Secrets of "Alpha" Companies

    Jan 24, 2019

    What made Starbucks the king of coffee retailers, when there were others who arguably may have offered a better brew?  What made Harley-Davidson the most desired product in the world (even above diamonds), when its product quality was far lower and its prices much higher than many of its competitors’ motorcycles? In short, what is the secret to making products for which people will pay a premium?

    In business, as in the animal world, just about every product category has an Alpha—a company that leads the pack. Alpha companies enjoy higher profitability, lower competitive pressure, and more control over future revenues than follower companies do. Alphas are so influential that almost everyone in their category looks to them as a role model.

    Over the course of 15 years, I directed a research study, The Alpha Factor Project, which set out to discover what makes Alpha companies different from follower companies. The project involved more than 100,000 interviews and real-world tests with over 75 companies in 40 product categories. Many of the study’s findings were surprising, showing that the beliefs most of us have about dominant companies are, in fact, myths.

    Alpha companies convince customers that their products will provide them with self-satisfaction and personal significance. They make their customers feel smarter, bolder, braver, more influential, more knowledgeable, more admired, or more fulfilled.

    Here are some of the common myths about Alpha companies:

    Myth #1: The Alpha company is the biggest in its category. Size—tha is, market share, number of employees, number of locations—does not equal domination. Often the industry leader, the one that drives customer expectations, is a smaller competitor in the category. For example, Ben & Jerry's changed the ice cream business by offering exotic flavors with hip names, along with more and bigger pieces of nuts, fruit, and candy mixed into the ice cream. It became the most influential brand, despite having a small initial share of its category.

    Myth #2: Price is the deciding factor for consumers. If price were the ultimate driver of buying decisions, there would be no Mercedes-Benz, Dom Perignon, or Rolex. Consumers are willing to pay more for something they believe gives them more. Research shows price is actually customers’ last consideration.

    Myth #3: The Alpha company is the first to market with an idea. In truth, few of the Alpha companies today were either the first in their category or the first with the type of product they currently sell. Victoria’s Secret and Starbucks are good examples. They were not the first to sell sexy underwear or coffee—they were just best at marketing those products so customers clamored for them.

    Myth #4: The Alpha in a category offers the highest quality product. Evidence shows that customers want something other than highest quality; they want a product that satisfies a functional need but also makes them feel smarter, more attractive, more admired, and so forth. A good example is Harley-Davidson, whose motorcycles are of poorer quality than Japanese motorcycles, yet dominate in customer loyalty and price leverage.

    Myth #5: To learn how to be an Alpha company, follow the leader. Every time you follow the leader, you convince customers in your category that the leader’s product is the one to which they should aspire. To be an Alpha, strategic differentiation is critical. The real trick is to find unmet higher-level needs that you can uniquely address and “own.”

    Myth #6: The fewer competitors in your category, the better. Eliminating or attacking competition is the worst thing you can do if you want to dominate your category and grow your customer base. Aggressive competitors drive more consumers to the products in your category, and so demand for those products—yours and theirs—grows geometrically. Furthermore, when your competitors imitate you, customers seek out your Alpha products with even greater enthusiasm.

    Myth #7: Sometimes, Alpha companies just “come out of nowhere.” Fortunately, once you understand how Alphas evolve, you can reliably predict who will grow dramatically. By examining the factors that constitute an Alpha for each of your competitors, you can readily see which companies are in the process of creating growth potential and which are not.

    Myth #8: It takes time to acquire a dramatic share of the market. Many executives find it hard to believe that dramatic, revolutionary growth can occur quickly. Evidence shows, however, that using Alpha learning can create significant growth within a year or less—even if the company is a top performer already or, conversely, has been in a prolonged cycle of stagnation or decline.

    Findings from The Alpha Factor Project show that Alpha principles can work for any industry and almost any size company, whether business-to-business or business-to-consumer. A business that adopts Alpha learning and strategies will grow revenue. It may not become the leader of its industry, but it will experience long-term, sustainable growth.