When businesses ask the wrong question

The question most businesses ask most frequently is “how am I doing compared to my direct competitor?” This is the wrong question, and it leaves businesses vulnerable rather than future-proof.

Let’s use car ownership as a key example of a broader phenomenon.

Car sales decline

The transportation news making the biggest headlines over the last few weeks has focused on the relatively disappointing IPOs of Lyft and Uber. I say “relatively” disappointing because even though both stocks declined in value immediately, the companies still raised $2.34 billion (Lyft) and $8.1 billion (Uber), which both unprofitable entities need.

Although coming with less prominent headlines, there has been other important transportation news: car sales were down 2.3% in April. That’s a vague and unimpressive number, but digging into the details from AutoWeek can be illuminating. For example:

Ford’s sales dropped 4.7 percent, with the Ford division down 4.7 percent and Lincoln off 6.2 percent, according to the Automotive News Data Center. Ford’s total car deliveries skidded 21 percent last month, while utility vehicle sales fell 9.1 percent and pickup volume jumped 7.3 percent, helped by healthy demand for the F series and the revived Ranger.

General Motors’ sales dropped an estimated 2.6 percent last month, according to the Automotive News Data Center. April marked the fifth straight month GM deliveries have dropped year over year.

GM and Ford no longer release monthly U.S. sales results publicly.

And:

At Toyota, April deliveries fell 4.8 percent at the Toyota division and 1.3 percent at Lexus, with car sales at the two brands falling a combined 14 percent in April and light-truck volume up 1.9 percent. U.S. deliveries at Toyota Motor Sales have now dropped 6 straight months year over year.

Put most simply, the use case for cars is “move my body around.” For trucks/SUVs, that use case is “move my body and a bunch of stuff around,” even if there are many times when the truck/SUV driver doesn’t have the stuff. “Move my boy around” is the same use case as “get a ride” (GARS) services like Uber and Lyft.

The cognitive impact of GARS

Although there are too many different factors to establish that the existence and rapid growth of GARS has caused this decline in car sales, they are connected.

For example, data from the Center’s Future of Transportation project, which I lead, shows that although only 20% of overall Americans would consider giving up their private cars, that consideration doublesto 40% among Americans who use GARS even occasionally.

GARS has made giving up a personal car thinkable for Americans for the first time in over a century, giving the lie to the car manufacturer propagated myth that Americans love their cars and love to drive.

This doesn’t mean that Uber and Lyft are sustainable businesses or good investments, just that they have given people a new alternative to consider.

The central message in car ads hasn’t changed, but it needs to change

The car manufacturers have known about this sales decline for a long time, but until recently you wouldn’t have been able to see that in their advertisements. The ads all said, “buy my car” and then waxed rhapsodically about the features and accoutrements of one vehicle.

However, in one recent Ford campaign, a whiff of uncertainty quietly came through. The TV commercial, “Get a Ford: for 115 Years” just stopped airing last month. The ad features the voice of actor Bryan Cranston saying, “If you want a car from a company that has been building them for 115 years, get a Ford.”

That “if” is telling. Inadvertently, it acknowledges that car ownership is optional rather than a default condition.

Take a look at most car manufacturer commercials and they all have the same message: buy thiscar because it’s better or at least cheaper than the car made by that other company.

The message that these commercials should be working to convey is: “you really ought to buy a car! Why? Car ownership is cheaper and more convenient than GARS. Plus, once Uber and Lyft are forced to raise their prices by disappointed shareholders, car ownership will be a lotcheaper.”

In a 2017 analysis by the team at the Center, we determined that if you use Uber or Lyft as a total transportation solution (a rare use case but one that the companies desperately want people to pick) it will cost around $16,500 per year (at a highly subsidized rate).

Here are the total annual costs for different types of car ownership, including the vehicle, insurance, gas, parking, tickets, and taxes:

Toyota Corolla: $8,712
Toyota Camry: $9,371
Toyota Sienna: $11,434
Lexus ES: $13,274
BMW 535: $16,744

If money is even a remote issue, then Americans can save thousands of dollars each year by owning a car instead of using GARS, even though it’s a hassle.

Car manufacturers, in other words, would do well to defend the category of car ownership, which at present they are failing to do.

The false lure of competitive advantage

What’s the moral of this car story?

Generations of MBA students have been taught to line their products up against those of their closest competitors and look for a key advantage to chase. When those MBA students focus on innovation, they are likely to think about innovation in Clayton Christensen’s sense of disruptive innovation where a cheaper alternative steals market share by being good enough compared to a more established incumbent.

The incumbent focuses on its head-to-head competition and ignores the plucky upstart. That’s what happened to American car manufactures in the 1960s and 1970s: they ignored smaller and cheaper imports from Japan to their peril.

This is not what’s happening with GARS, and it’s what doesn’t happen generally with digital technology. Instead, digital technology replaces an incumbent category with an app or service that entirely removes the need for the old product. This is why the smartphone is the everything device (camera, flashlight, notebook, calendar, alarm clock, book, newspaper, radio, and television) that barely functions as a phone.

If the wrong question is “how am I doing compared to my direct competitor,” then the right question is, “what actions does my product allow my customers to perform, and are there other ways for them to perform those actions?”

Focusing on actions, on liquid behaviors, rather than on the containers for those behaviors, allows businesses to ignore the lure of head-to-head competitive advantage and see the secret competitors that are the real threats. That’s future proofing.

[Cross-posted at the Center site and elsewhere.]


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2 responses to “When businesses ask the wrong question”

  1. David Harris Avatar
    David Harris

    For the better part of a decade the freedom And right of passage that cars have represented for generations was replaced by cell phones and gaming platforms. The dream of the automobile needs to be redefined for coming generations. The OEMs, dealers, service providers and suppliers will reinvent themselves once consumers force them too. In between (now) is the opportunity for disruption to occur.

  2. […] thought pieces are always worth reading, as they’re typically as applicable as this one is.http://bradberens.com/2019/05/16/when-businesses-ask-the-wrong-question/HOW TO BUILD A 21ST CENTURY BRANDThe Association of National Advertisers was putting together a […]

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