Dollars & Sense

Zero Sum Networks ⚔️

Disclaimer:
The views expressed in this article are intended to stimulate discussion and reflect personal observations about business strategies in competitive industries. This article is not meant to make definitive claims about any specific company or its practices, and no direct comparisons between specific businesses should be construed as factual statements. Readers are encouraged to conduct their own research to form their own opinions based on their individual experiences.
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Andrew Chen shares in 'The Cold Start Problem' that many times, networks are competing in a zero-sum game. One network gets a customer to join their network and thereby not participate in another. For example, when a driver used Lyft instead of Uber, Uber, which Chen helped, lost. And it lost in two regards: Uber lost the revenue from the lost ride, and Lyft gained the revenue. Chen’s team was tasked with getting drivers to use all their time driving for Uber and thereby unraveling Lyft’s network. 

In a network-based industry, there are peripheral and magnifying effects of hurting a competitor. Issues snowball: If there are too few drivers on Lyft (because Uber lured them away), then surge pricing may hit—thereby causing the price to go up and making Uber even more attractive for riders. Simply losing one customer in the network may set off a series of unintended consequences and lead to losing even more customers. 

Researching Network Competitors
Chen reports that Uber would use myriad ways to lure drivers away, including riding in Ubers and seeing if drivers were using Lyft, running ads around the Lyft HQ where Lyft drivers were likely to drive to events, monitoring apps that drivers used, analyzing aggregate credit card data, and analyzing email receipts. Uber used this data to estimate the number of rides that Lyft was giving and thereby compare itself.

Luring Users Away from Network Competitors
Knowing who was driving for Lyft and its usage was just part of the battle. Uber needed a strategy to react to this data. It would launch lots of offers to get the drivers to switch and drive as much as possible, thereby boxing out Lyft. Uber would spend $50m a week on offers. They would offer “do X, get Y” offers. For example, do 50 trips in a week and get a $100 bonus. They had a ladder of promotions where each trip amount garnered different bonuses. For example, for 10, 25, 50, and 100 trips, they offered, respectively, $25, $40, $100, and $200 bonuses. 

Shop Local's Network Competitors
How does this relate to our industry? The competition in e-commerce and website services can be just as fierce. For example, Shopify, one of the largest players in our industry, invests millions of dollars in marketing and promotional offers, targeting potential customers like ours. Shopify’s goal is to attract our clients by offering incentives and potentially gathering data on consumer spending patterns.

This raises an important question: What are we doing to defend our position, and how do we attract users who may currently be using larger platforms like Shopify?

Last month, we had a retailer consider moving to Shopify. We could lose monthly revenue plus sales “through the pipeline,” aka GMV (gross merchandise value). We’d lose and Shopify would win more revenue and GMV. We have to imagine that Shopify and others could potentially try to peel off our customers. Every. Single. Day.

Play Defense
Our defensive approach is twofold: we want to make our service (aka product) so sticky that clients stay. We attempt this via the Syncing service and the business network (i.e. showing merchants their rep and brand contact info). These two services are unique and not commodities. While our registry service is unique, it is more likely to be seen as a commodity and replaceable. We’ve also tried to increase stickiness by laying on wholesale ordering. 

Deliver Value
We also play defense by delivering value (aka: the price a merchant pays for service). We’ve tried to keep our price increases to a minimum. While it’s hard to compare our service exactly to Shopify (again, that’s good, we don't want to be a commodity), we want to ensure that clients feel they’re receiving good value, especially when compared to larger services like Shopify.

The good news: Our 99.3% retention rate suggests our services and value are good. But the defections show we’re still vulnerable. 

The Offense
While defense is key, we also need to be proactive in acquiring new customers. This means looking at potential clients who are using Shopify’s services, as well as non-Shopify alternatives.

We want to ask ourselves: which audience is using which competitor? Do we want our eyes on providers to brands or retailers? How can we best reach them with our unique offering? We also need to think about profitability when targeting new clients. If we were to offer an app that primarily serves Shopify users, for example, we’d need to ensure that it generates enough profit for our business. We’re keen to avoid becoming just another small player in the Shopify ecosystem, preferring instead to work with clients who will benefit from using our entire Online Store platform.

Homework: 
If you were to create a strategy for targeting and acquiring clients from a competitor, how would you go about it? Here are some questions to consider:

• How would you identify your competitor or target?
• How would you measure the performance of your competitor or target?
• How would you explain to clients why they should switch to your organization?
• What would you offer clients to switch to your organization?

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Learn about  Shop Local’s Online Store: 
https://www.shoplocal.org/e-commerce-software.cfm

Read more about the competition between Uber and Lyft:
https://buildfire.com/uber-statistics/

Tags:
Uber Lyft shopify myregistry.com cold start problem

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