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The European Parliament’s report claimed that full adoption of car-sharing could reduce the number of privately owned cars in European countries by between 63 and 90 percent.
Seemingly unbeknownst to some auto executives, transportation-as-a-service puts the incumbent model of private car ownership at risk of near extinction.
GM executives decided to hedge their bets by taking action across
the board.
Maven,
Cruise Automation.
Argo AI,
Time will tell whether GM’s strategy of responding to multiple startups by means of acquisitions is a good idea.
two types of risk: the risk that a decoupler will enter the market, and the risk that it will steal a significant portion of your customers if it does enter.
Is a startup poised to enter your market and attempt to decouple your business? Executives should stay alert to the threat, continuously monitoring their risk of being decoupled.
Does leakage exist that a disruptor might exploit in separating the co-consumed activities—as Amazon, for instance, did with traditional retailers?
In the face of such complexity, customers tend to simplify the task
of choosing, employing a two-stage approach. First, they use quick and simple filtering techniques to eliminate undesirable options. They then perform a slower, more elaborate comparison of the remaining options.
“consideration set,”
Swimmers competing in the finals are akin to a consideration set, and the number eight is the size of that set.
What does all this have to do with disruption? Everything. The consideration set is where the competition for customers begins (and ends) for some brands. If your customers decide that your company no longer resides in their small consideration set, then you won’t make the sale.
So how do you determine if such a switch represents a serious risk?
Changes in your customers’ consideration sets are the first telltale signs of impending disruption to your market, and possibly to your business as well.
on
“Should I buy an electric car or a gas-powered automobile?”
the most profound disruption often originates in business models rather than in technological innovation.
Business model innovation is considerably more disruptive than technological innovation in two respects.
First, since business model innovations often don’t require that customers adopt a costly new “hardware” technology, the impact they have on a market tends to unfold more quickly.
Ultimately, a technology will disrupt a market only if many customers pay to have it.
The other important distinction is that in almost all cases, the choice to pursue technological innovation remains largely under a firm’s control.
Established companies exercise much less control in the case of business model innovation, and decoupling in particular. Here consumers are the decouplers.
Paying close attention to consideration set composition can thus help you gauge not merely the chances that a disruptor will enter the market but also the risk that it starts racing neck and neck with you, eventually seizing a significant chunk of your market share.
We should note that individual customers tolerate these various costs differently. As consumer research has shown, younger people and those with lower incomes tend to be more price sensitive, while older and higher-income individuals tend to be less so.
Research has also revealed that consumers who are more price sensitive tend to be less effort sensitive.
online shoppers of a fashion e-commerce player who seek items with the highest discounts will expend more effort browsing and clicking in order to find them.32 Less price-sensitive shoppers, on the other hand, tend to be highly sensitive to effort.
This way, price-insensitive customers purchase full-price, high-margin items, while effort-insensitive customers take the time to find and purchase low-price, low-margin bargains. By doing so, the online fashion retailer gets the best of both worlds: more customers, without the need to reduce the number of items sold at a healthy profit margin.
The bottom line is that executives should incorporate customer sensitivity to different costs into any cost comparison analysis of incumbent companies and disruptors.
What matters when determining whether to respond to decoupling is the incumbent’s market share that is at risk.
Salary Finance
interest rate averaging 7.9 percent per year,
“We take the hassle out of repayment.”
Salary Finance is a great example of decoupling, because it implements a business model innovation without significantly altering the final product.
What are the early signs that doing nothing might put your business at risk?
As we’ve seen, executives at incumbents can deploy two distinct approaches to determine their market risk due to new entrants.
If a quantitative market at risk analysis reveals a high risk of potential market share losses due to decoupling, consider responding. You
1. Calculate the market share at risk due to decoupling (i.e., all similar decouplers). 2. If the risk is high, calculate the cost of responding and weigh it against the risk. This calculation will allow you to decide whether to respond to decoupling or not. 3. If you decide to respond, decide whether to recouple or decouple. 4. If decoupling, decide whether to change the business model by rebalancing or not.
The brands that compose your customer’s consideration set change very quickly in some categories.
In many other categories, the entry and exit of brands require considerably more time.
As a result, incumbents must constantly monitor their customers’ consideration set via surveys and other market research tools.
Monitoring consideration sets will tell you which brands have a shot at stealing your customers and which don’t.
It’s critically important to monitor the brands and startups entering your market, as well as those in adjacent markets.
Also, be sure to think outside the market.
You need to define your competition as your customers see it, not on the basis of how physically similar your products might appear on the surface.
But beware: mounting too large a response also carries negative consequences.
Yahoo offers a cautionary tale.
