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What Makes True Competitive Advantage Last?

It’s Not Necessarily Customer Loyalty

By Dennis Jones

Holding the competitive advantage in your market

If you’re a brand, especially a retail brand that reaches consumers, you’re probably fixated with the question, “How do I make my competitive advantage in the market last?” That is, unless you’re a newcomer taking on an incumbent, in which case, you’re asking, “How do I gain a lasting competitive advantage in the market?” Well, buckle up for a read, because it seems that some of the B-school conventional wisdom doesn’t actually hold.

Well, what am I talking about? What is this received wisdom in the first place? It’s pretty simple. Companies seek to establish a position in the market, target a set of buyers (ranging from niche to mass) and find activities to better serve that customer segment. That part is easily enough understood, say CEO, A.G. Lafley, and business school Dean, Roger L. Martin, in their Harvard Business Review article, “Customer Loyalty Is Overrated.” Since time immemorial, business people have been taught that they need to turn new customers into repeat customers, by constantly tailoring their company’s value propositions to the customers’ evolving needs, thereby inspiring loyalty.

This goes to the heart of the business mantra, “remain relevant,” which is in essence short hand for remain relevant so as to ward off your competitors and sustain your competitive advantage. And the tools you use to do so are uniqueness and personalization, the lynchpin of many a customer loyalty program.

However, Lafley and Martin say not quite. Instead of remaining relevant to the needs of your customers, Lafley and Martin propose something different altogether. They propose making it much easier for your customers to avoid making one more, purchasing decision.

You might be asking, isn’t there an app for that? Or couldn’t we just design a user flow to make purchasing much easier? Well, it’s a lot more than that. Consumers aren’t robots. They don’t consistently make deliberate purchasing decisions, based on conscious choice. Instead, Lafley and Martin turn to a strain to behavioral psychology that states – grossly generalizing, of course – that the brain fundamentally seeks to fill in gaps. And it does so by reducing incidences of incomplete information, often with an appeal to intuition and past experience.

Sounds tricky, but not really. When it comes to purchasing choices, our brains are hard-wired to make those decisions fluently; as Lafley and Martin write, “Prior exposure to an object improves the ability to perceive and identify that object.” It’s not loyalty that begets repeat purchases but the fact that it’s just easier to keep buying the same thing over and over again, barring extraordinary circumstances.

Does this mean that new brands are doomed? And old brands can just rest on their laurels, ignoring the tides of change? Not in the least; in the words of Lafley and Martin:

“We don’t claim that consumer choice is never conscious, or that the quality of a value proposition is irrelevant. To the contrary: People must have a reason to buy a product in the first place. And sometimes a new technology or a new regulation enables a company to radically lower a product’s price or to offer new features or a wholly new solution to a customer need in a way that demands consumers’ consideration.”

So what can brands do? First of all, rather than just developing and trying to maintain competitive advantage, brands should aim at building up their cumulative advantage, defined as “the layer that a company builds on its initial competitive advantage by making its product or service an ever more instinctively comfortable choice for the customer.” Generating and increasing cumulative advantage do still require creating a superior value prop, but it also requires the following:

  1. Become popular early
  2. Design for habit
  3. Innovate, but only within the limits of your brand
  4. Keep your communications simple

For a couple of those points, breakthroughs in digital technology can help, whether you use big data analytics to better understand your customer’s habits or leverage your presence across multiple platforms to communicate subtle, yet significant, changes to your brand.