Want to disrupt the competition AND increase share price? Keep it simple.

1 11 2012

Chris van der Hoven writes:

A recent survey of 6000 consumers has resulted in a “Brand Simplicity” ranking. In the UK we would relate to the global ranking which puts Google at No.1 and includes McDonalds, ALDI, Carrefour, Apple, Nokia, Amazon and  IKEA in the top 10. The US rank has Subway at N0.1 ahead of Google (No.3) and Amazon (No.4).

US Ranking – Ref: Siegel+Gale 2012

The report authors claim that the share prices of their previously top ranked (simple) brands have outperformed those of more complex offerings since 2009 by 99%+. They suggest that this is explained by the fact that consumers are 80% more likely to recommend a brand with a simple experience and communication. So, the business case for simplicity is potentially clear.

In our own work, we constantly emphasize the use of techniques that help to A. differentiate in contested markets, and B. seek out disruptions as a way to create ‘uncontested markets’. The very definition of disruption is that value propositions should be relatively less costly, more accessible, and SIMPLER.

You don’t have to be a stats boffin to notice that Facebook.com is now ranked No.118 (out of 125 brands) having plunged 31 places from last year! By contrast Yahoo! has moved up 15 places into the global top 10. Why? Well Facebook is looking more complex and Yahoo (under new leadership) is getting simpler. It’s true that 2 data points don’t make a trend, so lets not get too carried away – however, intuitively it feels right.

So, if you want to disrupt the competition where should you begin? Well, for starters take a look at the listing of US industry sectors by complexity.

Complexity by sector – Ref: Siegel+Gale 2012

If you have a scouting capability within R&D or marketing, get them on the case of investigating these complex sectors first. That’s where there are potentially richest pickings for disruptors. Match a Customer Value Proposition your targeted Customer Segment and design a “simple” offering using a business model canvas.

Recent research in HBR (May 2012) pointed out that you should have around 10% of your total investment targeting transformational (white space) prospects. Within that you should only expect a hit rate of roughly 1 in 10 projects delivering breakthrough products and services. The important point to note from the research is that 70% of the returns emanate from this 10% investment.

So, if you buy into the notion that disruption is more likely in sectors that are over complex (and over-priced as in insurance and healthcare etc), then step one is to target those prospects. To make sure you succeed, step two would be to nurture a culture that can allocate 10% of investment to high risk ideas – i.e. where 9/10 projects fail! The other 90% of the business can get on with ‘exploiting‘ the core (and next space) offerings in a culture which tolerates lower levels of risk.




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