Beware the enemy at the side of the gate

Earlier this year Nokia’s new CEO addressed a giant meeting of the company’s employees. Stephen Elop surveyed a room of more than 11,000 Nokia engineers and then asked a rather unusual question: “How many of you use an iPhone?”

There was, as you might imagine, a very long pause. And then slowly around the room a small smattering of hands were raised, gingerly, into the air. Elop surveyed the room and with a frown declared: “That upsets me.”

“Not because some of you are using iPhones,” he continued, “but because only a small number of you are. I’d rather people have the intellectual curiosity to try to understand what we’re up against.” The message was clear. For Elop to triumph in his battle to restore Nokia’s fortunes, he will have to get his organisation to acknowledge and understand its biggest adversary.

At first glance, that might seem like a pretty obvious objective. But Elop recognised early that one of the peculiarities of the company he now leads is its tardy approach to competitors – especially Apple. Back when Nokia was the undisputed master of the handset universe and Apple had yet to launch its iPhone, Nokia executives openly and repeatedly dismissed the potential threat from their Californian rival.

At the start of 2007, for example, Elop’s predecessor – Olli-Pekka Kallasvuo – gave a now infamous speech in which he predicted that Apple would struggle to replicate the success it had enjoyed in portable music players when it entered the handset category because turning “mindshare into market share” would prove to be very difficult for them. A few months later Kallasvuo was again asked about his likely response to the iPhone and again he was openly dismissive. He confidently informed executives that Apple’s new iPhone would “not in any way necessitate us changing our thinking”.

Only after analysts chided Nokia for its arrogance did Kallasvuo start telling everyone that he was actually “deeply paranoid” about Apple’s entry into the market. The truth of the matter, however, was that back in 2007 no one inside Nokia really thought Apple was going to be anything other than a small niche player.

And that is what fascinates me about competition. Not the actual battle itself, but the manner in which companies identify who the enemy actually is. Clearly the identification part is just as important as the actual response part – because without the first you don’t end up doing the second well. It isn’t that Nokia wasn’t competitive in 2007 and 2008 – it is that the brands it was focused on competing with did not include Apple.

The eternal problem for brands such as Nokia is that markets are fluid and companies are not. If executives could have their way, they would draw up a list of brands allowed to compete in a market and competition would then commence, uninterrupted by game-changing entrants. In fact, executives often do just that – these lists are called categories. In Nokia’s case it was a short list of handset manufacturers that included Sony Ericsson, Motorola and Samsung. The great joy of categories is they allow us to apply structure to a market. And from structure comes strategy.

But alas, categories have one major flaw. They bear no resemblance whatsoever to how the market thinks. Consumers don’t think within categories, they think across them. To them, Apple was just as much an option as Nokia because of its brand and its proven relationship with consumers in other areas.

The only true definition of competition is one that eschews categories and goes back to the people who pay for everything, the consumers, for co-ordinates. Every piece of research should always start with the unaided awareness question cued by a general usage question; for example, when you think about catching up on marketing news, which options come to mind? The answer gives you not only the best overall measure of brand awareness, but it also enables a marketer to get an instant and accurate shortlist of the true competitive set. And in my experience, unless marketers have that data they are inevitably competing with either the wrong brands or an incomplete set.

At an even higher level, you may have split your market into segments, because each segment has different behaviours and preferences. But have you also considered that most segments usually have a different competitive set operating inside them too? Damn the marketer that assumes the competition is the same across segments. And damn the one that presents a list of prescribed options for the consumer to tick in their annual survey. That is just testing your assumptions on the market and is no better than relying on categories to guide strategy. Three-quarters of quantitative research is now done with online panels and every good panel allows open box coding. Use it, or struggle like Nokia.

Beware the competitor you are not thinking about, because you won’t realise they were your competitor until it’s too late to do anything about it.