The coronavirus has started the mask era in our lives. This tool, which is widely used only by industrial workers and ninjas in the world, is now used by all of us. It seems that we will continue to use it until 2023. Well, a product used by billions of people around the world seems to be a perfect opportunity for companies, isn’t? We naturally expect big profits in this area.
The interesting thing is that the mask business may not be as profitable as it seems. Yes, the demand is incredible, but the supply is just as incredible. Everyone is involved to some extent, from giant companies to under-the-counter manufacturers, from textile manufacturers to retailers. The mask market is now heading towards a Perfect competition market with new players coming constantly. In other words, it is a market where there is fierce competition and thousands of companies in price competition struggle for minimal profits. The “red ocean” mentioned by Kim Chan and Rene Mauborgne in their Blue Ocean Strategy book. In other words, it is a bloody ocean where competition is fierce and all rivals bite each other.
When you look at the product, you see that almost all products have the same features, except for the N or FFP coded masks. From the raw material used to produce, to the production technique and the way of use, they are all copies of each other. There is little difference. Since these differences are minor, they do not affect the consumer. When the consumer is shopping in this red ocean, they only look at the price. A bit of product comments. Therefore, price competition will minimize the profits of this company after a while. With the decrease in demand, sharks will attack each other hard.
I’ve been following for months, I haven’t seen a single innovation in masks in many countries. Maybe I didn’t realize it, but that’s my observation. There is not much innovation even in US. Apart from a few technology or filters change, no serious innovation except for the mask whose design is striking. They are also not in the affordable price scale. However, differentiation in this market would be very beneficial. Especially when there is such a strong demand.
So why can’t anyone innovate in this big and powerful market? For example, if there is a company that produces 4 layers instead of a 3-layer mask, I think it will get the biggest piece of cake from the market for a few months. Until the others wake up. Or the mask that does not sweat inside and does not stick to the mouth. The mask that changes color according to the light. Masks containing specific name-surname or initials, self-cleaning nano masks, masks that can be used with essential oils, etc.
Hundreds more differentiation is possible that we cannot even think of. But it is not done. Why is that?
This is not only the problem of the mask industry, but also of almost all commodified industries. Automotive, furniture, textile, fast consumption, etc. In all of them, products, designs, benefits, customer experiences are mostly similar. Competition is based on price or word of mouth references. The customer makes his decision according to these. No one can show the difference. This means that profits will be melting in the medium term. Moreover, many new start-ups emerge as competitors. For example, a bike or electric scooter manufacturer was not a competitor for an automotive manufacturer, but now a competitor. There are companies that produce only electric cars.
To get out of this commoditized market of perfect competition, you have to be different. We have to differentiate. What we produce, what we offer, we must try to differentiate it. We have to create the Blue Ocean that Kim Chan and Rene Mauborgne mentioned in their Blue Ocean Strategy books, and the “Purple Cows” that Seth Godin put forward twenty years ago. Otherwise, commoditization will leave us alone with cost pressures and price competition. I know so many companies that try to survive with 9-10% Ebitda and 1-2% net profits.
So why are companies afraid of differentiation?
1- Differentiation means trying new things, leaving the present. This frightens status quo companies and executives. They think they will lose their former importance and power. They believe that there it is not a safe way, and that it is the right thing to do the same thing always.
2-Innovation is needed to differentiate. Innovation is not easy in certain landscapes. Critical and free thinking, creative thinking, design thinking perspectives are missing. Schools and companies are places where this deficiency is mostly seen. In order to innovate, innovation culture is needed. Companies think that establishing an R&D department and getting funding is an innovation. However, innovation is a completely different thing. Instead of focusing on the expense & cost side, focusing on innovation and differentiation will bring the success in the new era, but how many companies are aware of this? Companies need to find answers to the following questions; What is our innovation capacity? Are our innovation processes effective? Is our culture suitable for this? Is our organization and management style prone to this? If not, it is not possible for you to differentiate even if you want to.
3- Differentiation means new markets, new trends, new segments, new usage areas, new business models, new process designs. Investing in these issues is perceived as a long-term work. It is thought that the turnaround will be long. Yet not. Different innovations can be made from one month to several years. Dozens of innovations with fast turnaround can be put forward. At this point, external expertise and correct consultant support are important. It will be very useful for companies to evaluate their innovation capacities, processes and cultures to an external expert.
If you are in a commodity market, please note that in the post-COVID-19 period, which we call the VUCA period, failure to differentiate means low or zero profit. Strategy is now done with differentiation rather than cost leadership or focus. It is a dream to do what everyone does and expect different financial results. In the world of artificial intelligence, IoT and digital business, managing a company with old ways and beliefs means swimming in the red oceans in the perfect competition market, ultimately being a feed for a shark.
In this sense, the Company Boards should clearly demand innovation and differentiation from the executive boards and senior managers.