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Knowledge & Inspiration

COUNTERPOINT: Habits May Die Hard, but They Do Die

 

In our previous Knowledge and Inspiration Posting, we introduced the idea that habit rules over marketing, so any design change should lead to habit to reinforce repurchase. We, however, found a valid counter argument. Here we explain the counterpoint and what is the takeaway for younger and challenger companies. This counterpoint article acknowledges that the habit-based or “cumulative advantage” principle suggests that the cumulative advantage strategy makes sense in settings where industry boundaries are clearly defined, the basis of competition is stable, there are no major disruptions in the competitive environment, and a strong competitive position, once established, can be sustained, i.e. Mars (Snickers and M&Ms); Proctor & Gamble (Tide); and Unilever (Dove soap).

However, this landscape is inapplicable where there are blurry boundaries in an industry; disruptive entrants from below; or entrants from a wholly different business or adjacent industry. In industries where barriers are eroding, or where emerging technologies weaken constraints, strategic inflection points (“SIPS”) suggest a strategy where traditional barriers to entry are eroding. In particular, a strategic inflection point is when the fundamentals of a business are imminently changing. Identifying these points is difficult because they don’t look that important at first.

True, habits can be powerful in sustaining a firm’s competitive advantage. But habits can die hard, when new technologies make what was once unfathomable or undoable, fathomable and doable.

Ponder that from 2004 to 2007, the world saw several events that, at the time, may have seemed little more than novelties, but these events ended up leading to major market disruptions. In 2004 came Facebook, and YouTube followed in 2005. On the heels of Youtube was the launch of Amazon’s Amazon Web Services (AWS).

As one analyst, Ben Thompson, pointed out:

  • AWS lowered the barriers to starting an online company to almost nothing;

  • YouTube made it easy and cheap to upload videos; and

  • Facebook provided a ready-made pipeline to share those videos.

With the advent, in 2007, of Apple iOS and Google Android, any person with a smartphone, an idea, and some programming acumen could rival an established, or even large, company, in a matter of weeks or months instead of years.

 

On-Line Razors - Who Would Have Thought Shaving Could be So Revolutionary

The Dollar Shave Club

    Another example of this new disruption revolves around the Dollar Shave Club (DSC). In 2012 DSC came on the scene providing good razors, low frills, a low subscription price, automatic delivery without the need to go to the store or worry about running out. With all of this convenience, the consumer even saved money. While buying razors by brand in a store may have been the habit of many consumers, this subscription paradigm already disrupted the status quo because razors in the store were expensive and under lock and key because they were easy to steal.

Today, just a few years later, DSC controls 8% of the market but 15% of the market of cartridges sold.

Gilette

    In 2010, Gillette controlled 70% of the market in shavers and blades. The company had a loyal base who would trade up on a regular basis to a more expensive razor. There is little doubt that, consistent with habitual buying, they had a clear cumulative advantage. However, the business was approaching an inflection point. By 2016, Gillette’s market share had dropped 59%. How did it respond? Starting its own on-line subscription...the Gillette Shave Club.

    The lesson here is that just a couple decades ago, the notion that a disruptive marketing message could have reached 20 million people in a short period of time without massive ad budgets including print and television was unthinkable. However, DSC, with an entertaining launch video, social media promotional campaign and a group of brand ambassadors willing to be boots on the ground to promote the products...gratis...did just that.

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What’s the Take Away Here?

    Even an established, seasoned company can be surprised and see their habitually-buying customers change those habits based upon new, market-disrupting, and often apparently unrelated developments that can ripple across markets and industries. The real linchpin here seems to be the strategic inflection points and how a company might recognize them.

    However, in the so-called counterpoint, the author, wittingly or not, seems to actually confirm what the article concerning habit said. The disruptions that the author in this article mentions are SIPS. It is these SIPS that ultimately disrupt even the most established companies. Yet, even in this “counterpoint,” the author writes that the disruption happens with the establishment of a new habit. In particular, the very disruption of Gillette’s dominant market share all happened because the new habit of buying blades on line and on a regular basis supplanted the old habit of purchasing blades regularly in-store. One habit replaced another.

    This observation, then, begs the question:  “Just how much of a counterpoint is the second article?” If the author indicates that it is a SIP that leads to the new habit, but the author says it is also unclear if a certain event is a SIP, is this even a counterpoint at all?

In reality, it seems the “counterpoint” is nothing but a confirmation of what the first article said! It just goes to show you that business can often be more of an art than a science...things are not as predictable as one might think and success is probably more a function of persistence and creativity than it is of trying to recognize when some event is SIP.

Finally, (to punctuate the point here), RDK recently met with a high-level executive of one of the largest creative agencies in the world. This executive mentioned the power of habit in buying behavior. Out of the blue, he stated that a product had to be tens times as good to break a consumer of his/her purchasing preference. This was quite simply a confirmation of what we have been talking about here. There really is nothing like a real-world, practical example to make the theoretical come to life. It also shows how well-connected RDK is to the world of conceptual and real-world business.

Yosuf Gurung