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What is competitive advantage? Apple's strategy for gaining a competitive edge

By Subhayu Ghosh – Chief Product Officer at LYTT

In today’s market, gaining a competitive advantage is not only advantageous but also very crucial for product managers to ensure that their businesses are thriving. But what exactly is a competitive advantage? Apple is a world-renowned company known for its innovative products and unshakeable market dominance. In this article, we will discuss how Apple consistently manages to stay ahead of the curve.

Key Takeaways:

  • Competitive advantage is nothing but a willingness to pay by the customer.
  • Product managers need to know that there are 5 types of customers and only 16% of them will be innovators and early adopters. 
  • But the majority of the market, 84% of people, don’t really care about it. Their buying decisions are based on emotions and impulses. 
  • According to Maslow’s need hierarchy theory, there are three different needs of a human being- basic, psychological, and self-fulfillment. 
  • According to the Kano model, customers have three types of needs. One is a need which is defined as a must. Two is a need which is defined as a want. The third need is a wow. The most important factor is if you keep adding the must-have features or the must requirements of the customer. 
  • Your product should be accessible enough to create an upbeat but should not be available enough to make it cheap.
In this article
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    What is competitive advantage?

    Competitive advantage is nothing but a willingness to pay by the customer. So simply put, if a customer has more willingness to pay, you have a higher competitive advantage. If the customer has a lower willingness to pay, you have to position your product based on the cost. You don’t have a competitive advantage in this case. How do you secure the competitive advantage here? You increase the willingness to pay. 

    According to Steve Jobs, there is a very simple formula for this. You should get closer to the customers, more than ever. So close that you tell them what they need well before they realize it themselves. Basically, you need to get inside consumer psychology. 

    When we are emotional, we think from one part of the brain. When we are practical and logical, we think from the other part of the brain. But what if we want to think from a 360-degree angle, we want to think both from the emotional as well as the logical part together, so that we have a better picture. 

    Customer psychology says that a person cannot think at the same time from two dimensions. They cannot be practical and emotional at the same time. So at a given point of time, you are either using your emotions or logic. You cannot do both at the same time. 

    Imagine the brain as a house. You use your bedroom for sleeping, you use your kitchen for cooking, and so on. But you cannot be in two places at the same time. And that is how your thoughts are. The question now is, which part of the brain decides the buying decision? The buying decision is not a logical decision. It is an emotional, impulsive decision. That is a very deep insight of the customer you have to understand. 

    As product managers, you have to consider that when you are making your product. It means that when you buy a phone, you are not going to base your decision on megapixels or gigahertz. You are going to make your decision based on an emotional impulse and appeal.

    Product adoption or diffusion curve

    Product managers need to know that there are 5 types of customers and only 16% of them will be innovators and early adopters. These are tech enthusiasts and visionaries who are excited about the product features. They are very practical, left-brain thinkers. They get excited with the technology, new products, etc. But your product will not succeed with just this population.

    But the majority of the market, 84% of people, don’t care about it. Their buying decisions are based on emotions and impulses.

    Maslow’s Hierarchy of Needs

    Maslow says that there are three different needs of a human being- basic, psychological, and self-fulfillment. In order to sell a product, the minimum thing you have to do is find out the basic needs and give it to them. Then the price or value of the product can be increased as you move from basic to the psychological need to the self-fulfillment needs. The product, the willingness to pay a customer for a basic need is basic. But as your product appeals to the psychological need, the willingness to pay will increase. Now the more and more your product appeals to more psychological needs and more self-fulfillment needs, the willingness to pay will increase even more. It will further increase when you hit the self-actuation state of a customer.

    5 Product Levels theory from Philip Kotler

    There are five types of products. These are core products, generic products, expected products, augmented products, and potential products.  The core product will fulfill the basic needs of the product. Generic products will provide actual products with tangible qualities. Expected product offers generic product plus other attributes customers want. Augmented products give more than physical products and set them apart from competitors. Potential product provides additional tangible and intangible features.

    Kano Model

    This model is about product development and customer satisfaction theory. It says that customers have three types of needs. One is a need which is defined as a must. Two is a need which is defined as a want. The third need is a wow. The most important factor is if you keep adding the must-have features or the must requirements of the customer. You will always be somewhere in the zero level of satisfaction. So all your pixels, gigahertz, etc. you can keep on adding, but you will never be able to fully satisfy the customer. The product has to move from must to want to wow. So if you address a few wants, the satisfaction will increase a lot. If you address one or two wow factors, that will ace the product. 

    This is where the Apple product is differentiated. If we look at the Apple features, the must-have features were 12.5 Gigahertz, 4 GB RAM, and a 12-megapixel camera. What Apple researched is, that the customer does not want the megapixel. They want the picture. So they don’t need more technical features. If we move to “want” features, they discover the customer wants better video clarity. So despite their 12mm camera, if you see the offering in the video clarity, it has 240 frames per second. Here, the frame per second is far better than a Samsung or a Nubia. So that is the one feature that they are standing out because that one feature matters and other features do not matter. Now all their cameras are 12 megapixels. You see that on iPhone 11. But in other phones, you will see that the front camera and rear camera megapixels are different. This means that they haven’t figured out what the customers want. 

    Now what is the wow factor? It is the music that iTunes gives you. It is the apps that appeal to your creativity. Apple actually pays developers to create extremely creative apps.

    Whole Product Experience

    So basic needs become a must and that is a core product. The safety needs also become a must and that is a generic product. The psychological need becomes a want and that is your expected product. A self-fulfillment need becomes a want, that is your potential or augmented product. How you layer each type of product into one is the important thing. So the problem with other phones is they have focussed so much on core products, but they haven’t worked on the expected and augmented product level. So the bottom line is super simple. You just have to increase the appeal from basic to psychological to self-fulfillment. So you see that your willingness to pay increases as you keep adding the layers of product one after the other. So your aim should always be to start from the core but go to the potential. But don’t get so wowed by the potential because you have to start from the core.

    Accessibility vs availability

    Your product should be accessible enough to create an upbeat but should not be available enough to make it cheap. So how does Apple create that accessibility and appeal? Steve Jobs created it in the very beginning by saying that it is the best iPod, the phone, and the best internet service altogether. So he immediately created the willingness to pay thrice. Also, they have a very appealing website. Then, everything around the communication, the buzz, the news, everybody talking about the iPhone. So that is how you create a niche and a desirability right before the product. So you have to understand the journey of the customer. 

    Hence, in product management, competitive advantage lies in understanding and fulfilling customer needs effectively. It includes the utilization of different theories like Maslow’s hierarchy of needs, the Kano model, and the 5 product levels theory to make sure that your products have a competitive advantage over the others.

    Frequently Asked Questions

    Competitive advantage is nothing but a willingness to pay by the customer. So simply put, if a customer has more willingness to pay, you have a higher competitive advantage. If the customer has a lower willingness to pay, you have a lower competitive advantage.

    The main types of competitive advantages are selection, quality, service, turnaround, and speed.

    Apple strives to set itself apart from the competition not based on price, but by competitive advantages it offers its customers in terms of picture quality, internet, operating system, and internet.

    Maslow says that there are three different needs of a human being- basic, psychological, and self-fulfillment.

    According to the 5 product levels theory, there are core products, generic products, expected products, augmented products, and potential products.

    About the Author:

    Subhayu Ghosh – Chief Product Officer at LYTT

    Institute of Product Leadership is Asia’s First Business School providing accredited degree programs and certification courses exclusively in Product Management, Strategy, and Leadership.
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