As products and services struggle for consumers' attention, maintaining a market lead takes more than just innovation. But how do top businesses fend off the competition?
The price-comparison website moneysupermarket.com floated on the stock exchange last year for £800m. In 1999, when its founder Simon Nixon formed the company, it was the first personal finance price-comparison site for consumers in the UK. Since then, a number of entrants have joined the market, including comparison services from two heavyweight players, Tesco (tescocompare.com) and insurance firm Admiral (confused.com). Yet moneysupermarket.com has somehow managed to maintain market-leader status, with 45 per cent of online financial traffic.
In a crowded Web-space, this leader status has given the brand public appeal and loyalty. Nixon, a former stockbroker, reckons being first to market gave his business a definite competitive advantage. And it's clearly a great start for any new business. But in How They Started, a book about how 30 good ideas became successful businesses, Nixon warns author David Lester: "You have to put your foot down on the accelerator or people will catch you up very quickly."
Moira Clark, director of the Henley Centre for Customer Management, confirms that the rewards from creating a market niche often justify the risks of first-mover advantage. The main benefit, she says, is that they get a competitive upper hand. "They should also be able to charge more of a price premium. And they normally get more visibility," she says.
Take the drinks company Innocent, for example, which was the first significant company in the smoothie market and according to Nielsen, is now a £141.2m brand (and the fastest-growing brand in the Checkout Nielsen Top 100 Grocery Brands). "Even Waitrose does its own smoothie now," says Clark. "Innocent is the leader, the pace setter. It comes up with unusual drinks and people are willing to pay the extra premium because it's them, and they're trusted." She adds: "At the top of the slide, you can charge a premium because you're adding value and doing something no one else is doing. So Innocent doesn't add any preservatives, and tells you how many pieces of fruit are in a carton—it's providing lots of value to the consumer and can charge a high price."
Giles Brook, Innocent's commercial director, believes a lot of the brand's success can be attributed to its understanding of the four top macro trends (health/wellbeing, indulgent/premium, convenient and ethical). As Innocent co-founder Richard Reed point outs, the whole team works on ways of maintaining a point of difference and devoting resources to keeping an advantage, especially since the chilled-juice market has grown phenomenally in the last few years.
"None of us would deny being at the right place at the right time. Health and wellbeing are on most people's agenda all the time now," says Reed. "As a result, there are more and more drinks that have come to the market, and it's fair to say that some look quite a bit like ours. We're really flattered, but this only encourages us to be even more creative."
Directors should be able to cope with copycat products and services (even those supplied by larger companies with bigger budgets) by challenging themselves, suggests Reed. "Work out if you could do it a bit differently, or a bit better. That could mean finding new ingredients, or launching a 100 per cent recycled bottle like we did last year. You have to keep innovating and never get complacent."
Companies can slip down what marketers like to call the commodity slide if they don't look after their brand, says the Henley Centre's Clark. "They don't invest in the brand as much as they should; they take money out of it," she says. "In marketing terminology, they start milking it, treating it as a cash cow. The brand leader can easily slip down the commodity slide, especially if it's under pressure from a competitor to reduce the price."
What they should be doing, she says, is offering something new, or adding value to their product or service. "Keep the price premium up there, or even just market it in a way so that it still has that exclusivity, that image of being a brand leader," she says. "The most dangerous thing is not to do that. You become a commodity like everyone else."
Of course, competition between companies is usually considered a good thing, especially for the consumer. As Gianvito Lanzolla, associate professor of strategy at Cass Business School, says, a certain amount of competition helps the first mover to grow the market. "No company, no matter how endowed it is, can grow an educated market by itself. So competition can widen the scope and reach of the market," he says.
According to Lanzolla, it's generally more advisable for small companies to be first movers, especially if they want to pursue what he calls a "short-term, free-riding strategy". Lanzolla says: "You have to be honest about your strategic objectives. Very often, these small, innovative firms want to capitalise as soon as possible on their great idea. So being first to market in those cases is good because they can set themselves up as stereotypical in their product category and go for an IPO, or be bought out by a larger company."
A good example is the price-comparison businesses. As the market has expanded, so supermarkets, search engines and financial companies have joined the party, and small firms have been winners, too. For example, the US entrepreneur Kamran Pourzanjani founded pricegrabber.co.uk with $1.5m of angel funding in 1999. It was bought by Experian for nearly $500m six years later. Similarly, Yahoo bought Kelkoo (itself a merge of Zoomit, Dondecompra and Shopmerger) for €475m in 2004.
But being first to market also has its disadvantages. Brand leaders are unlikely to develop "the next big thing". Pioneering costs money, especially in terms of research and development. And competitors may try to gain advantage through partnering up against you—a formidable challenge for a smaller business.
"Being first to market doesn't grant any magical benefit," warns Lanzolla. "There's a lot of hype around first-mover advantage, but you have to assess how valuable your service or product is, and whether you can protect the competitive position that you set by being first."
Lanzolla reckons directors can keep their great idea at the front of the pack by understanding that new markets have to evolve "smoothly". He explains: "If markets evolve over time at a smooth pace, senior management is more likely to effectively pre-empt which resources will be valuable to the business—which employees to hire, which technology to buy. If a market evolves smoothly, customers start to get into your product, and you become stereotypical in your category."
Clark agrees that a great idea and good technology only really provide you with a temporary advantage. Yes, all prestigious brands have maintained themselves by innovating and keeping themselves new and different. But those that will stay at the top for the long term are those that have invested in their people, and those that have achieved sustainable advantage through what she calls "tacit knowledge".
"Articulate knowledge is something that you can write down," she says. "Tacit knowledge is something that we carry around with us, or that companies have, that provides us with a unique competitive advantage. It's not something that is easy to capture."
Consider BMW, says Clark. It has maintained its decent premium and prestigious brand through innovating and adapting to changing environments, but what probably marks it out from other cars is the experience of it. "You get into a BMW car and it smells nice. The doors clonk in the right way," she says. "That doesn't just happen—BMW has people working on that."
All of which brings us back to the people. "Innocent is now made up of just over 200 exceptionally bright and talented people," says Reed. "They have a real passion for what they do and you can't replicate that." You can imitate other people's services, technology or customer-care programmes, but not the quality and history of the people in an organisation, believes Clark. "The Innocent people are unique and brilliant. You just can't copy that," she says.
Singing from the same song sheet as Innocent is Rachel Clacher, co-founder of telephone-answering service Moneypenny. She says the Queen's Award the company won this year will help it maintain its market-leader position. But she's also excited about how the firm is diversifying by using its best assets—its people. "What's been fantastic is that this has turned into a fabulous opportunity for us, the outsourced receptionist business," she says.
So how does Clacher expect to fend off the copycats? By staying true to the company ethos. "We've always taken imitation as the highest form of flattery. And we've seen an awful lot of imitation," she says. "We made the decision not to look over our shoulder and keep looking forward, to maintain focus on the people side of things. Our clients buy into our people more than our technology."
She really believes that the family-values culture Moneypenny has instilled over the nine or so years since its inception—treat others as you expect to be treated yourself—helps the company to maintain its point of difference. "The hardest thing for anybody else to replicate is culture," she says. "It's our least tangible but most valuable asset. We work very hard at maintaining and developing that so our people are empowered and want to stay here. Our confidence that a big business won't be able to come in overnight [and squash us] is down to the culture we have here and the quality of our staff."
There will always be companies with huge budgets sniffing around your marketplace. As Clacher confirms, there were a number of copycat outfits on their tail within a few years, and even someone willing to go undercover to steal their ideas (see below). That's why, says Clark, it's important for brands to keep their unique identity: "Find ways that can't be copied by the big guys. That's the secret of success."
Competition is one thing, but some people resort to unscrupulous methods to learn the secrets of a successful business
At Moneypenny, Rachel Clacher and her brother and co-founder, Ed Reeve, made a conscious decision to grow organically in order to maintain the firm's high levels of service. She explains: "I don't think we could take on another 100 PAs or receptionists tomorrow, and within three months be able to offer the same standard of service. It takes longer than that for people to become part of the organisation and understand the company ethos, the opportunities and the challenges." Which made it all the more galling when a competitor presented himself as a consultant and tricked the pair into working with him for a few months.
"It was all a ruse to go and set up a competitor service, which he's done. He wanted to be here to examine our working model," says Clacher. "It was very disappointing. We work so closely with our suppliers—it's a strong relationship based on trust—and here was somebody who abused our trust."
She says they learnt a lesson from the incident, namely to always look forward, not back. "We had the last laugh because I'm sure his business isn't flying as well as he would have liked," she says. "Integrity and honesty run across the board at Moneypenny. Healthy competition is a good thing."