearly three percentage points of market share in the US. Nestle has missed its sales growth targets for the past three years.

Part of what’s hitting the CPG sector is a sustained enthusiasm for “local”. Zeitgeist first saw this trend emerging in 2011 when he worked in a strategic capacity for retailers who were increasingly looking to tailor their store design and offering to the area they were in. This is happening in media too, where local content in the Chinese market is quickly adapting to the pyrotechnics and thrills of imported Hollywood fare, and reaping the rewards. Many of China’s businesses are built on being the home-grown version of x foreign product. Uber’s recent deal with Didi Chuxing is an example of this. Moreover, if you’ve decided you’re happy to pay a premium for a product, it is increasingly unlikely you’ll choose a mass produced one. A real treat would be buying a nice cheese from Jermyn Street’s Paxton & Whitfield, not from one of the thousands of Waitrose stores in the country. Deloitte report that US consumers would pay at least 10% more for the “craft” version of a good, a greater share than would pay extra for convenience or innovation.

Of course, as mentioned earlier, digital has had a profound impact on lowering barriers to entry. From The Economist,

[New entrants] can outsource production and advertise online. Distribution is getting easier, too: a young brand may prove itself with online sales, then move into big stores. Financing mirrors the same trend: last year investors poured $3.3 billion into private CPG firms, according to CB Insights, a data firm—up by 58% from 2014 and a whopping 638% since 2011.

Digital’s impact has also been to dovetail with the trends already mentioned. Consumers’ turning away from brand messaging and interest for local is a quest for authenticity in a crowded market. Rightly or wrongly, no other tactic has proved so successful to communicate a roughshod authenticity as the viral video over the past ten years. New entrants are communicating using different channels but also in different ways, that make incumbents uncomfortable. As pointed out though in an editorial from the FT this weekend, “It is tempting to see these young companies as miracles of branding. In fact, they expose outdated industry structures and offer dramatically more value to consumers.”

Large organisations, sensing the eroding advantage, are responding in different ways. P&G is increasingly focusing on its top tier brands, selling off or consolidating around 100 others. Unilever recently bought the famous Dollar Shave Club, and VC arms are popping up at companies like General Mills (think Lucky Charms) and Deloitte, which like other firms is also thinking about how to avoid disruption.

At the start of this piece we mentioned two reasons that going big could lead to sustained advantage: minimising risk and establishing economies of scale. In our eyes, the former is more at risk than ever, as firestorms on platforms like Twitter and Periscope can eviscerate a brand more quickly than ever; VW’s vast operations have not saved it from significant reputational damage. Economies of scale are also a risky proposition, as The Economist points out “Consolidating factories has made companies more vulnerable to the swing of a particular currency, points out Nik Modi of RBC Capital Markets”.

But what about Facebook? At the start of the article we talked about its ongoing rule of the social world, but that definition seems too narrow for what the platform is trying to accomplish. Zuckerberg has talked about Facebook becoming a “utility” as part of a long-term vision over the coming decades. This is interesting given this is exactly what every mobile phone network operator in the world is trying to avoid. Reflecting on Yahoo’s demise last week, the Financial Times wrote that “the Achilles heel of each new wave of technology is that it eventually turns into a utility”. Teens don’t tend to find utilities exciting, and perhaps then it is no surprise that Pew reports declining usage and engagement with the platform from this age group. For Facebook then, commoditisation is as much a risk as disruption by a new entry.

 

Evian miss a trick with new device

A nicely put together video by Evian featuring a little machine you attach to your fridge to order more water. At a Future Laboratory trends briefing last year, audience members were told how simply putting a smiling face on displays encourages interaction (not to mention obedience). But is this device everything it could be?

Firstly, it is self-evident that bottled water is a pain to buy in a shop, only then to have to lug it home. Far better for it to be delivered. But the purchase of bottled water (presumably more than one bottle, as suggested in the video) would naturally be part of a larger, weekly shop, involving other products. Taking it out of the larger shopping process could prove difficult, or worse, make people realise just how much they spend on a product that also happens to come out of the tap, for free.

Secondly, have there been any environmental considerations thought of here? From the video this isn’t ckear, but if you are ordering bottled water to be delivered by vehicle, you’re quickly burning a lot of carbon.

Thirdly, could the tactics deployed in this strategy have been smarter? Presumably the strategy here was to get people drinking more water by taking the hassle out of fetching it themselves. So what about something that could prompt the user. Something that perhaps tried to measure water consumption per person in the household, after keying in the relevant data, to prompt you when you haven’t had your daily suggested intake? Or, even smarter, what about some true M2M activity? We’ve talked about M2M previously, and many brands are still reluctant to engage. This could have been a nice way for Evian to dip their branded toe in the water (no pun intended), perhaps using scales in a smart fridge to see how much water is left, calculating how much time that will take to be drunk, and prompting the consumer with a call to action to order more. Currently this product seems to rely on people motivating themselves to order more.

Evian is a wonderful brand. They perhaps should have thought harder here.

How fast-moving do you want your FMCG?

Starbucks vs Coke – This image first appeared online several weeks ago now, but Zeitgeist loves it so much that we wanted to post it too.

A great, highly-targeted ad that recognises the importance of context and attempts to address and question just what it is the shopper is looking for, sheer convenience and brevity, or a slightly more indulgent experience, which involves queueing. Inspired.

A Close Shave with Tennis Greatness

Roger Federer, the world’s most successful tennis player with a staggering sixteen Grand Slams to his name, shows here why he is so great. This ad appeared on YouTube earlier this week from Gillette. It appears to be an unofficial edit from when Mr. Federer et al were breaking between shooting a commercial. The Wall Street Journal recently added to the mountain of editorial written over the past 18 months predicting Federer’s demise – Federer’s reaction was to win three more slams in that time, an achievement which most tennis players spend a career trying and failing to obtain – with coda that attempts an abrupt volte-face, perhaps having already learned from last year to never, ever count Federer out.

Your views on the authenticity of the shots in this ad are welcome. Is it a William Tell-like feat of extravagant excellence caught in a candid moment? Or a nice bit of CGI in a very constructed environment? Federer, according to Reuters, remains coy on the subject. Regardless, Zeitgeist is definitely playing tennis in a suit tonight…

UPDATE: The video has officially gone viral.

Faciamo qualcosa “Viral” adesso

Zeitgeist is not extremely comfortable with the idea of two football-related posts in a row, however circumstances dictate it must be so. The sport is was riddled with corruption in bella Italia (and elsewhere), but that doesn’t stop the sport from entertaining millions upon millions. Heineken recently hosted a superb activation event, news of which comes courtesy of the great Digital Buzz Blog via a Zeitgeist apparatchik. It’s a cunning and humorous ploy that plays on the odd stereotype or two but is harmless nonetheless, and very enjoyable. Such a tactic would not have been suitable for other brands; Heineken pulls it off nicely.

UPDATE: Another Ogilvy blog has also written about this.