Source of error: blind-paired comparison tests
THE VAST MAJORITY OF COMPANIES, when planning for growth, base their marketing strategy on a superior product when benchmarked against the competition. Procter & Gamble calls this strategy, “winning in a white box”. Most research departments and most business development activities are dedicated to this kind of rational stratagem. Marketing is then given the job of persuading prospects to change their brand preferences and their buying habits.
There are several problems with this strategy. First, competitive benchmarking is based on the illusion that buyers base their purchases on objective tests of product quality. The reality is that people use a multitude of quality cues other than those of the product itself when forming their buying preferences. Malcolm Gladwell, explaining the marketing disaster attributed to Coca-Cola when they responded to the proven superiority of Pepsi-Cola in blind taste tastes by reformulating their own cola and launching it as “New Coke”, put it this way in his book Blink:
It wasn’t just that they placed too much emphasis on sip tests. It was that the entire principle of a blind taste test was ridiculous … Because in the real world, no one ever drinks Coca-Cola blind. We transfer to our sensation of the Coca-Cola taste all of the unconscious associations we have of the brand, the image, the can, and even the unmistakable red of the logo.
Second, buyers are emotionally invested in their historical choices. They like what they know. They prefer what is familiar to what is unfamiliar and therefore tinged with risk. They like to keep reaffirming the rightness of their original choice (“I’ve always had a Buick”). It is less a feeling of loyalty to an old familiar brand than comfort with a habit that has served them well.
Third, market followers typically assume that acquiring customers requires beating market leaders. Armed with a better product, they set out to displace the incumbent supplier. They cast the challenge in the form of switching the loyalties of customers, changing their habits, and altering their tastes and preferences. But “brand switching” is a misnomer. Buyers do not “switch” brands as is commonly assumed. They rarely change their allegiance from one favourite brand to another. They “cycle through” a portfolio of three or four acceptable brands within the same category, albeit by giving most of their purchases to their favourite. In other words, what looks like “switching” is really “cycling”. People are not loyal to a single brand but to a small repertoire of available brands. More important still, people do not like changing their habits. They are remarkably “loyal” to their portfolio, particularly to their favourite brand within that portfolio, which typically accounts for 75% of their purchases of the category. People generally stay with what they know and stick with what they have.
Coming late into markets and hoping to steal share on the back of “a better product at a lower price” is virtually doomed to failure, even though it could be said to describe 90% of all the competitive strategies in the world. It is rarely a good policy to attempt to steal share from incumbents rather than to make a market in something genuinely new and different. Most market leaders owe their leadership to the fact that they created the market that they now find themselves dominating and defending. The dynamic for which capitalism is justly famous resides less in intercompany rivalry in existing markets and more in the invention of wholly new business models and the obsolescence of whole industries. In other words, strategy is not about attacking or defending market position, but about the making and unmaking of entire markets.