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The downstream competitive advantage

The latest ‘big idea’ in strategy is ‘downstream competitive advantage’, and to the interested reader, may I recommend the excellent article, Mind Over Marketing by Niraj Dawar?

In a nutshell, the theory proposes that competition has today shifted downstream and a firm’s unique assets and capabilities (referred to as ‘upstream competitive advantage’) no longer guarantee competitive advantage in the market place since the competition will always copy and/or replicate.

Hence, the new era of branding and brand positioning. This is not to say that branding has not been important in the past but it has now arguably reached its pinnacle and full potential, plus it has now evolved.

A strong brand with a huge following will result in customers refusing to switch brands even if the competition is as good and cheaper – or better and cheaper. I am here thinking of products like Coca Cola, Apple, Harley Davidson, Timberland, Ferrari and the like. The competition can come up with products that are as good, if not better, and sell at a lower price point but the brand-loyal customer (disciple) will still remain loyal. This is what is often referred to as ‘stickiness’ and is the holy grail in any industry or business.

A well-known experiment in the world of branding is to ask what would happen to Coca Cola if it were to lose all of its physical assets. In such a scenario, could Coca Cola restart operations and resume normal business?

The popular answer is that the company would have little difficulty in finding the funds to restart operations because of the sheer value of the brand. When, however, the same thought experiment asks what would happen if the same company were to be faced with a situation in which seven billion consumers around the world were to wake up one morning with partial amnesia and could not remember the brand name Coca-Cola or any of its associations, the popular answer is different. In this scenario, the overwhelming response is that the company would not survive.

The conclusion is that the brand is worth much more than the physical assets. In the words of Dawar, ‘downstream assets’ are today worth more than ‘upstream assets’, hence the birth of the concept: downstream competitive advantage.

In view of this, my advice to Maltese business, looking into the future, is to acquire and retain competitive advantage through effective brand positioning (how customers perceive your brand in their mind), by investing in brand loyalty initiatives (how a business manages its relationship with its customers) and by continuously seeking to reduce customer purchase costs and risks (always strive to make it as easy and simple as possible for your customers to buy your product/service).

This is what Dawar means by downstream competitive advantage. The idea is that by doing so, it will be a lot harder for your competitors to copy and emulate your recipe of success and, even more interestingly, that your competitive advantage will not erode over time (as has been the case in the past) but actually becomes ‘accumulative’. This is a radical departure from traditional strategic thinking in business and I find it immensely exciting in this new era of branding.

Having said this, it is worth pointing out that if your business currently enjoys competitive advantage in upstream assets (people, intellectual property, buildings, business process, inventory management, etc), one is by no means suggesting that you neglect or ignore these sources of competitive advantage since they are still important today.

No, what the proponents of downstream competitive advantage are arguing is that over time such advantage will inevitably erode since the competition will always learn and copy. Hence, it pays you to invest today for the future in building your brand, in your customer experience, in the consumer purchase journey and in other downstream competitive factors since with time these will be the real sources of differentiation and competitive advantage.

Finally, be aware that the brand battles will occur in your customers’ minds, a point that is often forgotten by strategists. Hence, brand building, brand positioning/re-positioning, brand loyalty, brand promise(s) and brand battles in general, all occur in the minds of your customers.

In view of this, it pays you in 2014 and beyond to invest in how your brand is positioned, in the brand promise you are making (and make sure you always deliver on the promise), in the long-term and mutually satisfying relationship you have with your customers (since this leads to loyalty) and, last but not least, in the market segment(s) you actually want to compete in since there might be segments you do not want to compete in.

With that in mind (excuse the pun), I wish you all a happy new year in the downstream world of competitive advantage! Brand or be branded out of competition.

www.fenci.eu

Kevin-James Fenech is director consultant at Fenci Consulting Ltd.

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