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What Casual Carpooling in the Bay Area Teaches You About Competitive Strategy
To be successful, an enterprise must consider its position in the market and work towards a sustainable competitive advantage. Cost leadership, differentiation, and focus are three key strategies that can help you achieve an edge.
In this video, Dr Lourdes Sosa, Course Convenor on the Competitive Strategy and Innovation online certificate course from the London School of Economics and Political Science (LSE), discusses customising a product using the focus strategy. She draws on casual carpooling in the San Francisco Bay Area as an example.
When innovating, this strategy helps organisations carefully consider the established market and work towards increasing the customisation of their product or service to decrease retaliation from competitors.
Transcript
Since the 1970s, commuters in the Bay Area in San Francisco have shared rides with strangers across the Bay Bridge in a system commonly known as casual carpool. Commuters line up in the mornings, waiting for drivers to pick them up for a charge of $1. If a car has three or more people, it can use the carpool lane, which is the fast lane on the Bay Bridge.
If you were an executive with Uber or Lyft, would you be worrying that the casual carpool may overtake your market share nationwide? Probably not. The carpool operates one way into the Back Bay, but it has been enabled to coordinate the return. That means coordinating other routes will probably also prove unfeasible, especially because there are very many routes that Uber and Lyft operate, have no gains from a fast lane to incentivise the driver for a stranger pickup.
If you were a commuter into the Bay Area, will you find the $1 charge excessive? Probably not. By operating in the limited area, where the driver gets access to a fast lane in exchange of picking up the passenger, the cost is kept to a minimum and the payment is often forgone. The Back Bay casual carpool is the most extreme representation of a focus of strategy.
The characterising decision in a focus of strategy is the choice of a limited area within the established boundaries of the market. The rationale for making this choice is two fold, increased customisation, and limited retaliation. An organisation that engages in a focus of strategy selects segments of the market that it will specialise in, thereby also selecting segments of the market that it will not serve.
This means that better customisation will be offered to the selected segments. A customisation that could not be achieved had the organisation attempted to be open to all customers in the established market. Along those lines, as long as competitors can understand the commitment to selected segments that this is strategy represents, they will not engage in retaliation. By understanding the commitment, I mean the way that Uber and Lyft can observe without much difficulty, that the casual carpool is not scaling up. Try to keep in mind under what conditions the competitive positioning of a new product or service can be seen as a focused strategy, that both increases customisation and, in doing so, limits retaliation.
The selection of segments that are left behind must be easy to spot, especially by competitors. In summary, the idea is to think of one different competitive positioning and innovation will take, in contrast to the state of the established market, the decision to position innovation as serving selected segments of the market and leaving other segments out, in order to increase customisation and minimise retaliation is a focus of strategy.