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The Basis of Competition in an economic downturn
One of the most valuable takeaways from my marketing classes, as an RIT MBA student, was understanding the Basis of Competition research by Clayton Christensen. In Professor Bob Boehner’s class we spent quite a bit of time talking about this theory in the context of disruption and managing marketing strategy from the perspective of this reality.
At a high-level, the theory states that all industries go through a series of changes from which the market makes decisions on them. At first, when an industry or product category is relatively immature, people make their decision on product features; which product is delivering the most innovative and unique aspects to the product. In the HD TV industry this would be picture quality and other features of the television. Eventually, as the Basis of Competition slides down, the product attributes begin to all look alike and it becomes more difficult for the consumer to differentiate one product from the rest; thus, they make purchasing decision on reliability or brand. Which product do I trust more all thing being equal. This is one of the many reasons that branding is such a hot topic; as product mash together from a functionality perspective, people choose the safe harbor.
Eventually, all players in the market become relatively safe decisions and people make their decision on convenience (where can I get this where it causes me the least hassle), and ultimately, the last rung on the basis of competition ladder is price: consumers make their decision on price more than brand, convenience or product attributes.
Going back to the HD TV market, for the most part, the functionality, reliability and convenience of buying a HD TV are fairly similar and people are looking for the biggest set at the lowest price. Thus, a classic example of the Basis of Competition sliding towards this consumer-controlled reality.
So, what happens when people are forced to buy on price? Does this automatically drive the basis of competition, in a given product category, to the commodity level? If I have built a lot of time and effort in brand-building a given product, is it all for naught because people are less likely to pay a premium? When the downturn begins to improve, can firms recondition to the market that brand is important again?
The question is this: how does an economic situation, like we have now, affect the Basis of Competition theory? Do product categories jump from product based consumer decisions right to price? How strong does a brand have to be to prevent sliding? How do firms manage this over the long-term?
Tags: brand
