Competitive Advantage & Cumulative Advantage
How to make it easier to retain and attract customers
In the world of accelerating change and increasing competition, how can you keep existing customers, and attract new ones?
Clearly, your value proposition needs to be relevant and superior compared to those of your competitors or potential substitute offerings. However, just because your value proposition has attracted customers, it does not mean it will continue to do so in a changing world.
You need to help your customers to continue to choose you over anyone or anything else. To do this you want to make it easy for them to have to choose between your offering and that of someone else. And this is where the cumulative advantage comes into play.
When businesses create and use competitive advantage they pick a position, target a set of consumers, and configure activities to serve them better. The goal is to make customers repeat their purchases by matching the value proposition to their needs. By doing this the business is uniquely different and suitable for its target customers, allowing it to see off competitors and achieve sustainable competitive advantage.
But in a changing world, this is difficult to maintain as customer needs, competition and potential substitutes change quickly. With people having to make so many decisions and to distinguish between so many competing choices, it is important to make it easy for your customers to choose you. This is where the cumulative advantage comes to effect.
Cumulative advantage is the layer that a company builds on its initial competitive advantage by making its product or service an ever more instinctively comfortable choice for the customer.
Cumulative advantage is about creating process fluency – this term used by psychologists refers to how we make decisions, often filling in the gaps on the basis of our past experience – think of the thoughts, opinions, and preferences that come to mind quickly and without reflection but are strong enough to act on.
Our brains like to work automatically and find it easier to work with that which is familiar (just think of the times you have driven to work but have no or little recall of the drive itself). So once you have bought something you have experience on which to draw and which, automatically, your brain can draw on and fill in the gaps. The more you repeat this, the greater the experience, the easier the purchase decision and the greater the willingness to act on it. It is a bit like walking from your home across a field to get to a stile on the other side. As you do this again and again, so the path becomes more well-established and broader making it easier to take each time. This reflects what happens in our brains and in the neural pathways, we create and strengthen every time we make the same decision.
So what we need to do is to convert our offering and value proposition from a decision into a habit. In doing this here are four rules you can use:
- Become popular early – gain market share early. This requires more people to buy your offering and to do on a repetitive basis. This creates a relevant experience which people can draw on which makes it easier to make future decisions to buy again. Also, with many people buying you’re offering your create social legitimacy – people perceive your offering as less risky and more acceptable if others are also using it.
- Design for habit – design your offering so that it is easy for others to choose it. Facebook is a good example of this where people continually check for updates on their Facebook account, this is also compounded by the huge network effects that Facebook enjoys. At the same time, this also creates a strong barrier to stop people switching from Facebook.
- Innovate inside the brand – this allows you to continue to leverage the brand equity you have built up; at the same time you need to introduce changes in technology or other features that allow the new version of a product or service to retain the cumulative advantage of the old.
- Keep communication simple – the mind is lazy. It doesn’t want to ramp up attention to absorb a complex message. This helps to make decisions and choices easier.
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