#33 Counter Positioning, 3rd of the 7 Powers
This is the third post on a series that summarizes the book 7 Powers by Hamilton Helmer.
This post discusses the third possible source of power for a business - counter positioning.
What is counter positioning? - A challenger comes up with a new business model that the incumbent (leader) cannot adopt (or is hard to) because of the anticipated damage to the incumbent's existing business.
Counter positioning is one of the most complex strategies to execute. While the new business model can bring down the incumbent, the strategy will become available to other challengers. Hence, the challenger who comes up with the new business model will also need to execute other strategies to become the leader.
Why does counter positioning result in Power?
Benefit: The challenger's business model leads to lower costs or ability to charge higher prices (when compared to the incumbent's business model)
Barrier: Collateral damage to the incumbent's existing business, if the incumbent adopts the challenger's business model
The varieties of collateral damage:
What it is not:
Incumbents downfall due to disruptive technologies cannot be classified as counter positioning per say. Example - digital photography damaging Kodak's core's business - photographic film
These situations are characterized by three conditions:
A superior approach is developed that results in lower costs and/or higher value for customers
Products developed from the superior approach can replace the incumbent product
The incumbent has little prospect for Power in the new business either due to industry economics or attainment of power is unlikely
What it is:
When an incumbent determines that adopting the approach of the challenger will result in a net loss i.e. losses to the existing business is greater than gains from the new business. This causes a "don't invest" in the new approach mindset, instead they will focus on milking the existing business.
Cognitive bias: Incumbent's success with the existing business model makes it very hard to see why the new business model would work. Also, the incumbent is not sure how well the new business model is working for the challenger
Job security: Agency issues - the differences between the objective of the firm and that of the CEO and other investment decision-makers
Observations on counter positioning
Power must be considered relative to each competitor, actual and implicit
The challenger should avoid the temptation of trumpeting the new business model's superiority. It should suppress the urge and adopt a tone of respect to the incumbent
Counter positioning is not an exclusive source of Power as it is available to other challengers
You can read a short summary of the entire book here