Summary.Many executives assume that customer data can give you an unbeatable edge. The more customers you have, the more data you can gather, and that data, when analyzed, allows you to offer a better product that attracts more customers. You can then collect even more data, repeating the cycle until you eventually marginalize your competitors. But this thinking is usually wrong. Though the virtuous cycles of data-enabled learning may look similar to those of network effects—wherein an offering increases in value to users as more people adopt it and ultimately garners a critical mass of users that shuts out competitors—they are not as powerful or as enduring.
Nevertheless, under the right conditions, customer data can help build competitive defenses. It all depends on whether the data offers high and lasting value, is proprietary, leads to improvements that can’t be easily imitated, or generates insights that can be quickly incorporated. Those characteristics do give firms an advantage. And when learning from one customer rapidly improves an offering for others (think Google Maps), people will care about how many other people are adopting it, and it will enjoy those sought-after network effects.
Idea in Brief
The Assumption
Companies can build winner-take-all positions by collecting and analyzing customer data. The more customers a firm has, the more data it can gather and mine; the resulting insights allow it to offer a better product that attracts even more customers, from which it can collect still more data.
The Reality
Even when customer data does confer a competitive advantage, it gives rise to network effects only infrequently. And that advantage may not last.
The Solution
To understand the edge that data-enabled learning can provide, companies should answer seven questions, which examine the value of the data; whether its marginal value drops quickly; how fast it becomes obsolete; whether it’s proprietary; whether the improvements from it can be easily imitated; whether they enhance the product for current users, other users, or both; and how fast insights can be incorporated into products.
Many executives and investors assume that it’s possible to use customer-data capabilities to gain an unbeatable competitive edge. The more customers you have, the more data you can gather, and that data, when analyzed with machine-learning tools, allows you to offer a better product that attracts more customers. You can then collect even more data and eventually marginalize your competitors in the same way that businesses with sizable network effects do. Or so the thinking goes. More often than not, this assumption is wrong. In most instances people grossly overestimate the advantage that data confers.
A version of this article appeared in the January–February 2020 issue of Harvard Business Review.
FAQs
Data can help you understand what and when customers are purchasing, as well as what customers with a similar profile or buying habits are purchasing. This insight can help you predict what other products or services provided by your company may best fit their needs.
How does information create a competitive advantage? ›
Creating competitive advantage. In any company, information technology has a powerful effect on competitive advantage in either cost or differentiation. The technology affects value activities themselves or allows companies to gain competitive advantage by exploiting changes in competitive scope. Lowering cost.
What creates a competitive advantage? ›
Competitive advantages include the attributes of your product or service which competitors find difficult to copy. For example, the quality of your staff: their skills, attitudes and relationships with customers; and the innovative features that constitute the intellectual property of the business.
Why Big Data is the new competitive advantage? ›
Big data means that companies can monitor assets at an individual level. This means they can better optimise assets based on the data sourced, improving productivity, extending the lifespan of assets and reducing the downtime some assets may need.
What are three ways that big data helps firms create a competitive advantage? ›
For example, big data analytics can be used for a competitive advantage in marketing by: Giving companies a better sense of market segments and potential audiences. Providing more in-depth insight into customer behavior and preferences. Experimenting with new products and better marketing approaches.
How does data create value? ›
Data can create value by helping you optimize your existing operations. Often, decisions inside organizations are made based on intuition or a limited view of what customers and employees needed in the past.
What is the most common way to show competitive advantage? ›
One of the best ways to present your competitive advantage is to use storytelling and testimonials.
What is an example of a competitive advantage? ›
For example, if a company advertises a product for a price that's lower than a similar product from a competitor, that company is likely to have a competitive advantage. The same is true if the advertised product costs more but offers unique features that customers are willing to pay for.
What are the three 3 strategies for competitive advantage? ›
Michael Porter, the famous Harvard Business School professor, identified three strategies for establishing a competitive advantage: cost leadership, differentiation, and focus (which includes both cost focus and differentiation focus)[1].
How does statistics help the business stay competitive? ›
The most common application of statistics is to assess performance, whether it is the performance of an improved marketing strategy, a new product line, or simply the performance of employees. Furthermore, it assists businesses in predicting and navigating risks, as well as optimizing the return on investment.
The six factors of competitive advantage are selection, quality, service, turnaround, price, and speed.
Why is data powerful? ›
Good data allows organizations to establish baselines, benchmarks, and goals to keep moving forward. Because data allows you to measure, you will be able to establish baselines, find benchmarks and set performance goals.
What are the three biggest advantages of big data? ›
Advantages of Big Data
- Timely decisions. ...
- Audience knowledge and loyalty building. ...
- Immediate results and feedback. ...
- Differentiating technology and a market with a future.
Organizations gain competitive advantages through management information systems (MIS) that integrate the flow and delivery of performance and planning data to executive and senior leadership to manage the constantly evolving business environment.
What companies use information systems for competitive advantage? ›
Amazon is another business that has gained competitive advantage through information systems. They build a strong relationship with their customer by keeping a record of past purchases and this allows them to recommend new products that the customer may be interested in.
What are the four competitive uses of information? ›
List and describe four competitive strategies enabled by information systems that firms can pursue. The four basic competitive strategies are low-cost leadership, product differentiation, focus on market niche, and customer and supplier intimacy.
How information system can help this attraction gain a competitive advantage and attract more visitors? ›
Final Answer. By implementing an information system with features like online booking, data analytics, mobile apps, social media integration, and feedback mechanisms, the beach attraction can achieve operational excellence, enhance visitor experience, and gain a competitive advantage in attracting more visitors.
