Most of us are not creating new markets out of thin air, we are usually trying to take share from an existing competitor. Mostly because it's a safe bet that any market large enough to go after is being served in some way. So the question is, how do you get those customers to switch over to your product or service instead? Quickly?
The Mafia figured this out years ago I'm sure you can recall the famous line uttered in the classic movie, The Godfather, where Don Vito Corleone played by Marlon Brando tells his godson, the once famous but aging singer Johnny Fontane, that when he talks to the movie director who is refusing to cast Johnny: "I'll make him an offer he can't refuse."
Turns out there is some wisdom in that line when it comes to getting customers to choose your product or service over those offered by your competitors. In order to inspire a change a consumer's behavior to choose you over someone else, you need to offer them a similar product or service at half the price or twice as good.
Half the Price
When we talk to CEOs and ask them what they competitive advantage is in the marketplace, many of them tell us they are 5% or even 10% cheaper than the competition. That's not enough to change someone's mind or to overcome the risk and inertia to go through the hassle of switching from their current provider.
But if you can offer customers something that solves the same problem at half the price--you can move markets.
Think about what's happened in the large TV market. Just a few years ago, you needed to pay upwards of $5,000 to get a 60-inch high definition rear-projection screen. It was worth the cost if, say, you loved watching moves or sporting events. But what do you think happened when plasma and LED alternatives started hitting the market? While their quality was about the same as those rear-projection units, they were available for about $1,500. The end result was that the market for rear-projection units vaporized almost overnight.
The point is that while you might think a 5% or 10% edge in price gives you an advantage, it's still not enough to get your competitor's customers to quickly switch their allegiance to you. You will be stuck in a long-term market share campaign and hoping you don't run out of money before you get to critical mass.
Twice as Good
Your option in making your customers an offer they couldn't possibly refuse is to make your product or service offering twice as good as anything your competitors can bring to the table.
In my last post, we talked about Netflix. That was a great example of how, first off, they blew the brick-and-mortar DVD rental model out of the water. Why would anyone continue to go to the store and wait in line only to find out they didn't have the movie you wanted when you could just go to your computer, organize your own personal queue, and then simply open your mailbox a day or so later instead? Not only that, they got rid of late fees and the need to get back into your car again to return the movie. It was a no brainer choice to make that was at least twice as good as the current offering.
Of course, Netflix has had to up its game once again now that we all can instantly access movies via streaming services they offer, as well as others like Hulu, Amazon and more. It's no surprise that when we as consumers were given the option of instant gratification with our movie choices, most of us immediately switched away from the once-innovative mail order business that Netflix had pioneered. Again, online streaming proved to be at least twice as good as the alternatives.
It's interesting to wonder what might be coming next when it comes to market moving offers and the movie watching business. We'll see.
But I bet one thing we can count on is that if it's successful at a large scale in a way that Netflix has been, it will be because it's either half the price or twice as good.