Frequently Asked Questions About Alex Smith Levels of Competition Framework
22 answers covering everything from basics to advanced usage.
// Basics
What does 'clustering' mean in the Levels of Competition framework?
Clustering is the phenomenon where businesses competing to beat each other end up matching each other step for step — innovations, prices, positioning — until they become interchangeable and sit on top of one another in the market. The counterintuitive insight is that competing harder accelerates clustering rather than resolving it. More effort at the same level makes you more similar to rivals, not more distinct.
What are the three levels of competition exactly?
Level 1 is company focus — inward attention on capabilities, operations, and headcount. Level 2 is customer focus — outward but reactive, responding to observable demand through positioning, niching, and features. Level 3 is conditions focus — interrogating and reshaping the industry's own assumptions. Each level is more abstract, harder to copy, and generates more durable separation than the one below it.
What does 'making the weather' mean?
Making the weather means being the business that changes the conditions of your industry, forcing competitors and customers alike to respond to you. It contrasts with 'suffering the weather' — the reactive Level 2 posture of responding to conditions set by others. The goal is to stop being a victim of your category and become its author, setting the terms everyone else must adjust to.
// How To
Why does the framework say to work in the order industry, then customer, then company?
Because most businesses run it backwards — company first, then customer, and never reach conditions at all. The correct sequence is: first define how you want to change your industry's conditions, second identify which customers that change creates value for, third determine how your company must change to deliver it. Starting with the customer is the Level 2 reflex that produces Level 2 answers.
How do I map the sacred cows in my industry?
List every convention, assumption, and fixed practice treated as wallpaper across four dimensions: (a) the pricing or revenue model everyone uses, (b) the customer segment everyone pursues, (c) the delivery channel or format everyone uses, (d) the features everyone includes. Aim for 8-12 items. The more 'obviously necessary' something feels, the more important it is to put it on the list.
How do I choose which sacred cow to break?
Cross-reference your list against two criteria: which conventions the biggest players' entire business models are built upon (breaking these creates structural lock-in), and which you're least committed to or worst at (these are your lowest-cost departure points). The intersection of 'rivals depend on it heavily' and 'you could walk away from it' is your highest-leverage target.
How do I test whether a move is truly Level 3?
Run three tests. Test 1: Does it create new demand rather than answer existing demand, triggering the choice-first dormant market? Test 2: Does it create structural lock-in — would competitors have to dismantle their business model to follow? Test 3: Does it sell who customers aren't rather than who they are, holding up an ideal instead of a mirror? Moves passing all three are your strongest candidates.
How do I articulate my conditions play once I've found it?
State it in one or two declarative sentences that name the sacred cow being broken and the new terms being set. It must be specific enough to be operational and bold enough to be genuinely uncomfortable — e.g. 'We abandon the billable hour entirely and become a fixed-fee firm.' Vague language like 'we're more human' or 'we do it differently' signals you're still stuck at Level 2.
// Troubleshooting
I found a bold move but competitors could easily copy it — what went wrong?
You likely chose a sacred cow based on what sounds disruptive rather than what creates structural lock-in. The test isn't whether the move sounds bold; it's whether following it would require rivals to dismantle themselves. Return to your sacred cow list and filter specifically for conventions the biggest players' P&L, staffing, and partnerships are built on. That's where lock-in lives.
Every sacred cow I question feels like it has to be that way — how do I push past this?
That first instinct — 'yes, it has to be this way' — is exactly the barrier the framework asks you to sit with. The discomfort is the signal you're near a real Level 3 opportunity. Reframe the question from 'how do we do this better?' (Level 2) to 'what would the industry look like without this assumption entirely?' Generate at least one concrete alternative for each convention, even if it feels absurd at first.
I keep relabeling my positioning as a conditions play — how do I avoid fooling myself?
Better positioning, tighter niching, and improved branding are Level 2 responses to observable demand, no matter how you rename them. The honest diagnostic: does your move answer existing demand or create demand that didn't exist? Could a competitor copy it without destroying themselves? If yes to either, you're at Level 2. Structural lock-in and new demand are the non-negotiable markers of a genuine conditions play.
My conditions play requires huge internal changes — is that a red flag?
No — significant internal change is expected and often necessary. The goal isn't to find a move requiring no change; it's to find a move worth making. Internal capability gaps are assessed last, only after you've defined the conditions play and the customer it creates. If the move passes the three tests, the required company transformation is the cost of durable separation, not a reason to abandon it.
// Comparisons
How is Level 3 competition different from Blue Ocean Strategy?
Both aim to escape saturated competition, but Level 3 focuses specifically on structural lock-in — choosing to break conventions competitors depend on so they can't follow without self-destruction. Blue Ocean emphasizes creating uncontested market space through value innovation. The Levels framework adds a sharper diagnostic (which level you're currently at) and an explicit sequence: industry conditions first, customer second, company third.
How does 'selling who you aren't' compare to customer-empathy marketing?
Customer-empathy marketing is Level 2 'selling who you are' — it holds a mirror up, saying 'we see you, we are you,' which is relatable but asks nothing and looks familiar. 'Selling who you aren't' is the Level 3 identity offer that holds up an ideal — a version of the customer they haven't yet become. There's far more money in who customers aren't, because people constantly try to buy their way into an idealized self.
How does this framework compare to just lowering prices to win?
Lowering prices is pure Level 2 — it competes for the same needs-driven market everyone fights over and accelerates clustering as rivals match you. It also erodes margins without buying real separation, since price is trivially copyable. A Level 3 move might change the pricing model entirely (breaking the billable hour, making software free-to-play), which is a conditions play, not a discount — it resets the category's terms rather than competing within them.
How does Level 3 thinking relate to the Supply Era and Choice Era?
The Supply Era (mid-20th century) was won through operational capability — Level 1 thinking — when goods were scarce. The Choice Era followed when goods became plentiful and winning meant being the selected option among adequate alternatives — Level 2's home turf. The framework argues the Choice Era's gaps are now exhausted, so competing well at Level 2 is no longer enough. Level 3 conditions focus is the necessary next step.
// Advanced
Should I abandon customer and company thinking entirely for Level 3?
No — the levels nest within each other. Conditions focus doesn't mean ignoring customers forever; it means addressing them second, not first. After defining your conditions play, you work backwards to identify the customer it creates value for, then assess company capability last. Abandoning customer and company thinking altogether is a pitfall. Level 3 reorders the sequence; it doesn't delete the other levels.
What is structural lock-in and why is it the deepest advantage?
Structural lock-in is the condition where competitors can't replicate your move without dismantling their own business models — because their P&L, staffing, partnerships, and pricing are all bets on the status quo you just invalidated. It's the deepest advantage because it doesn't rely on being smarter or faster; it makes copying you existentially costly for rivals. A budget airline abandoning business class locks out carriers structured around business travel.
Why does the framework say customer identification is post-rationalisation, not pre-rationalisation?
Because you discover the customer the move implies rather than designing the move around a pre-existing customer brief. Once you've defined a conditions play, you ask: what kinds of people would find these new conditions genuinely valuable? Who was locked out or underserved by the old convention? Who in the dormant market does this trigger? Starting with the customer is the Level 2 reflex that never reaches conditions at all.
Is becoming 'interesting at Level 2' an acceptable outcome?
Only as a floor, not a ceiling. Level 3 thinking will improve your Level 2 performance even if you never fully execute the conditions play — that's a valuable side effect. But settling for 'interesting at Level 2' as your primary ambition wastes the framework's real power. The intended outcome is durable, uncopyable separation through a genuine conditions play, with improved Level 2 performance as the minimum consolation.
How do the two markets — organic and dormant — actually differ?
The organic needs-driven market runs need-then-choice: customers already know they want the category and pick among options. It's saturated because every Level 2 player fights over it. The dormant choice-first market runs choice-then-need: people weren't shopping at all until something new triggered desire. Level 3 moves unlock this untapped pool — like free gamified language apps engaging millions who'd never buy boxed software.
Can a Level 3 move fail even if it passes all three tests?
Yes — passing the three tests makes a move a strong candidate, but execution and capability still matter. A move that creates new demand, structural lock-in, and sells an ideal can still fail if your company can't actually deliver the new conditions, or if the dormant market is smaller than expected. That's why the final workflow step assesses capability gaps honestly. The tests identify strength of concept, not guaranteed outcome.