Youngme Moon’s new work, entitled Different, is an essay on differentiation in a competitive marketplace. (Moon (2010)). In the book, Moon recounts how, in her early teaching experience, she provided detailed feedback to students on their work on specific dimensions of performance relative to the class average. She identified an interesting and very natural tendency for students to stop developing areas in which they exceeded the class average and to instead focus on improving the areas in which they were below the class average. Moon notes, “The most creative thinkers in the room were intent on improving their analytical skills, while the most analytical thinkers in the room were intent on improving their creative contributions.” The interesting outcome of these rational instincts is that the students in the class all tended to regress to the mean. That is, those who initially had unique advantages in certain areas did not develop those advantages but instead sought to become more like others on the dimensions in which they lagged.
Now consider this in extension to the competitive marketplace. Moon recounts, in simple fashion, the distinctive positions of Jeep and Nissan in the off-road vehicle market 20 years ago, when Jeep’s point of difference was its reputation as a rugged sport utility vehicle, while Nissan’s reputation was linked more to the quality of its engineering. The way of the competitive market, though, is reflected in what happens in the intervening two decades. In the next 20 years Jeep has improved its quality, Nissan has improved its ruggedness and the two brands have become similar on several other dimensions.
Moon’s work identifies a natural dynamic in the marketplace. Good people, working hard to improve their products and services by offsetting deficiencies, have a natural tendency to become more like their rivals. But in spite of this natural tendency toward sameness, why do some firms still rise above the pack? In his widely cited work on competitive rationality, (Dickson (1992, 1997)) Peter Dickson suggests that there are three innate drivers of entrepreneurial behavior in a competitive marketplace: the drive to improve customer satisfaction, to reduce process costs, and to improve process efficiency. The energy that fuels these drivers is the desire to learn. People and organizations who can learn the most quickly about variation in demand and supply will tend to be the most competitive. Leveraging these drives along with the natural differences that exist among customers (demand heterogeneity), some firms essentially experiment by introducing new product or service variations. The “improve my deficiency” tendency that Moon identifies is nested in the innovation-imitation process, that is, successful experiments are copied by competitors. At the same time, though, customers in such markets become more sensitive to, and come to seek, new variations that better meet demand. Drawing on classic work in economics, Dickson builds into his model the notion that luck favors prepared and alert firms, for example, innovators who have a deep understanding of how customer expectations are changing and imitators who watch and think about market reactions before blindly mimicking competitors’ actions. The most competitive firms are those that have the strongest drive to learn and improve.
Market dynamics are about a constant search for differentiation that can, paradoxically, lead to “sameness.” Yet Dickson’s work reminds us that there are firms who continuously lead the way out of commoditization by having greater perceptual acuity—by understanding their markets in a manner superior to the competition. Here in Chapter 8, we consider both how the 3-Circle model describes and reveals market dynamics, and then how the model can help in anticipating likely actions of customers and how competitors can improve growth strategy. The market does not stand still—it is dynamic. To that end, this chapter explains how value moves through the 3-Circle model by demonstrating how markets and competitors change and how competitive advantage shifts over time. Building upon the research of D’Aveni, Mintzberg, Miller and Friesen, and others we demonstrate how customer values and needs, competitors market positioning, and a company’s own resource bundling may change the market landscape.A number of scholars have examined value migration and industry change, including D’Aveni (1994), Mintzberg (1994), and Miller and Friesen (1982). We begin with an important and dramatic illustration of market dynamics.
