Globalization has driven extensive market competition at all levels, from global to local. By the end of the 20th century, market saturation by products and services, often identical (for example, purified bottled water), led businesses to make competitive differentiation in their product and marketing strategies. Accordingly, companies make small differentiations in product attributes, pricing, distribution approaches, product promotions, packaging, sales strategies, consumer psychodynamics, corporate posture, and more, to establish their unique competitiveness in the market and acquire customers. This small differentiation has proved better results in consumer products such as breakfast cereals with organic fruits, bottled water from natural springs, solar wristwatches, and ventilated sports shoes.
These small changes can lead to big differences in the market, driving tactics in competitors that alter consumer preferences and buying habits, as I illustrate in my new book The Butterfly Effect in Competitive Markets: Driving Small Changes for Large Differences.
Based on the “butterfly effect” concept of chaos theory, coined by mathematician and meteorologist Edward Lorenz in 1972 to explain how sensibility to small variations in initial conditions have effects on long-term atmospheric climate prediction. I describe how businesses with small differences have gained greater market participation and are able to maintain a competitive advantage with this type of products.
Some examples of this phenomenon related to technological innovation are the Samsung Galaxy Gear wrist band, which serves as a wristwatch, a bidirectional communication tolls, and a camera and has thrown a big challenge to the Swiss watch industry, or the transformation of iPod to iPod Shuffle, taking advantage of the inheritance of brand sales in the global market.
Competitive differentiation can be driven by a set of marketing-mix elements, which include the so-called “11 Ps”: product, price, place, promotion, packaging, pace, people, performance, psychodynamics, posture, and proliferation.
Chaos and Market “Darwinism”
Market chaos emerges with the uncontrolled entry of companies engaged in selling identical and/or marginally differentiated products, allowing consumers wide options for buying with similar prices. Under such circumstances, consumers develop switching behavior over the brands, and all brands settle at the bottom-line sales/market share just at or barely below the break-even point.
This market chaos threatens the business outlook of the companies and prompts a tactical entry into and exit of the business from the marketplace. In this process, multinational companies focus on the segments at the base of the pyramid, whereas the local small and medium-sized enterprises tend to go regional, national, and global.
This situation drives the Darwinian forces of “struggle for existence” and “survival of the fittest” among local and multinational companies. While multinational companies face “struggle for existence” challenges in the market chaos, the emerging companies from the local arena put their efforts into meeting the “survival of the fittest” requirements.
Globalization has also had global–local effects; multinational companies that intend to operate in the local markets adapt to the needs of the local consumers, blending global brands with local tastes. For instance, Unilever adapts to the local food needs and makes consumers sense the pride of an international brand within their reach. Knorr soups by Unilever in Mexico have common local flavors, and this same brand offers numerous vegetarian options for markets in India. In this way, multinational companies tend to establish their market leadership in local markets. However, in this process, foreign brands often cannibalize local brands and the existence of local brands becomes vulnerable.
In turbulent, uncertain world market situations, companies should follow customer-centric strategies more than market-oriented strategies based on competitive moves.
All markets have operational cycles that are evidenced by booms and busts in consumer demand. The customer preferences shift according to the attributes of market booms and busts. It would be wise for companies to develop strategies of awareness, availability, affordability, and adaptability for products in reference to technology and concerns for value-for-money. During the recent global recession (2007–12), multi-domestic companies that moved with consumer preferences and maintained affordable prices survived the market turbulence.
In this book, I explore other ideas such as “sustainable marketing,” characterized by long-standing brands, non-fluctuating market share, consistent customer value, and increasing profitability of companies over the years.
