6.
Imitation Strategies
Companies are not structured that way . . . there’s a whole process around innovation where there isn’t around imitation.
—Lionel Nowell, formerly of PepsiCo
Almost a half-century ago, Theodore Levitt commented on the need to develop imitation strategies. The pace of innovation had been accelerating, and he realized that this rate of growth increased the urgency to develop and deploy imitation strategies. Yet he found that even well-managed companies, which paid a great deal of attention to innovation, approached imitation in a way that was neither “a planned nor a careful process” but was rather “random, accidental, and reactive . . . an almost blind reaction to what others had done.” Not one of the firms had an imitation strategy in place.1
Two decades later, a study found that in a field of 129, the median number of companies that were able to duplicate a process or product was 6 to 10, and if the process or product were major, the number fell to 3 to 5.2 Had the task been more complex—say, imitating a business model—and had executives been queried about having a full-fledged imitation strategy, the numbers surely would have been still lower.
My own observations and interviews confirm that imitation strategy is still, by and large, lacking. Many of the executives I talked to would not even acknowledge engaging in imitation, but even those who dared utter the “i” word admitted that their firm did not handle imitation in a systematic—let alone strategic—fashion. When firms take the imitation route, says Lionel Nowell, it is by default, having failed in their innovation effort, and not as a thought-out strategy.3
Those who benefit from imitation appear to have done so by good fortune, profiting from the errors of the trailblazers. Like Disney, it is not that they “beat the pioneer and early entrants out of the market” but that “the latter more or less self-destructed.”4 That this remains the case is astonishing given repeated imitation failures, rising competitive pressures, and the awakening of biological and cognitive scientists to imitation as a sophisticated, valuable, and rare faculty.
Can Imitation Be Strategic?
According to Michael Porter, “Strategy rests on unique activities,” “deliberately choosing a different set of activities to deliver a unique set of values.”5 Imitation seems, at first sight, to violate this principle because it indicates, by definition, borrowing from someone else. Imitation, however, can be a part of a set of activities that is distinct in its derivative form or combinative architecture, and it has the potential to deliver—especially in conjunction with innovation but at times on a stand-alone basis—unique value. Saying “unique” also prompts the questions, “In what space?” and, “In what form?” An imitation can be a replica of an existing product, process, or model and yet be new to a product market or region, or it can be a derivative sufficiently differentiated to form a key value driver.
When intermingled with innovations and other imitations—producing a distinctive mix—the importation and adaptation of ideas, practices, and models not only support core activities but also underpin a firm’s core competitive advantage. It may not be possible, as Porter argues, to exactly replicate the Southwest Airlines model with its intricately interrelated elements, but it is possible, not to stay profitable, to do “a Ryanair,” copying and exceeding codified aspects, or an “EasyJet,” which mimics the original and its JetBlue derivative. It is also possible, like Apple or Wal-Mart, to be an assembler that borrows from others and then combines the imports with indigenous areas of strength to create a competitive advantage.
This chapter presents a blueprint for the formulation, deployment, and exploitation of imitation strategies. To make for an easy-to-execute framework, the key strategic dilemmas are translated into basic questions of where (the industry or domain from which to draw the imitation), what (the object of imitation: a product, a process, or an entire business model), who to imitate (the entity behind the model), when (the timing of imitation), and how (the form and process of imitation—for example, broad-brushed or detailed). Taken together, these questions lead to the correspondence problem (the need to bridge the divide between the original model and the copy variant) and its solution, and finally the value proposition (the cost–benefit equation and expected return).
Where to Imitate
Imitation opportunities exist everywhere, but there are sectors where imitation is especially feasible. For instance, as Peter Drucker suggests, the high-tech sector is ripe for imitation because firms in this sector tend to focus on technology rather than the market, opening the door to astute imitators that are in tune with market demands, either for cheaper clones or for differentiated products.6
Also wide open to imitation are industries such as light manufacturing and consumer products, especially where private labels are the norm. In contrast, it is difficult for imitators to penetrate industries such as chemicals because of well-defined legal protections and the capital-intensive, knowledge-intensive, and highly regulated nature of the sector. Similar constraints limit imitation in the pharmaceutical industry to well-endowed imitators that have the infrastructure to overcome those barriers.
In general, imitation tends to be easier where legal protection is not robust and where complementary assets cannot be mustered to protect innovators.7 It is often forgotten, however, that imitators can leverage complementary assets as well as innovators can. This is what Honda and Toyota did when they used their financial resources, reputations, and production flexibility to push GM and Ford out of the minivan segment.
When it comes to products and services, imitation works especially well for those that have become commodities, such as PCs and DVD players or basic banking services. Branded consumer goods, such as laundry detergents, are also not difficult to imitate. P&G has recently extended its portfolios to reach consumers where price rather than performance is a critical factor, but this may actually help the penetration of private label into the branded goods segment. The same is true for stripped-down services, such as online banking, which also benefit from the tarnished image of many big-name players. In contrast, complex services, such as billing systems for IT providers, are much more difficult to imitate unless it is possible to modularize them or establish an alliance with strong players. In processes, legal protection is still weaker, so except where secrecy is maintained, imitators can go after almost any process they can decipher, from a new production technique to a distinct distribution method.
Business models are the least protected and often the most promising targets for imitation in that they offer an opportunity to replicate a proven working system; however, as you have seen, entire models are also the most difficult to copy because they require the corporate “mirror neurons” necessary for resolving the correspondence problem. Still, imitation opportunities abound. Even when innovators are positioned as solution providers to block imitators having lesser capabilities, the latter can prevail by offering a lower price while developing the capabilities to eventually offer a comprehensive solution on their own or with the help of alliance partners. And even though context is always an issue, certain imitation approaches, such as importation, can leverage environmental contingencies that can yield a higher value than in the original.
In short, anything can be imitated, but some things are more easily imitated than others. Although it is important to assess how easy the imitation is likely to be, this is only the first question to ask in a process that should eventually lead to questions concerning the correspondence between the original and the copy and your ability to extract value from the exercise. If you fail to provide answers to those questions—not to mention if you fail to pose them—then imitation will be an incidental and dangerous exercise. Although such danger lurks in any business activity, it is more likely to present itself in the case of imitation, because it is easier to fall for the deceptive comfort of something that is already out there.
What to Imitate
“Knowing what to imitate and where to imitate” is not a trivial achievement, according to Battelle’s Carl Kohrt.8 Unfortunately, if the question is raised at all, it often appears in the form of a residual of the decision of what and where to innovate. In other words, we choose to imitate where we do not choose to innovate. Dell, a latecomer into the PC market, concluded that because “it was too late to challenge the technical standard and the dealer network had been done already” and with Compaq “already very strong in retail,” Dell needed to invest its innovative efforts in marketing and distribution, and that implied imitating everything else.9
However, the decision of what to imitate should not be reached by default. Rather, it should be driven by strategic intent, the ability to leverage other inputs, and the potential to defend key differentiators; it must also be customized to a firm’s own circumstances rather than merely follow the more salient elements of a model. For example, it has been proposed that strategic patience, a feature of the Google model, should be emulated by firms that have broad missions, a potentially large market, and a need for complementary goods and services, and where contributions from a large user base will make the product more valuable. 10
Choosing to imitate salient features of multiple models is especially problematic. It is enticing but hardly realistic to manage inventory like Wal-Mart, simplify processes like Southwest, and design products like Apple, or—as China’s Chery Auto aspires—to “learn cost control from the Japanese, craziness from the Koreans, pursuit of technology from the Germans, and market maneuvers from the Americans.”11
Being a rational shopper may run contrary to the popular concept of best practices, but it is much more likely to bring about a fitting adoption. So it is best to reflect not only on the complementarities but also on the possible contradictions and conflicts between multiple models, each of which is embedded in its own set of circumstances and requirements. Remember to avoid underlying contradictions, such as those that plagued Skybus in its ambitions to be as ruthless on costs as Ryanair and as good to customers as Southwest and JetBlue. Keep in mind internal barriers such as employee resistance (the not-invented-here syndrome) or a product or process seen as not on the cutting edge, and work to defuse this opposition.
Finally, in many instances imitators start with one target in mind and end up with another. A firm may become so enthralled with an element of a model that it seeks to expand the imitation target to include other elements, or even the entire model from which an element has been plucked. Such unplanned expansion, which happened to Continental with its Lite spin-off, increases the odds that the model will not be thoroughly examined for the assumptions on which it rests or the interrelations among its elements. It is vital to determine the target in advance, because once imitation is launched, it is very difficult to abort the process.
Legacy carriers intent on imitating Southwest Airlines have discovered that the hard way, as Gordon Bethune, Continental’s CEO, acknowledged in describing the launch of Continental Lite: “It was something that started as a pilot project that should have been proven before it was expanded. But once this thing started rolling, it was awfully hard to turn it around.”12 Conversely, a firm that starts with a comprehensive model but ends up with selective borrowing—because of, for instance, internal resistance or feasibility issues—may end with a poorly chosen practice that does not fit with other elements.
The lesson is that you should not only make an intelligent, customized, and explicit choice about what to imitate but also that, first, the decision should be based on a thorough strategic analysis rather than be a remnant of where you choose to innovate; and second, that you must clarify and disseminate, up front and in great detail, just what it is that will be imitated, by whom, when, and how, and, last but not least, why. Adjustments midway through the imitation process are possible and may well be necessary, but they should still be part of a conscious strategic process rather than represent the rolling escalation that I have seen repeatedly.
Who to Imitate
In chapter 5, I discuss the question of whom to imitate under the concept of referencing. At this point it suffices to recall that imitating the usual suspects—the large, the visible, the successful players—is not always a good idea. It is tempting, as Tata Motors’ chief strategist, Alan Rosling, claims to have done, to borrow ideas from Berkshire Hathaway, Mitsubishi, and GE. But it may backfire.13
The practices in question may be closely tied to the models’ circumstances and their national and corporate culture, and products or processes with universal applicability may have already been copied by competitors, eroding potential benefits. Instead, firms should invest their effort and creativity in identifying the small, the failing, the struggling, and the hard to find. It was not at all obvious for Sam Walton to go after Fed-Mart (at the time, a discount provider in a narrow market segment dedicated to civil servants) as a relevant imitation target and to seek the advice of its founder, Sol Price. Yet the effort paid off handsomely, with Walton later admitting, “I guess I’ve stolen—I actually prefer the word ‘borrowed’—as many ideas from Sol Price as from anyone else in the business.”14
Don’t forget to consider models that are successful imitators—that is, those firms that have consistently shown that they know where, what, whom, how, and when to imitate, have figured out solutions to the correspondence problem, and have been able to extract value from imitation. Apple, Wal-Mart, P&G, PepsiCo, Cardinal Health, and Zara, among others, have shown that they know how to use parity as a starting point and build out with innovation. However, you also want to learn from the experiences of firms that have repeatedly failed to imitate successfully.
Finally, do not neglect to engage in internal imitation: evidence shows that a firm’s best plant can be twice as productive as the worst, and so it’s a good idea to imitate within.15 Battelle’s Alex Fischer notes that the seven national labs run by Battelle have learned from and imitated each other.16 Internal imitation is easier thanks to access, lack of legal barriers, and knowledge of subject matter and context. Experience in internal imitation can also serve to develop some, though not all, of the skills needed for external imitation.
In short, rather than round up the usual suspects, start with an expanded list of potential referents from various corners of the earth. Make it a point to solicit potential targets from far locales and seemingly distant industries, perhaps even assigning people to those models in the same way that you would appoint devil’s advocates to present a contrarian opinion. The more creative you are about the process, the less likely it is that other imitators will produce the same models; the more intelligent you are about it, the less likely it is that you will make choices that do not fit.
When to Imitate
According to Battelle’s Kohrt, “Imitation without a temporal sense is probably doomed.”17 By definition, imitators follow a pioneer or innovator, but often they are in a position to choose whether to be an early or a late entrant. On rare occasions it is even possible to move ahead of the original. This is what Meiji Japan did when it placed the army general staff under the direct report of the emperor even before it was done by nations that conceived the idea in the first place but faced internal opposition and other obstacles at home.18
The main strategic choices concerning timing are to be a fast second (a rapid mover coming on the heels of a pioneer), a come from behind (a late entrant trailing the first imitators using strong differentiating factors), and the pioneer importer (a first entrant in another time and space, be it another country, another industry, or a different product market). Each strategy has advantages and disadvantages, and each is affected by its own set of contingencies. Each also requires its own set of imitation capabilities, so understanding the capabilities you have, or are in a position to develop, is a prerequisite to choosing when to imitate (as well as the other strategic questions).
The Fast Second
As Levitt notes, “One wants not just to catch up quickly with the successful innovator, but more particularly, to do so faster than other would-be-imitators, who are also working against the clock.”19 The fast second enters on the heels of the pioneer before the latter has had an opportunity to establish a solid monopoly and before other imitators—sometimes called “rabbits” to denote the speed at which they multiply—erode the benefits. The fast-second strategy, which seeks to capture the bulk of pioneer advantages at a lower cost and with a higher success probability, is supported by population ecologists. They argue that followers have better prospects of survival because of the liability of newness suffered by first comers, which includes a lack of legitimacy.
The fast second, which moves “almost instantaneously to where the other guy is,” is the most effective imitator, especially when differentiation is not feasible, says Nowell; indeed, empirical studies confirm that the number 2 entrant can capture as much as 75 percent of the pioneer’s share.20 The strategy works especially well when a firm can penetrate a market while entry barriers remain high for other would-be imitators. A case in point is the generic drugmaker that, once it has successfully challenged a patent, is granted a six-month monopoly, and late followers must prove that their own versions meet or exceed FDA standards.
Because of the need to move fast, the number 2 strategy requires highly developed imitation competencies, from superior referencing, searching, and spotting to implementation, as well as an infrastructure for conducting reverse engineering; flexible operations; and a platform on which to connect outside knowledge and resource providers. P&G’s retired CFO and former vice chairman Clayton Daley says that manufacturing capabilities are the key success element for private label makers, because marketing and distribution are done by the retailer.21 Such capabilities are usually possessed by large firms, which also enjoy other advantages, such as bargaining power with retailers. For instance, a new brand of cereal launched by an upstart requires at least a 3 percent market share to survive, but an established player needs only 1 percent.22 Large players also tend to have the significant R&D capabilities (particularly the research portion) that are helpful for a rapid move.
Smaller and less-endowed players can still follow a fast-second strategy by using time compression tactics, such as mobilizing suppliers that have worked with the early movers, technology transfer, and leapfrogging.23 Small companies can also leverage market monitoring skills to upstage a first entrant by correcting its errors on the go.
Finally, all fast seconds, large and small, should remember that increasing imitation speed comes with a high price tag, so the benefits must be weighed against the extra expenditure and the risks involved in the entry of later imitators that compete on price.
The Come from Behind
The come from behind is a latecomer that may have been forced to sit it out because of legal barriers, regulation, technical difficulties in building a working replication, internal resistance, or a market dominated by two or more strong players. Latecomers also may have made a deliberate decision to enter the market at a more opportune time—for example, when consumer confidence is higher or receptivity toward a new product category is greater. There is sometimes merit in a late entry using lower pricing, especially if customers are uncertain about product quality; however, a late entry differentiated by quality, price, appearance, or user interface is generally superior, because, among other reasons, it preempts a ruinous price war.
In some instances, differentiation is mandated, as in the case of late generics, which usually are prescribed only when they show distinct therapeutic benefits. However, this choice is usually a strategic one. Strong marketing skills, innovative design and features, and product and user focus support the latecomer strategy and may trump large size and market presence: IBM, Motorola, Sony, and BellSouth introduced PDA devices a year after Amstrad, Apple, Sharp Electronics, Tandy, and Casio, but, with the exception of Apple, the market has gone to come-from-behind newcomers such as Research In Motion (RIM) and Palm Computing as well as established players (e.g., Samsung and Nokia) that have crossed over from related domains.24
In many new product markets, the initial phase of slow growth is followed by takeoff, maturity, and, finally, decline, with the cost advantage of the pioneer dissipating in the mature phase, at times six or more years following the pioneer’s entry.25 This life cycle gives the latecomer imitator plenty of time to become thoroughly familiar with the users’ needs (in the case of a product or service) or to develop a superior understanding of the underpinnings of the system (in the case of a business model), as Southwest Airlines did vis-à-vis the People’s Express experience.26
By leveraging superior strength in key areas such as quality, reputation, design, or geographic reach, the latecomer can leapfrog the innovator and early imitators, depriving them of their hard-won advantages and transforming the lead into a liability and a sunk cost. This is also what Wal-Mart did when it used its superior financial and information resources to wrestle leadership of the warehouse club segment from other competitors, which were also copying the Sol Price formula. Samsung and other Korean chip makers used their broad manufacturing experience to halve the time it takes to construct semiconductor plants and thus leapfrogged the pioneers and compressed imitation time. Honda and Toyota did the same thing in the minivan market when they leveraged their production flexibility and reputations for quality to overtake Ford and GM.27
The come-from-behind strategy does not necessitate strong scanning and spotting capabilities, because the product, service, or idea is out in the open by the time imitation commences in earnest. The strategy, however, requires strong contextualizing and deep diving because of the deferred imitation involved.28 The firm needs to have a superior understanding of the product (or process or model), its use, and the intended market; it must also monitor and analyze changes occurring between innovation and late entry. Complementary advantages, such as a favorable country of origin, must be brought into play.
This route also requires strong implementation capabilities, because the imitating company is entering a market populated not only by pioneers and innovators but often also by imitators. Disney was a successful late entrant not only because it positioned itself as a quality provider but also because it was willing and able to put resources into its imitation.29 In contrast, in the airline industry, legacy carriers skimped on investment and failed to leverage complementary assets such as reputation and industry expertise.
Thus, firms pursuing a come-from-behind strategy need to back the entry with considerable resources. This requirement obviously presents a challenge to emerging players such as RIM; however, an intense focus on the product and especially on the user interface can often compensate for a shortage of resources. Either way, a latecomer faces the uphill task of convincing the customer (or a business backer) that it offers something of better value or enticing would-be customers to come in by reducing barriers (usually but not always price) to their entry. If you opt for this strategy, the burden of proof is on you.
The Pioneer Importer
The pioneer importer is a late entrant that establishes itself as the first entrant in another region or product market. This is in essence an arbitrage strategy, exploiting asymmetry across markets. Ryanair and EasyJet did that in Europe, and Air Asia followed a similar strategy on that continent, rapidly expanding into desirable airports and building capacity to deter the next round of imitators.
Whereas these airline start-ups took advantage of the pioneer staying out of their target markets, H. J. Heinz used a similar strategy to upstage the pioneer away from its home base. A distant second in the wet soup category that failed to shake the dominance of Campbell Soup Company in the U.S. market, Heinz was the first to enter the United Kingdom, where it established the same leading position that Campbell held in the United States. It was now the turn of Campbell, which invented the soup condensing process in 1897, to resort to supermarket brands just to have presence in the market.30
Importers can afford to go slow as long as other imitators are not waiting in the wings and the original pioneer forgoes expansion. That Southwest did not expand beyond the U.S. market enabled copycats in Canada, Europe, and Asia to enter their respective markets at a slower pace. BoltBus introduced a Southwest-like model decades after the original had proved successful in aviation.
Importers of business models benefit from the weak legal protection accorded to such models, but ironically they also profit from regulation that limits competition across state or national boundaries. Don Shackelford, retired chairman of Fifth Third Bank, explains that because of constraints on interstate banking, bankers did not mind sharing their ideas with peers from other markets.31 Would-be importers therefore would do well to look for imitation targets among noncompetitors and leverage the greater openness likely in those instances.
Finally, when the importation occurs across national or industry boundaries, it is vital to have an in-depth understanding of the two national environments (or industries) and the ability to contextualize and solve the correspondence problem. Even experienced multinationals rarely do well beyond their home regions, so imitators would do well to develop global capabilities or establish tie-ins that might serve as a substitute. In any event, an in-depth comparison of the two environments is a must.
At least from the Southwest example, importation appears to be a promising imitation strategy, one that often provides the best risk-adjusted return. Just remember that correspondence is an even bigger obstacle for the importer than for the fast second and the latecomer, and don’t count on what I call “accidental correspondence”—that is, a situation in which circumstances happen to align but are not subject to serious analysis to determine whether correspondence exists and what, if anything, can be done to achieve it.
How to Imitate
The question of how to imitate has to do with the pattern, process, and sequence by which a company identifies an imitation target and sets up a process for analyzing, adapting, and implementing the imitation. In addition to the process described in chapter 5, firms need to decide, especially when it comes to a business model, whether to follow a broad-brushed or a detailed blueprint. They also need to decide who will collect relevant information about the model and from what source and must determine how to maintain confidentiality to prevent the pioneer from establishing tall barriers and stop would-be imitators from moving faster or usurping differentiating factors.
If you’re trying to imitate a business model, you need to create a structure to support the process. For instance, you have seen that attempts to contain an imitated model within an existing system tend to fall flat except where spun-off units are cordoned off not only in geographic location but also in assets and obligations. The strategic benefits of integration are enticing, but they usually are not sufficient to compensate for the complexity of running two different businesses on the same platform—as Pfizer, for instance, is aiming to do with its generic and innovative business to extract synergies from a “global manufacturing and marketing infrastructure.” Novartis’s approach to form a stand-alone generic business is more promising, as is Merck’s plan to establish a “bioventures” division to produce generic versions of biotech drugs, or so-called follow-on biologics (Merck also seeks to avoid IPR infringement by developing variations that are sufficiently different from current versions).32
The bottom line is that imitators not only must make a clear decision on how to imitate but also must build a detailed road map that will show how to get there. This planning should include a clear designation of staff and unit responsibilities and processes to be used from inception to implementation.
The Correspondence Problem
To scientists, the correspondence problem—the need to convert the imitation target into a copy that will preserve the favorable outcome observed in the original—is the central puzzle in imitation. This is true in business as much as in biological and social life. The Fleischer animation studio, a onetime pioneer, tried to imitate latecomer Disney but lacked the capabilities (e.g., color) and the fit (in terms of artistic styles) to match. General Electric—so much admired that the New Yorker dubbed it “the industrial equivalent of the New York Yankees”—saw many of its practices imitated, but often with disappointing results. Many firms—including, for instance, Ford Motors—copied GE’s three-rung performance evaluation system (in which the bottom 10 percent of employees are terminated) but soon found out that what worked for GE did not work for Ford. In other words, there was no appropriate correspondence that would make the imitation as relevant and meaningful as in the original and that fit into the recipient’s culture and system.33
Overcoming the correspondence problem requires superb contextualization and deep-diving capabilities to see beyond literal, codified elements based on superficial readings. This process necessitates, especially in the case of a complex model, an analysis of cause and effect on both ends (the original and the imitator). If you fail to decipher causality in the original model, it is virtually impossible to establish causality in the recipient system. You then must reconfigure the causal chain in the recipient, including plugging in substitute elements to replace those that are either not available or do not fit into the imitating environment.
You need to answer the same question posed by cognitive scientists: “How is the perceived action of another agent translated into similar performance by the observer?” To do that, you need the equivalent of mirror neurons, which are necessary for the conversion of coding parameters from the observed into a newly acquired capability.34 In the corporate world, mirror neurons are not only about a staff having highly developed cognitive skills but also about a culture that enables viewing the world through someone else’s eyes, an ingredient that can usually be found among firms with successful experience with strategic alliances.
Without a satisfactory solution to the correspondence problem, launching an imitation venture would amount to flying blind. If it does not make sense on paper, it will rarely make sense in the real world, and, once started, the process will be difficult to abort. Customary precautions and processes, such as assigning devil’s advocate roles, should apply.
The Value Proposition
The value proposition is aimed at answering the most fundamental question of all: what is the value projected from an intended imitation? You should base this projection on an assessment of cost and risk against potential benefits, controlling for the probability of success, your inventory of resources (such as capital, geographical spread, and reputation) that you can leverage to support the imitation and enhance its value, and your imitation capabilities. For example, Nowell explains that PepsiCo’s broad array of product offerings enables it to adopt ideas that competitors, such as Eagle Snack, cannot.35 The potential benefit, according to Don Shackelford, is also a function of scale: given the investment and risk involved, there is no point in imitating something unless the potential benefit to the organization is substantial.36
Imitation Costs
It is useful to start by recalling that imitation has a nontrivial cost, although, compared with innovation, this cost is, on average, significantly lower. Research shows a ratio of imitation to innovation costs of roughly 65 to 75 percent, with a ratio of imitation time to innovation time of around 70 percent. This is still a substantial cost—which, for a minority of cases, is on par with the cost of innovation—and it emanates from the need of the imitator to retrace many of the innovator’s steps, including applied research and product specification, investment in plant and equipment, prototype construction, manufacturing, and marketing. Rushing to market, part of a fast-second strategy, has its price: for every 1 percent reduction in time, cost increases an average of 0.70 percent.37
Latecomers tend to have somewhat lower costs than fast seconds because latecomers gain a rich understanding of a product or process and, in some instances, can take over idle production lines and distribution channels from exiting pioneers and early imitators. This gives latecomers the time and resources to differentiate and to muster complementary assets, such as a reputation for quality and reliability, that command price premiums over lesser-known copycats.
The caveat is that your assets must matter: according to Ashland’s Jim O’Brien, Toyota and Honda were successful latecomers in the minivan segment because their brands stand for reliability, functionality, and value—precisely the attributes that would transfer well in a minivan (but would not be valued as highly in a sports car).38 Toyota and Honda also benefited from the flexibility built into their production lines, allowing quick and low-cost product changeover, something that lowered switching costs.
Finally, in calculating total cost, you should not forget the cost of surmounting imitation defenses, whether they are already in place or likely to be erected, including the cost of overcoming internal barriers. The cost, as well as the benefit, is also affected by the proclivity of others to enter the market, their imitative capabilities, and projected customer acceptance.
Imitation Risk
As Levitt suggests, imitation does not necessarily reduce risk but merely substitutes for it; whereas the innovator takes a risk by putting R&D money into something that might not work or might not be accepted in the marketplace, the imitator runs other risks, among them reaching a market flooded with other imitators.39 The imitator may also find midway that it is not able to replicate the product (recall the ill-fated Chinese copy of the Boeing 707) or fails to sell at a profit, dooming the investment and risking creation of a vacuum that might draw competitors into other product lines.
The imitator also carries legal risks as it collides with innovators that seek to protect their intellectual property, a risk that varies by product, imitation scope, the fidelity of the replica, and the bargaining power of the actors involved. For instance, it was found that whereas 80 percent of firms took legal action against the manufacturers of infringing products, only 40 percent initiated such action against the retailers that sold them.40 Retailers are less at risk because their control of distribution makes producers think twice before going after them.
Another risk for the imitator is that it will limit its future options by investing in a particular strategy or infrastructure that would lower its incentive to follow another course of action that might prove more promising. 41 This risk is essentially similar to that of innovators and can be mitigated by search capabilities, flexible production, and other measures to prevent sunk and irreversible investment.
Finally, imitators run a risk to their reputations in that a copycat image might compromise their ability to charge premium pricing not only for the product at hand but also for other products or services. In assessing imitation risk, it is therefore important to assess your overall product portfolio as well as consider your strategic intent going forward.
Imitation Benefits
In addition to the ability to exploit the various benefits outlined in chapter 1, would-be imitators should explore such topics as the scope of partial monopoly profits they may be able to capture (especially important in a fast-second strategy); these profits depend on how long it will be before other imitators enter the market and the cost of defending against them. Indeed, these are the same questions that innovators ask when they contemplate an innovation or a pioneering entry.
Would-be imitators should also assess potential premiums from a differentiated entry that is based on higher positioning against the cost of such differentiation. They should ask whether an imitation can serve as a bridgehead in a market that can be followed up with other imitations as well as by innovative products or services. Japanese carmakers, for instance, entered global markets with imitated vehicles but eventually expanded into innovative products, using infrastructure such as dealer networks built on the backs of the copycats.
Perhaps the most challenging task is to assess the value of complementarities to support the imitation—to be distinguished from complementarities already sunk in, such as reputation, which amplify benefit yield. Because of the tendency to focus on innovation and the prevention of imitation, collateral benefits from imitation are often underestimated. A case in point is SanDisk, whose imitation of Apple’s iPod not only has provided it with healthy revenues as a (distant) number 2 but also has positioned its flash memory as the industry standard; this product, in turn, has created demand for the company’s IPR, generating licensing and royalty revenues.42 Indeed, the benefits of imovation are also about creating collateral value from each activity, value that would not be present if the two had not been fused.
It may seem obvious not to embark on imitation until and unless the value proposition is positively confirmed, but the way in which imitation is approached suggests that it should not be taken for granted. A structured approach will prevent, for instance, neglecting or low-balling the costs of the imitation or, for that matter, the risks involved.
Takeaways
- Imitation can be as viable a strategy as innovation.
- The key strategic questions regarding imitation are where, what, who, when, and how, followed by the correspondence challenge and the value proposition.
- In terms of timing, imitators can choose between the pioneer importer, fast-second, or come-from-behind strategies.