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What is a competitive frame of reference, and why does it matter?

Lindsay Says

Your competition is bigger and less obvious than you might think.

Sure, you may have obvious direct competitors. BMW has Mercedes. FedEx has UPS. H&M has Zara.  

But getting to know your true competition goes beyond the obvious direct competitors. Your true competitive set is the mental set you are a part of – from your target customer’s point of view. What is competing for your customer’s attention? Who or what are you competing with to achieve a certain behavior from your customer? What are their workaround solutions? What are their alternatives for solving their problem?

Orient Your Brand Strategy

In Forging an Ironclad Brand, I share my 8-step Ironclad Method for building a brand strategy. The first step is Orient – to orient your brand strategy according to two choices: 

You’ve likely thought hard about the first question. You know your customers at some level, maybe personally. In this first step, I encourage you to think even harder about them, so that you know them as though they are your friends. What is their day like? What motivates them? What irritates them?

But that question about your competitive frame of reference requires of you even more subtlety and curiosity than the one about your target customer. Most leaders do not get subtle and curious here. They quickly name their competitive frame of reference to be, simply, their immediate category. But in most cases, you are competing against something bigger than that – other behaviors, other workarounds, other ways to solve the problem. Some examples:

  • Paper towels compete with other paper towel options, but also with washable hand towels, hand blow dryers, and disinfecting wipes.
  • Restaurants compete with other restaurants, but they also compete with takeout and cooking at home.
  • Luxury car brands compete with other luxury car brands, as well as with high-end (but not quite luxury) car brands, private town car services, taxis, on-demand car share, public transportation, and walking. 
  • A collaboration platform like Slack competes with other team collaboration platforms like Basecamp, and also with project management software, email, and Skype.

What Is Lyft’s Real Competition?

Take the example of on-demand ride-sharing services. Lyft could say it is competing with Uber and taxis. But on deeper examination, it might learn that consumers who use Lyft are primarily using it instead of paying to park downtown. In other words, the consumer’s choice is not Lyft vs. Uber. It’s Lyft versus driving and parking.

The implications of this shift in competitive frame of reference are massive. If Lyft is just competing with Uber, then the only thing that differentiates it is name, logo, and company ethos. That’s likely not a forceful competitive moat.

If your only competition is your direct competitor, you may use only a fraction of your capacity as a business. Features are easy to copy, and eventually direct competitors will copy yours if they are compelling. What’s more, customers don’t buy your features. They buy the benefit they enjoy as a result of those features.

Myopic attention to your direct competitors can prevent you from realizing, appreciating, and internalizing that insight. This nearsighted approach prevents breakthrough differentiation while you compete on incremental improvements. And without meaningful differentiation, you are stuck in a race to the bottom on price.

Think Big

Customers don’t care who you consider to be your direct competitor.  They care about themselves, about their lives. Your role is only as big as it is relevant and helpful to furthering customers along the path of the life they want to live.

Open your competitive frame of reference to be the true thing, the bigger thing you compete with. Widen the context so that it is the customer’s context, not your business’s context.

If Lyft thinks it is competing with Uber, it differentiates on superficial things like logo. If Lyft is competing with driving and parking downtown, however, it can differentiate on something infinitely more meaningful to these target customers.

It can take away the hassle, time, and expense of driving and parking. It can give customers their time back while they’re being chauffeured, allowing them to feel taken care of rather than besieged as they run the traffic gauntlet downtown and search – and pay – for a parking space. It can innovate based on its true competitive frame of reference rather than its myopic one.

Know Your Competitive Frame of Reference

Knowing your customer-centric competitive frame of reference enables you to grow your offering according to what can make yours better than the true competition. For example, take Lyft. If Lyft only were to consider Uber its competitor, it might succumb to strong pressure on price and serving as the lower-cost way to use on-demand ride sharing. It’s hard to be different from something basically similar to you without resorting to price discounting and margin erosion.

Instead, Lyft might find that the primary competitive frame of reference is a customer driving her own car and parking. This knowledge could lead Lyft to innovate on two things:

  1. Lean into the thing Lyft is better at, such as the worry-free way to get somewhere because someone doesn’t have to factor in parking time and hassle.
  2. Cultivate the benefit of driving, which is the privacy and solitude of being in one’s own car. Even if it’s a hassle to park, at least you have the car to yourself. One reason I sometimes elect to drive to the airport rather than take Lyft or a cab is that I just want quiet. Knowing this, Lyft can ensure that they are providing a relevant point of parity with driving by offering a peaceful driving experience.

It turns out, Lyft is considering doing just this. “Zen mode” would allow a rider to get from point A to point B without the passenger-driver chitchat. With a talk-free trip and a guilt-free excuse not to talk to the driver, you can relax. Catch up on emails. Join a conference call with your team. Text your family. You could even catch up on your Zen meditation.

If you’re Lyft, wouldn’t you rather differentiate on the peaceful driving experience (and no parking pain) than on a pink logo vs. a black one? Rather than blowing with the wind, you can take root with a meaningful differentiation. You can bring your target customer an infinitely larger benefit, be of enormously more value, than if you are differentiating based on price discounting alone.

All of this different way of thinking came from asking a) who is your customer, and b) what are you honestly competing with? You can’t build a hard-working brand strategy until you have gotten ridiculously clear on these two things. Know what you are truly competing against so that you can serve your customer more robustly.

Leverage Your True Frame of Reference

Think to yourself – do you really know who your sweet-spot customer is? Do you really know what you are competing with? Not what analysts or investors say you are competing with, but what your customer behavior indicates is your true competition. 

Know your competitive frame of reference with subtlety and nuance. This will form the springboard for being truly different and valuable.

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