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Does competition really help consumers?

In addition to being good for the market and consumers, adopting a non-competitive strategy is good for businesses too

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TED Talk Love Your Competitors By Alex Smith

For those of us who broadly support free markets, competition has always been a celebrated concept.  We credit competition with all sorts of positive effects — better prices, better products, increased innovation, market growth, and so on — and as a result, tend to run our businesses in a highly competitive way too.

It’s a simple and convincing story; one which few of us ever stop to question. 

However, when you look at market dynamics, there is perhaps more going on than meets the eye.  In many cases competition, rather than having a positive effect for businesses, consumers, and the world at large, actually has a negative effect — and some of the benefits we credit it with, in fact, arguably come from non-competitive behaviour: something rarely acknowledged or celebrated in business.

Competitive motivation vs. competitive strategy

To explain why this is, it’s first important to distinguish between competitive motivation and competitive strategy.  Competitive motivation — the “drive” to succeed and “win” in the marketplace — is, of course, the fuel that drives business.  It’s why many of us get up in the morning, and what compels us to take action and think creatively.  I have no issues with that.  No, my critique here is of the approach many of us employ in order to gain that success we crave: competitive strategy.

Competitive strategy can be defined as a method of succeeding in business based around “beating” other companies in the market.  It involves casting the other players around you as your rivals and making decisions focused on weakening their position in order to strengthen your own.  It’s the strategy that views the market as zero-sum, where every purchase for them is one less for you and vice versa.

This strategy — commonplace amongst businesses in all industries and all over the world — doesn’t advance markets, drive innovation, help consumers, or help businesses.  Instead, it degrades all those things, transforming business into a stagnant race to the bottom.

How competitive strategy destroys markets

The reason for this is simple.

When you attempt to “beat” another company in the market, you are compelled to offer the same value as them.  If they are good at x, you must be good at x too — otherwise, you would cede that business to them, and they would thus “win”.  So imagine, for instance, a soap brand who offer a wide range of fragrances.  Any other brand wishing to beat them in the market would be compelled to offer a range of fragrances too — or they would lose fragrance oriented customers.  This would, of course, represent “losing”, so we can’t have that — and thus fragrances would be added to the range.  By and by this back and forth tussle would result in the businesses in question gradually becoming more and more alike until their market is commoditised: a bunch of undifferentiated suppliers fighting tooth and nail for the same market share.

The commoditised market you are left with, in this case — a common situation — contains no true diversity, and no true innovation, because all brands within it were forced to mirror each other’s value offering for fear of conceding ground.  This creates a stalemate which is bad for all parties concerned.

Such a stalemate occurred in the American airline industry in the 1990s, where a huge battle over business travellers resulted in the market clustering and commoditising until you had a selection of very similar, very bad, airlines — all of whom went bankrupt at some point within a 20 year period.

The beauty of not competing

True innovation and market diversity only emerge when businesses are happy not to compete with the other brands in their category over certain segments, in order to free themselves to pursue something a bit different.  This decision to “drop hands”, and allow their competitors to have a certain part of the market, may be driven by competitive motivation, but it doesn’t constitute a competitive strategy.  Quite the opposite, because it involves explicitly refusing to compete on certain metrics.

This is precisely how the deadlock was broken in the airline industry, with one airline, Southwest, choosing not to bother business travellers at all, and as a result, inventing the low-cost airlines’ category.

In this way, you can see that it was non-competitive behaviour that drove innovation, produced value for consumers, and advanced the market.  Yes, Southwest took some trade from the legacy carriers — but it wasn’t the trade those carriers were focused on.  Instead, the market became portioned, with certain brands looking after their own slices, rather than it being a grand battle royale over the whole pie.

As you can imagine, in addition to being good for the market and consumers, adopting a non-competitive strategy is good for businesses too, hugely increasing profitability.  To understand how this works, and how to employ such a strategy for yourself, check out this talk I did on the subject with TEDx Folkestone:

So by all means, continue to strive, continue to crave growth, success, and dominance of your market.  And if you want to call that striving “competition”, then so be it.  But be aware that such rewards don’t come to those who behave in a competitive way.  The truth is far more subtle than that.  It might just be that you actually win when you refuse to compete.

Author Bio

Alex Smith is the founder of Basic Arts and is well known in the strategy industry for his counter-intuitive takes on business future. Having spent his career advising brands such as The Economist, Innocent, and Hello Fresh on their positioning, he began to see flaws in the normal way we approach strategy, and so developed a new way of doing things by distilling the lessons of the elite few brands who get it right. He now works with some of the best talents from a combination of backgrounds to bring these ideas to every business. You can keep up with his writing by checking out his blog on BasicArts.org.

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