I watched a YouTube video yesterday by one of the current A-List strategy theorists, Richard Makadok. He spoke of a ‘cue ball effect’ (as in snooker).
Much has been written about competitive advantage and its benefit for firms, but little about its impact on rivals. In theory, a firm gaining competitive advantage hurts its closest rivals but effects on other rivals decrease [sharply] as distance in competitive market position between the firms increases.
But is this true?
Winn-Dixie is a budget supermarket chain in the SE USA. Kroger, also a grocery company, is above Winn-Dixie in the market but below the premium supplier, Whole Foods. Whenever Walmart opened a new superstore, Makadok observed:
– nearby Winn-Dixies went out of business
– Kroger outlets renovated and moved up-market
– Whole Foods, at the top of the market with no ability to go higher, lost money (and in the end were acquired by Amazon).
Does this ‘cue ball effect’ exist in the legal sector?
If greater cost advantage emerges at the low end of the market, do mid-tier firms respond by ‘renovating’ to become more premium and do these, then, ‘carve at the underbelly of the Magic Circle‘? If so, what does that mean for strategy?