Don’t Follow the Leader: A Winning Strategy for Capturing the Minds of Consumers

As human beings, we are hard-wired to follow crowds. That’s why it’s hard to do unconventional things.

This hard wiring is part of our innate survival instincts. Our ancestors needed these survival instincts when they were hunter-gatherers who faced lions and other predators in the wild. If one of their peers ran, they ran—no questions asked.

We are also designed to conform to social norms. Back in the hunter-gatherer days, the crowd probably did know best. Deviating from the norms of a tribe could result in isolation, rejection, and death.

These survival instincts make it hard for businesses to pursue uncommon strategies. It instinctively feels too risky to deviate from the industry leader or from common industry practices.

Being different is so hard, and that is why it can be valuable.

Counter-positioning and laddering:

The two ideas I want to write about are counter-positioning and laddering.

I specifically want to write about the marketing consequences of these concepts (and not the financial ones).

Counter-positioning and laddering are related concepts. They revolve around differentiating yourself from the competition in a meaningful way.

They are valuable because they leverage psychology to:

1.        Stand out in the minds of consumers

2.        Stop or slow down competitors from making threatening competitive moves

Counter-positioning:

To understand counter-positioning, I need to explain the concept of ‘positioning.’

Positioning relates to how a business brands itself.

A company’s brand is a set of feelings, beliefs, and emotions people experience when they think about a particular company.

What would you think and feel if someone said Amazon, Apple, or Coca-Cola?

What if they said Ryan Air or Spirit Airlines? (If you know who they are, you know what I’m talking about).

Positioning is the place a company occupies within the market and in the customer’s mind.

To carve a position in the consumer’s mind, a company has to do things that make people develop strong associations with the company. You start by choosing the kind of association you want to develop, and work back from there.

If you’re a man who wants to propose to someone, you're making a safe bet in buying a wedding ring from Tiffany’s.

Tiffany’s is associated with luxury, exclusivity, and quality. The brand has created associations around romance and the ultimate expression of love (marriage) over decades.

Tiffany’s use aspirational marketing campaigns and their premium signature blue box packaging to build a brand. They are also featured in popular culture (with films like Breakfast at Tiffany's).

Ivan Pavlov discovered that you can train behavior by purposely connecting a stimulus with an outcome. A Pavlovian association happens when something gets tied to a feeling or a reaction because they frequently occur together.

People unconsciously stop or slow down at a red light because red lights are associated with stopping and with potential danger. According to a study, people are more creative after looking at the Apple logo, rather than IBM's.

Walmart and Whole Foods are both grocers. Yet, despite being in the same industry, they’ve positioned themselves to have opposite value propositions.*

Counter-positioning involves picking a different way of delivering value than your competition. As a challenger coming up in the industry, you should highlight the specific things that are unique relative to your competition. That way, you can make your competition’s value proposition and features appear as flaws or drawbacks to your ideal customers.

Counter-positioning is a powerful strategic move because it capitalizes on the inherent weaknesses of competitors. As a challenger, your position should be selected carefully for counter-positioning to work. The challenger should answer the following question:

What position would cause the incumbent to inflict damage on itself if it tried to mimic my strategy?

Wal-Mart would hurt itself if it tried to directly compete with Whole Foods, since both companies serve different market needs in different ways. The same applies to Mercedes-Benz and Toyota in the automotive industry and West Elm and Ikea in furniture.

Case Study 1: John Bogle’s Vanguard and the creation of the low-cost index fund

In his book, The Seven Powers, Hamilton Helmer cites counter-positioning as one of his favorite concepts in business strategy. Helmer cites John Bogle, the founder of Vanguard, as a successful adopter of the counter-positioning strategy. 

During the 1970’s, most investment funds were actively managed. This means that professional stock pickers managed people’s money in an attempt to outperform the market.

The issue was that, on average, the stock-pickers’ results were…average. In fact, most fund managers underperformed in the market over a 3 year period or longer.

Moreover, investment fees for actively managed funds were high despite their mediocre performance.

John Bogle had a radical idea at the time. He wanted to create a fund that tracked the performance of the largest 500 companies in America (the S&P 500) at ultra-low fees.

What made the idea harder for the industry to swallow was that the index fund was a ‘no-load’ fund. This meant that no commissions were involved, for fundraising or otherwise.

Industry practitioners were unhappy with this low-cost, no-commission, average-return business model. They did not see it as a viable or lucrative strategy and had a strong bias against it.

It took time for Vanguard to see the first signs of success. Bogle raised $11 million for his first fund, out of an expected $150 million. With time, the public began to see the value of the low-cost index fund, which is now the most popular retail financial product.

As of 2023, Vanguard had $8.6 trillion (with a T) in assets under management. They are one of the top three largest owners of S&P 500 stocks.

Laddering:

During the COVID-19 lockdowns, I took an online brand strategy course by Scott Galloway, NYU professor of marketing and entrepreneur.

Laddering was one of the concepts taught in the course.

The concept of a brand ladder was popularized in the 1980’s by marketing practitioners and academics such as Kevin Keller, Philip Kotler and Al Ries.

Each rung in the brand ladder represents a type of benefit a company offers its customers.

As you climb the ladder, you move from tangible attributes to intangible ones. The ladder would start with 'hard' features and end with abstract benefits involving the customer’s identity.

Professor Galloway coined the term laddering. It takes the concept of the brand ladder but turns it into a tactical move that portrays competitors negatively.

Professor Galloway gives an example involving Tim Cook, Apple’s CEO.

After the Cambridge Analytica scandal that painted Facebook as a threat to data security and privacy, Cook announced that “privacy is a human right”.

This helped distinguish Apple from Facebook. Previously, both were perceived as monopolistic ‘big tech’ companies. After the ordeal, Apple was seen as a protector of people’s privacy, while Facebook was (further) demonized as a company that didn’t.

A scene from the TV series Mad Men shows how marketing professionals craft campaigns using laddering.

The episode takes place in the 1960’s when the tobacco industry was facing strong scrutiny because of health concerns around smoking. In the show, Don Draper, an ad agency executive, is in a meeting with his clients, senior members of the cigarette manufacturer Lucky Strike.

Lucky Strike’s executives are concerned about how they will market their products, given the new associations between smoking and cancer.

The conversation between Don Draper and his client was as follows:

Don: The Federal Trade Commission and Reader’s Digest have done you a favor. They’ve let you know that any ad that brings up the concept of cigarettes and health together, well, it’s just going to make people think of cancer…You can’t make those health claims, and neither can your competitors…

…This is the greatest advertising opportunity since the invention of cereal. We have six identical companies making six identical products. We can say anything we want. How do you make your cigarettes?...

Lucky Strike executive.: …We breed insect-repellent tobacco seeds, plant 'em in the North Carolina sunshine, grow it, cut it, cure it, toast it—

Don: There you go. There you go.

 [Don writes on a blackboard: "Lucky Strike. It's Toasted."]

Lucky Strike executive: But everybody else’s tobacco is toasted.

Don: No, everybody else’s tobacco is poisonous. Lucky Strike’s is toasted.

There is a collection of 143 of Lucky Strike’s ads in the Stanford Research Into the Impact of Tobacco Advertising (SRITA) website. Lucky Strike developed an association between their Cigarettes and vitality through their campaign. They did this using ads featuring wholesome breakfasts, athletes and successful people.

Case Study 2: Apple’s ‘Think Different’ campaign

In December of 1996, Steve Jobs returned to Apple after being ousted 11 years earlier. One year later, Jobs approved the ‘Think Different’ campaign that re-established Apple as a champion to creatives and visionaries.

The Think Different TV commercial is a famous one. It is a one-minute long feature of 17 iconic personalities from the 20th century that celebrates people who dare to make a difference in the world.

The commercial displayed figures like Albert Einstein, Martin Luther King Jr., Thomas Edison and Muhammad Ali.

A narrator describes and celebrates the common qualities these iconic people have:

Jobs previously worked with the creative agency behind the Think Different campaign. They worked together years earlier on Apple’s ‘1984’ ad, which introduced the Macintosh personal computer.

Apple’s 1984 ad is also an excellent laddering case study.

The ad references George Orwell’s book, 1984. It takes place in a dystopian future that is ruled by a ‘Big Brother’ character who symbolizes conformity and oppression. A lone woman representing Apple's brand uses a sledgehammer to smash a screen broadcasting Big Brother’s message. The ad ends with a tagline, "…you'll see why 1984 won't be like 1984."

The Think Different campaign and the 1984 ad symbolized a revolutionary change to the status quo in the world of computers. It communicated that Apple's products enabled innovation and creative freedom.

At the same time, it positioned competitors like IBM and Microsoft as bureaucratic and rigid. They were associated with outdated systems and organizations that prioritized hierarchy and standardization.

Regularly communicating the right set of messages is how you build a brand.

It is also how you reinforce a successful counter-positioning strategy.

Positioning is about creating the right associations at every customer touch point, situation and setting.

Apple was highly successful with its marketing efforts. We all know this because it has successfully dug itself a position in the minds of consumers.

I think Apple provides a great case study for counter-positioning and laddering. You have to consistently ‘think different’ and be different to effectively carve out a unique position in the minds of consumers.

Apple clearly practices what it preaches.

The barriers to inaction- Biases and incentives:

Psychology stops (or slows down) competition from appropriately responding to competitive threats.

The study of cognitive biases and incentives are two components of human psychology. They are useful tools to understand how people and organizations behave, at least from a business lens.

It is one of the reasons why counter-positioning and laddering are so effective.

Biases are tendencies that cause people to favor certain perspectives and are usually irrational. Biases can hinder a company's management from effectively responding to threatening strategic moves by competitors.

Groupthink, overconfidence, and the fear of uncertainty are biases that significantly impact how a company perceives and reacts to external threats.

These biases paralyze decision-making. They create a false sense of one's own capabilities while downplaying the strengths of new challengers. They also lead to the suppression of negative information, which results in sub-par decision making. All of this erodes a company’s strategic position over time.

Incentives are the things that motivate people to act in specific ways.

Conflicts of interest arise when there are incentives that oppose each other. When a conflict of interest exists, it means that not everyone is aligned towards a common goal.

A company’s management and employees should be incentivized to do what is best for the company's owners. Frequently, they do what is in their best interests at the expense of the owners.

Management will avoid specific responses to threats because of uncertainty and short-term incentive structures. These psychological factors stop companies from effectively responding to a challenger's counter-positioning strategy.

Management may need to invest more in a range of things but will avoid it. Occasionally, a business may need to disrupt itself by adopting a new business model before a competitor does, yet will refuse to do so. There is a good example of this in Blockbuster’s refusal to adopt Netflix’s strategy.

A company’s management can fail to take the necessary steps because they don’t want to risk a reduction in profitability (even in the short term). They are too concerned with how short-term results impact their compensation, job and status.

Management will do what they want to do and avoid doing what they need to do because of their biases and conflicts of interest.

Case Study 3: Blockbuster fails to respond to Netflix.

Blockbuster was an American brick-and-mortar video rental store that was founded in 1985. Blockbuster floated its shares on the stock market in 1989 and rapidly grew to become the largest video rental chain in the world during the late 1990’s.

Netflix was founded in 1997 and offered a DVD-by-mail subscription service. Netflix’s founder, Reed Hastings, intended to benefit from the internet by providing video entertainment in an asset-light way.

Hastings knew that online streaming was the future. But internet speeds during the late 1990s and early 2000s were not fast enough to support a streaming model. Netflix's strategy was to start with DVDs-by-mail subscriptions and eventually transition into online streaming as the technology caught up.

Blockbuster was based on a brick-and-mortar rental model that relied heavily on customers visiting physical stores. Netflix allowed customers to rent DVDs from the comfort of their homes. For a monthly subscription, Netflix provided unlimited rentals with no due dates or late fees—something that directly targeted Blockbuster’s main profit source: late fees.

Netflix's initial strategy wasn’t to compete with Blockbuster on its primary turf—physical store rentals—but to offer an alternative model. Netflix focused on direct mail and allowed customers to keep DVDs for long periods. They were conditioning customers to adopt a more convenient and customer-centric approach to movie rentals.

Blockbuster’s strong retail presence meant that their competitive advantage revolved around real estate. Blockbuster’s retail locations were within primary areas that experienced heavy footfall; they had expanded quickly and secured some of the best real estate around the country.

Since Blockbuster dominated the industry, the foot traffic generated by their stores made them attractive tenants in shopping centers, which allowed them to negotiate favorable lease terms. Having physical locations meant that Blockbuster could also sell their customers other products like snacks and video games.

Blockbuster’s real-estate gave them a huge advantage, but only relative to other brick-and-mortar video rental companies.

This had several implications.

Blockbuster’s customer acquisition channel relied on foot traffic towards expensive real estate. This meant Blockbuster was overly dependent on their stores as their marketing engine. Blockbuster was less competent in direct response marketing compared to Netflix, who had to acquire customers without a physical presence.

This put Blockbuster in a tough position. If they wanted to compete with Netflix, they would have to incur the costs of learning a new business model, one that required competency around a new type of marketing process. Blockbuster would also have to risk cannibalizing its revenues from physical stores.

Several biases came into play. 

The overconfidence bias and sunk-cost fallacy led Blockbuster’s management to dismiss Netflix’s mail-order service as a niche offering. This was made clear in 2000 when Blockbuster rejected a buy-out offer from Netflix for $50 million. Blockbuster dominated the physical video rental market and had larger revenues than Netflix, which likely provided a false sense of comfort.

Conflicts of interest were also present.

Since Blockbuster was a listed company, its management team’s compensation was a function of the stock price movement. Management prioritized short-term earnings over long-term shareholder value because they were paid to do so.

By 1997, the year Netflix was founded, Blockbuster had achieved $3.9 billion in revenue and dominated the video rental market. At its peak, Blockbuster had over 9,000 stores worldwide. Its failure to adapt to changing technologies and adopt a new business model led to its eventual bankruptcy in 2010.

Netflix gradually started offering online streaming in 2007, disrupting its own mail-to-order model. In 2011, Netflix announced it would produce its exclusive content, starting with the political thriller ‘House of Cards’, which premiered in 2013. By 2023, Netflix achieved revenues in excess of $33.7 billion. 

Closing Remarks:

“Follow the leader” is a phrase used in a children’s game that originated in the early 1800’s.

This game reflects a natural tendency to conform and imitate. These are critical behaviors for a child's development but can be ineffective in the business world. Keep in mind that a good outcome when following the crowd is to be average.

Being different in a meaningful way is how companies should think about competing. This involves serving customers in ways that competitors can’t without compromising their strengths—the things that make them dominant.

Being different triggers the psychological factors that tell you to conform and avoid risk and uncertainty. It also makes you stand out in a crowded world, and that is why it is valuable.

_{*A company’s respective position within its industry has financial consequences to a business. Not all positions are created equal, and some are better than others.}