Insanity is commonly defined as “doing the same thing over and over again and expecting different results.” However, that is often how companies react to disruptive competition.
Was Kodak insane in the face of digital photography? They actually pioneered digital imagery in 1975 and developed a whole line of digital cameras. Kodak even bought a photo sharing site in 2001 — long before Shutterfly, Facebook or Instagram took off. But Kodak used Ofoto as a way to get people to print digital images, i.e. to leverage their legacy print business. The company didn’t realize that the customers wanted to share photos online, not print them. Kodak tried to “fit” innovation into its existing business model, hoping to sustain its highly profitable traditional lines of business. Kodak should have viewed disruption through the eyes of its customers. By 2012, the once Dow Jones indexed company declared bankruptcy. Kodak still exists but is a shadow of its former self.
Contrast Kodak with Netflix, which not only grasped the importance of video streaming and embraced it but also started creating its own content. The company was doing very well with mail order DVDs but adapted not only to new technology, but also to what customers wanted—streamable content. Once its user base was built, Netflix realized that it could vertically integrate by producing some of its own content. It began slowly, developing avant-garde shows and movies. Today, Netflix is a highly competitive movie and TV studio with awards and accolades to prove it. Netflix’s foray into international markets has also been bold, developing local language content in several large international markets. In Mexico alone, Netflix is poised to create 50 new local content projects, taking on the behemoths of Televisa and TV Azteca. In Latin America, Netflix pushed its bank partners to accept debit card payments, an unheard-of practice in Latin American e-commerce at the time. All these modifications and additions to their basic service were born from listening to their customers.
6 Best Practices for Managing Disruption
#1: Anticipate Customers’ Future Needs
Companies operating in an environment of rapid technological innovation must be masters at anticipating customers’ future needs. According to a recent AC Nielsen report, most consumer companies are focused on making sure that existing products are profitable and driving their brands “by analyzing the past.” The report further notes, tellingly: “Few companies manage their business by looking at the future.” If you notice the example of Kodak, that was the problem: it didn’t anticipate that customers would want to share photos in the future and NOT just print them. Kodak wanted customers to print their digital photos. But sales are not generated by companies, they are generated by customer demand. If your company won’t give customers what they want, someone else will. Identifying what drives consumer behavior can help companies to understand what their customer’s unmet needs are and predict their future needs.
#2: Make Sure Your Product or Service Solves a Problem
According to Kantar’s Digital Life 2019, the success of disruptive technologies is “centered in two key premises: their service or product solves a problem and consumer are willing to pay a premium for that service.” Have you ever wondered if your product is really solving a problem or is it just something that’s nice to have? Many times, consumers are not willing to pay for the product (or upgraded feature/add-on service) because they do not see the utility in doing so.
According to an Ipsos-Vantis study in Brazil and Mexico (2018), “more than 73% of the concepts and ideas tested by global consumer companies during 2018 had a rating below the norm because they did not solve a problem.” Netflix solves problems for its customers: streaming solved the inconvenience and time delay of ordering DVDs by mail.
#3: Be Open to Changing Your Business Model
According to The Economist (2019) “Many traditional organizations are too focused on their current competitors and technology to see what is really disrupting their businesses and do little to anticipate their customer demands.” Kodak thought their competitors were Fuji, Konica or Agfa but not GE, Sony or Samsung (giants in other industries). The shift in customer habits and demand have spurred some companies to transform their business model to remain competitive: Netflix changed their business model three times: DVD mail delivery to film streaming to film production and continues to disrupt at scale. Jeff Bezos at Amazon is another example: he transformed the company from being an online bookstore to the world’s largest department store to cloud services and an online supermarket.
#4: Look Outside Your Industry
Don’t assume that what made you get to the top will keep you there. It is important to look outside your competitor ecosystem for new ideas. Share your ideas with colleagues in different industries, or even outside of business and listen to their reactions. According to M. Poetz, a writer for Harvard Business Review, “looking outside your industry could be the first step to generating a radical innovation. When you’re working on a problem and you pool insights from analogous areas in different industries, you’re likely to get significantly greater novelty in the proposed solutions.” The rationale is that people versed in other fields can draw on different pools of knowledge, and they’re not mentally constrained by existing, “industry norms”.
#5: Identify the Segment That Represents the Biggest Business Opportunity
Your traditional customers may not be the most promising customers of the future. A study conducted by our team in Mexico reveled that hotels are losing some of their most loyal leisure customers to Airbnb. Where hotels best defend themselves against Airbnb is among business travelers. When Mastercard developed a new suite of credit cards, it did not continue to focus on male business travelers its traditional core customer, instead Mastercard identified the potential of working mothers and millennials in Latin America and tailored the new products to them. Today, Mastercard leads in both segments in Latin America.
#6: Embrace New Technology
You can accelerate product innovation and marketing by adopting new technologies such as artificial intelligence (AI), machine learning (ML) and natural language process (NLP). These three powerful new tools stand poised to revolutionize the way you conduct market research and develop products and consumer user experiences.
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For instance, in market research, we can now conduct online focus groups at scale where one moderator interviews not 8-10 participants (traditional dimension) but in fact up to 300 or more respondents who can even be in different countries, all connected at the same time. Using such an online research methodology, close-ended questions are tallied in real time and the answers to open-ended questions are analyzed within seconds, all by using natural language processes. This allows a well-trained moderator to identify the barriers and motivations of adopting a new idea, new product or concept with real-time results. In summary, one can now provide real-time “1-on-1” conversations with a crowd.
Today, using machine learning technology, we can also analyze huge amounts of consumer behavioral data to understand, explain and predict product usage or brand preference by bringing intelligence from your structured or un-structured customer data to an analysis at scale with minimum margin of error.
When it comes to optimizing the customer experience (U/X), we can analyze the historical logs of all the conversations and customer complaints from a call center, using natural language processing to measure the sentiment of stories and reviews analyzing the emotional tone of content.
These are some of the best practices that AMI has learned through the lenses of our corporate customers over the last 27 years and more than 3,000 client engagements in Latin America.
Contact us to discuss with you how your company is coping with disruption and how best to conquer the new competitive environment quickly developing in Latin America beginning with our state-of-the-art market research techniques.