September 21, 2021

Competitive Strategy: A Simplified Way to Think About It

Here's a great, simplified way to think about competitive strategy. Match a product with a "job-to-be-done" and get into the consideration set.

I've been massively nerding out on competitive strategy these past years.

There's a lot that goes on there, and a lot of theory/background one should know to have a full picture.

Here's a great, simplified way to think about competitive strategy.

Match a product with a "job to be done"

Every SaaS tool (and every agency) fits into a "job to be done" box.

E.g. Hotjar goes into the "heatmaps for SMBs" JTBD box, Hubspot is "CRM for scaling companies" and CXL is "digital marketing training".

Depending on the person, we only keep ~3-5 options per box (typically referred to as the 'consideration set').

Once a tool gets established as #1 in our JTBD box, that becomes a tool folks recommend first (highest mental availability).

And here's the kicker: which companies are in that box has nothing to do with personal experience. It *can* be, but mostly it's reputation-based.

That's why when you see people ask for recommendations for an A/B testing tool, small-time freelancers who work with SMB clients recommend Optimizely (a very expensive enterprise tool).

They've never used it, have no clue what it costs, no idea about statistics (what kind of volumes you need to be able to test), but claim with confidence that it's what you need.

I see people recommend Wynter on social media - which is fantastic - and I know they've actually never used it.

This is why awareness and market penetration are huge.

There's a lot of momentum in mature categories.

The better known you are, the better known you will get.

The stability of brand positions in nearly all markets is simply astonishing. There is just too much customer and market momentum. Whoever manages to become a category king, stays there for a long time.

A lot of this has to do with becoming the #1 tool for a JTBD in our minds. People will recommend you because you fill a "job to be done" slot in their mind, and you get to occupy that slot just because they've heard of you.

When you're at the top of the category, the Law of Double Jeopardy also kicks in. This law states that brands with more market share have so because they have far more buyers, and these buyers are more brand loyal.

It further cements your place at the top.

This is the very reason why category creation is such an attractive play.

Once you're the king of the category, you'll get all those amazing benefits.

Of course, creating categories and blue oceans is no easy feat. Most are naive about the amount of millions it takes to pull it off.

As a marketer, your goal is to get inside that very limited consideration set.

It's very hard to break inside the JBTD slot in someone's mind.

Invest in building a media machine (brand, content), and having an excess share of voice.

The work of Professor Andrew Ehrenberg showed that across all categories, a few people buy a significant portion of your brand, but most buy the brand infrequently.

You need to advertise wider to grow your brand. If you only advertise to your true fans, you're doing it wrong.

Byron Sharp says there are two fundamental rules about how to spend your advertising budget.

  1. spend as much as you can.
  2. divide your total spend and spend around a twelfth of it every month.

You can literally buy your way into the consideration sets.

If you look at some of the fastest-growing B2B companies of the last 5 years, operating in saturated markets - e.g. Monday, ClickUp, Wix - they've spent a ginormous amount of money on advertising, and now firmly sit in people's top 5 (in supremely competitive markets).

Being a well-known brand - #1 in your category - gives your advertising and marketing 18x effectiveness boost - just because people know you exist and you seem legit.

Larger companies can *underspend* their competition and still grow. This was first noticed by advertising professor John Philip Jones, and later by Paul Dyson from Data2Decisions.

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Because bigger brands are better known, they get a much, much bigger ROI from advertising. Like 18x more ROI. It's insane.

Other factors matter too - like strong creative - but nothing beats brand size.

And if you take creative seriously - invest in production quality - it further amplifies your reach. Advertising legend Tim Ambler argues that consumers believe a brand is of a higher quality if they think a lot of money was spent on it. It's signaling.

If I drive a fancy sports car, I'm signaling I'm rich and got extra money to spend.

There's a similar thing with the handicap principle in nature. The magnificent peacock’s tail signals their exceptional biological fitness. By blasting my high-production ads everywhere, I'm signaling to the consumer that the brand is serious and confident of future success.

It's even harder to break into someone's JTBD list if there are existing tools already in there.

If your company is not strongly differentiated against the category leader and the top 3, you have no chance to break into someone's JTBD box (unless outspending everyone by a lot).

That's why one of the most important moves for challenger brands is to take a fundamentally differentiated position in the market.

Brand reach and awareness is key to growth. However, if you’re perceived as “pretty much the same,” it’s an uphill battle. If you’re an email marketing upstart with no significant differentiation from Mailchimp, it’s extremely difficult to make it.

You can get away with sameness in a fragmented, young category. But over time, the one with the most money (or whoever gains the most market share) will come out as the leader and position themselves as such in consumer minds. If you’re exactly like them, it’s going to hinder your growth.

You can carve out new openings by creating new JBTD boxes by focusing on a particular segment of the market.

Klavyio is now number one in the "email for ecommerce" box, and Convertkit sits at the top for "email for creators".

Once you rule a smaller segment, you can think about expanding out.

Innovation is a way to rapidly gain market share and grow quickly in saturated markets.

Innovation leads to awareness, differentiation, and new jobs to be done. It makes you stand out and get into people's consideration sets.

Tesla took the #1 position for JTBD for electric cars by being first a category of one, and then ruling with innovation.

Every carmaker is coming after them though, so their innovation advantage will eventually cease to exist. All innovations are transient advantages.

Competition always catches up

Whatever innovative things any company shipped, the competition always caught up. Many use "fast follower" as their deliberate strategy.

What this means is that once you're ahead, you need to invest in moats. While you're milking your short-lived innovation advantage, you need to be building moats and/or cook up your next innovation advantage.

Odds are that Tesla too will start competing on brand just like most other car brands out there. Brand is one of the best moats out there, but there are others (read "7 Powers" by H. W. Helmer).

Binet and Field have vividly demonstrated with their work on getting the right balance between brand-building and activation (performance marketing).

They argue that the most effective advertising is split 60:40 between brand building and activation (generally speaking).

I think that is a good overall rule for prioritizing all your business-building efforts.

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