Ability of Competition to Copy
Before you would undertake any innovation, it is worth while to estimate whether or how fast competition will copy it. The innovations must have an effective life long enough to pay for itself.
A customer cannot choose between the products of two suppliers unless he can find some difference between them. Differences among competitors in the benefits they offer underlie all changes in market share. It follows, then, that a performance innovation has relatively little value in creating positive volatility if competition copies it quickly. The innovation may still be necessary to prevent negative volatility.
The question of how long a performance innovation might remain unique is the "Sixty Four Dollar" question. The Company can only guess, but it has help in this guesswork. The help comes in the form of an analysis of the history of how long past innovations in the industry have remained unique. To conduct this analysis of the history of innovations you use a tool, the Customer Buying Hierarchy, to categorize each past innovation. You use this tool to guess at how long an innovation might remain unique in the future. The history of how long past innovations on the hierarchy have remained unique suggests how easy it is for competitors to copy each type of innovation. This study assumes that types of innovations that have been copied quickly in the past will be copied quickly in the future as well. Those types of innovations that have had longer lives would be similarly long-lived in the future.
This section of StrategyStreet covers these issues in the following topics:
Capsule: Customers buy in a Hierarchy of needs: Function, Reliability, Convenience and Price. They use this Hierarchy to evaluate each competitor and to eliminate all but one potential supplier. This Hierarchy informs our evaulation of an innovation's ease of copy.
Capsule: You can estimate the likelihood of an innovation being copied by a competitor in the future by looking at the speed with which innovations have been copied in the past. To do this you would place each past innovation on the Hierarchy and then calculate the average time competition took to copy each innovation type. These times serve as guidelines to predict how long you have to recoup your investment in each performance innovation.
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