Petaluma, California is home to a strange contest every year – World’s Ugliest Dog Competition! The winner gets a handsome $1500 reward, and the dog gets a trip to New York with its owner. Humans love competition and we love it so much that we are capable of taking in a competitive context and applying it in situations where it does not belong like ugly dog contests!
Behind brilliant business plans and effective business strategies, there is a surprising driving force: Refusing to Compete
Refusing to compete means choosing to disengage from your competitors, step back and letting them have what’s theirs. Refusing to compete means choosing to be bad at the things your competitors are good. It means choosing to create a market where your competitors can also thrive! As a reward for this approach, you can uncover a strategy which could result in helping you win in the marketplace.
Clustering occurs when a bunch of businesses in the market competing with each other become more and more alike. If you essentially work in a market that is price sensitive than you work in a clustered market.
Many of you will be familiar about the story of Nokia. The thing that killed Nokia was not their competitors but their own competitive spirit. When Nokia was at the peak of being a brand, they were not just a phone brand they actually occupied quite a specific, a quirky market role.
Nokia produced simple, reliable, indestructible phones like the 3310. It was called the terminator of phones. The bottom line is that 3310 offered a pretty clear market value. 3310 was a hit among the customers. And then Apple came slowly into the picture. Apple had completely different set of values that they brough to the market.
These apple phones were beautiful, designer, exclusive, sleek and everything that Nokia phones were not. Some people found this to be appealing and they gravitated to Apple phones. Apple started cultivating that part of the market. Nokia being the arch competitors were not going to accept this change. Nokia started to create iPhone lookalikes that were nowhere close to Apple’s quality.
The rest is history. We saw Nokia crumble and Apple get to the position that it is at today. This is what happens when you compete.
Another example of clustering is the Airline industry in 1990s. Through the latter half of 20th century, they were interested in appealing to the super lucrative business travelers. So, all of the carriers competed around this point and gradually began to cluster. This created a market that was historically competitive and historically unprofitable.
It is as like Richard Branson says, “If you want to be a millionaire, then get a billion dollars and start an airline.”
Competition breeds “conformity” and with it creates flattened lifeless markets and unprofitable businesses. So, what about the alternative? What happens when you refuse to compete?
The answer is obvious if competition creates clustering than refusing to compete creates declustering. What is Nokia had focused on their own brand? Nokia could use Apple as a counterpoint and do the opposite of how Apple positioned its products.
For example, Apple’s screen could crack, Nokia’s would not, Apple had 8-hour battery life, Nokia could boast of 80 hours. Together they could balance the market, and both could thrive. If you portion the market like above, you are only competing for a piece of pie and putting a cap on your potential market share?
It is far easier, far more valuable & profitable to own a pocket of the market in a non-competitive monopolistic sense than it is to be competing over the whole pie! The market share as of 2017 of the iPhone was only 14.7% but this converted to a 79% profit share.
This is simply because Apple owned their part of the market, in a non-competitive way while all of the other companies were exposed to the cost of competition. This rejection of competition can help build the greatest competitive advantage, although it seems counterintuitive, and leads to amazing companies that have a real effect on the planet.
Isn’t it funny that the companies we celebrate most have low market share? SW Airlines is another great example when we think of refusing to compete. While all air carriers were going after business travelers, SW threw them out of their strategy. They just gave these to the competition, and this gave them the leverage to invent the low-cost airline category.
SW airlines flourished and its share reached record highs in the 2000s. All other airlines were competing for the whole pie while SW was only competing for the average flyer.