Why ‘Cognitive Economy’ Matters To Your Business

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Do you understand where your business provides value for its customers?

Do you have real and tangible competitive advantage in your market place?

Although many companies with which I work initially assume that they have the answers to these questions, after some more queries and investigation, it often becomes apparent that this is not the case.

This can be down to a number of factors. However, it is often because a business is looking in the wrong place when trying to understand and create value for its customers.

Many organisations primarily focus on ‘what’ they do and provide for their customers. The best companies will often strive to continually improve the products and services they deliver. Yet, the simple truth is that, in today’s digital web enabled world, there is very little that a company can introduce that won’t be copied immediately by competitors, if it is deemed to be an intelligent development in attracting or retaining customers.

Of course, I am not suggesting that companies don’t continually strive to innovate and improve their product or service offering. However, delivering excellence is the entry point to being able to ‘play’ in any particular market. Ultimately, it is not often where competitive advantage can be found.

The answer to understanding how to create competitive advantage comes from the world of psychology. ‘Cognitive Economy’ is the propensity for cognitive processes to use the minimum effort and resources in order to achieve a required result. Human beings will have their own individual view of the world and will make assumptions and reach conclusions based on this knowledge.

What this means for business is simple. Customers purchasing habits are a balance between the product or service that will suit them best, against the goods that are easiest to purchase. ‘Cognitive Economy’ means that customers will only be able, and willing, to give a certain amount of thought to a purchasing decision before they undertake the action that they perceive to not only be the best, but also the most convenient. This could be, not making any purchase, (i.e., doing nothing) buying from you, or purchasing from a competitor.

In other words, the lesson is a simple one. ‘How’ buyers make a purchase, is often more important than ‘what’ they acquire. When one considers the ubiquity of mobile devices and people increasingly acting in the moment, together with the move from a ‘service economy’ to an ‘experience economy’ it is easy to understand that the ‘how’ of a purchase is becoming extremely significant.

Amazon, have become one of the most successful retailers in the world not because of ‘what’ they sell but because of ‘how’ they sell. Similarly, Apple’s iTunes didn’t sell different music from any other outlet, it just did it better.

Competitive advantage created in ‘how’ a business delivers products or services, rather in ‘what’ they sell, is often harder to copy. This is because it is more three dimensional in its offering. The ‘how’ is often a coming together of many different processes, mechanisms, partnerships and other aspects of a company’s approach to business. This is instead of a one dimensional product feature or service offer.

Moreover, while a customer can easily ‘swap’ from one ‘what’ to another, the ‘how’ often leads to deeper customer engagement and more of an investment of time and emotion. This results in it being much less likely that a customer will switch provider. For example, Amazon have my credit card details and know my preferences. Therefore, I will miss out on more than just the goods that it supplies should I use an alternative.

So, when exploring competitive advantage, consider the ‘how’ – not just the what’. ‘Cognitive Economy’ means I am about done as I simply don’t have any more processing power left to continue.

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  1. Spot on. It’s so easy to focus just on the what. It makes me think charities (the sector I work in) need to think much more about the experience of donating and make it both simple and enjoyable.

    I meant to click 5 stars not 1!

  2. Author

    Thanks Richard, I agree. We are in the ‘experience economy’ and that affects charities as much as any other organisations. Feel free to click 5 stars and even the scores out! Many thanks for your contribution.

  3. As usual Grant a very interesting piece.
    Is there not a further level to this though? Businesses succeed partly because of “why” they do what they do. Is this not the real “Holy Grail”? Aligning the business “why” with the customer “why” produces a sale. The business “why” is perhaps it’s differentiating idea? This all seems to make sense from the way the brain works, I understand.

    Apple are a good example of this – although their Mission Statement does not seem to convey the power of their brand. People seem to buy into the perceived “why” of Apple.

    The “what” and “how” should follow the “why”?

    (I thought I had given you 4 stars. Richard and I seem to share making an easy task difficult!)

    1. Author

      Thanks for your comments Adrian. The ‘why’ is fundamental. It is the ethos behind the business. It is the reason people will get excited about your organisation. It the benchmark upon which you can sanity check ideas and upon which the staff can get behind. Once you have the ‘why’, it is ‘how’ it is delivered and ‘to whom’ that creates the differentiation. Of course, without a clear ‘why’ the ‘how’ and ‘to whom’ are unlikely to be very different and innovative.

  4. The how for me really resonates and making sure all the areas pulled together on a web site is a great challenge to have. Its more than an experience that i want to create , its a way of life, if that makes sense.

  5. Organisations can get very defensive when someone says that their product is essentially the same as lots of other peoples. But you beautifully articulate why they should calm down and reflect on the ‘how’.

    1. Author

      Yes John I agree you are absolutely right. The fact is in today’s world there is no USP. The USP refers to a unique benefit your product or service provides, which will attract customers to you. Even if a business comes up with something original, in this fast paced world, it will be copied in no time at all. Look at Apple and all the innovations they have made consistently from the iPod to the iPhone and iPad. Yet, today, there is not much to tell Apple’s technology apart from many of its competitors. However, ‘how’ it is delivered is still special. Consider the experience in an Apple store compared with the competition. Companies can definitely differentiate but not by ‘what’ they do. They differentiate by ‘how’ they do it and ‘for whom’. Thanks John for your post.

  6. Author

    Thanks Philippa for contributing. You are right. The ‘how’ is the experience you provide. Making that cohesive across the organisation is not easy. Furthermore, delivering it on the web can also be very challenging. This is especially true when the company’s products are mainly used offline. It should be ‘a way of life’ and go to the very heart of an organisation.

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