Competitive Lock-Out is a Business Tactic (as opposed to an innovation strategy) where firms seek to create “barriers to entry” to prevent new firms from entering their markets. Examples include signing exclusive “lock-up” agreements with core providers, or lobbying to create byzantine laws that strongly (and often unfairly) favor the incumbent.
The range of potential tactics is very large, but we feel that most of the Lock Out strategies are not cost effective or brand enhancing.
As we say “Lock-Out is out.”
Cost Gradients are the amount of money it costs to provide each unit of increased performance in a value dimension. For example if the manufacturer of plastic spoons wanted to improve the performance of the “Durability” value dimension they could use thicker plastic which has a cost per gram to provide.
Nobel laureate Dr. Milton Freidman once said “There is no such thing as a free lunch.”
Cost gradients describe how much more it costs to get a better lunch.
Customer Lock-In means a customer has no superior alternative to his current product that both provides better performance and overcomes switching costs and pain of change, so the customer can not make an economically rational choice to switch to a competitor
This happens when no competitive product can achieve a Q-PMF score that is greater than the incumbent product Q-PMF score plus a change threshold of additional Delta-V.
Achieving customer lock in is extremely advantageous and thus desirable for a firm as it “enforces” loyalty which eliminates much customer churn and thus increases Life Time Value (LTV) and lowers new Customer Acquisition Costs (CAC) thereby increasing EBITDA.
As we say “Lock-In is In.”
Each customer has a portfolio of benefits or “value dimensions” that they are seeking. These values are sometimes referred to as “Jobs to be done” by innovation experts Tony Ulwick and Clayton Christensen.
Each value dimension has a certain weight or importance in the buying decision. The list of value dimensions and their importance weights is called the Customer Value Model (CVM).
Delta-Value is the numeric measure of competitive advantage of one product over another. It ranges from 0%-100%. It is calculated as the difference between the Q-PMF scores of two competing products: Delta-V” (∆V) = [Q-PMF(1) – Q-PMF(2)]
The term “First Mover Advantage” was first popularized in 1988 paper by David Montgomery and Marvin Lieberman.
The concept is simple – firms that are the first to enter new (“Blue Ocean”) markets have an advantage over later entrants because they can capture market share more freely without rivals competing for the same customers. If First Movers can achieve Customer Lock-In quickly then it will be much more difficult for competitors to enter the market.
Unfortunately, simply being the First Mover is far from a guaranteed formula for success.
In a 1993 paper authors Peter N. Golder and Gerard J. Tellis analyzed 500 new products across 50 categories and discovered that almost half (47%) of the First Movers failed but only 8% of the Fast Followers failed.
Future Mapping is a strategic planning process similar to Scenario Planning that identifies a range of possible future innovations and evaluates the potential impact of each on a product’s Delta-Value, future market share and profitability.
The Future Mapping Process includes a continuous scan of the “innovation horizon” to identify potential threats as early as possible. Then it proceeds through the PUDDA Loop strategic planning process to develop appropriate responses.
Innovation Agility is a measure of how quickly and accurately a firm can respond to threats and opportunities using innovation strategy techniques.
There are two primary components to Innovation Agility:
- How well and how quickly a firm can process its PUDDA Loop to understand the competitive situation and arrive at an effective strategy
- How quickly and effectively a firm can execute its plan
Innovation Strategy is a part of Innovation Economics, which is a growing doctrine that posits that the core assets of wealth creation are not land, labor and capital, as classical economics believes, but rather knowledge, technology, entrepreneurship, and innovation.
Innovation strategy is based on two fundamental tenets:
- that the central goal of a firm’s strategy should be to maximize shareholder returns, and
- that this can most effectively be accomplished through greater innovation, and maintaining a positive competitive advantage (Delta-V).
Thus the most desirable competitive positions are ones of market leadership and in extreme cases Customer Lock-In.
Product Market Fit is a measure of the match between the benefits that customers want, and the values that a product provides. Product Market Fit can be thought of as a magnetic-like force that attracts and binds customers to products. The better the fit, the higher the market share, the more loyal customers tend to be, and the more difficult it is for a competitor to lure customers away.
The Innovation PUDDA Loop is a continual innovation process that maximizes a firm’s ability to both attack and defend itself through innovative techniques.
“PUDDA” stands for Perceive, Understand, Decide, Defend, Attack.
Firms with more Innovation Agility are able to process their PUDDA loops faster and thus adapt to change more quickly. In highly dynamic markets agility is a core driver of sustained competitive position (Delta-V) and thus survival.
Q-PMF is a numerical measure of the overall customer satisfaction for a specific market segment. All products (and services) have some degree of Product Market Fit which is measured by the Quantitative Product Market Fit (Q-PMF) score which ranges from 0%-100%.