This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in August 2014 and is posted here by their kind permission
Is this only for the big corporates?
Large IT companies spend millions on market research to see how they stack up against their competitors and use this information to figure out how to be different and better than them. Automotive manufacturers and importers watch every move competitors make, being first-to-market with a new fashion trend can mean the difference between a clothing brand outselling its competitors or disappearing. Even cities position themselves against other cities to attract tourists and businesses. Why should competitive strategy, a vital part of marketing strategy only be relevant to very large organisations? Why not your business?
Being competitive is a core requirement for all businesses irrespective of size. Not-for-profit organisations like charities, schools and religious organisations compete for funds, members and media attention. Very small business and start-ups must wrench business away from competitors or alternatives just to survive. Without a compelling message about what advantages they offer over others many of these organisations will fail as consumers take the easy route of buying the most popular, the most accessible or the most familiar.
More than 30 years ago Michael Porter defined competitive strategy as “The plan for how a firm will compete, formulated after evaluating how its strengths and weaknesses compare to those of its competitors”. This plan should be focused on getting a sustainable advantage over competitors so it is much more than simply reducing price or having a special offer.
Implementing competitive strategy means taking actions to improve the firm’s market position by gaining a competitive advantage over the organisation’s rivals. The competitive advantage can either be delivering better customer value, or operating more efficiently than competitors, or both.
A lot of start-ups are born because the entrepreneur has an idea for an innovative new product which is not available from competitors. This does not mean there is no competition or need for competitive strategy. Customers who buy the new product take money from other expenditure, and if the idea is successful it will attract many imitators.
Better value for customers can mean more product for less money, higher functionality, more convenient way of buying, faster delivery, better warranties or a host of other possibilities. It can mean making the buying experience more attractive or fun. The Hooters chain of restaurants uses attractive and outgoing waitresses in hot pants, tyre fitment centres offer filter coffee and sport on a big screen, FNB boast of delivering credit cards to your door.
More efficient operations can mean having lower costs of operations, higher quality for the same cost, less administrative overhead from making fewer mistakes, faster turnaround time. This last one is equally important for pizza delivery and those who make tooling for car manufacturers, which indicates just how across-the-board the requirement to be competitive is.
Putting together a competitive strategy should be a four step process:
This may sound complicated, difficult to do and hugely time consuming. You may think you only need to improve your products, but that is not good enough; you should be doing that continuously anyway. Competitive strategy can be intense and time consuming but can easily give you opportunities to grow in size and profit far beyond your current forecasts. Microsoft, Facebook, Nandos and Discovery group all started as small operations and grew to dominance in their sectors because they has great competitive strategies. Will your business be a giant of the future?
Who are competitors?
Many business plans I see list companies selling roughly the same product with or without their strengths and weaknesses, but make no attempt to show how you will compete with them. This is meaningless. To identify your competitors I suggest you acquaint yourself with Porter’s Five Forces – the bargaining power of buyers and suppliers, the threats of substitutes and new entrants as well as traditional competitors. Then list the four or five most worrying competitors; those that could hurt your business if they chose to.
Many entrepreneurs claim their business is so unique that there really are no competitors. If this is you, ask yourself “Why am I not yet a billionaire?” It is likely that your competitive threat comes from customers using their available funds to buy something totally different but equally satisfying or better known to them. There are always competitors or imitators.
Once you have a prioritised list from any of the Five Forces go and research the companies. There is an amazing amount of information on the Internet, in their publications and in news articles. Talk to experts in your industry, have someone call them to see how they are treated, get profiles of the management team, identify their suppliers and major customers. Form an opinion about their size and their financial and marketing strengths, identify their sales channels. Investigate how they have handled competitive situations is the past. Some companies are relentless litigators, others will bully new entrants with price wars or threaten customers and suppliers to stop them trading with you. Now list their major strengths compared to your business, their style of operating and competing and look for areas of weakness. However powerful they are they will have weaknesses, search for them, think creatively. Their own size and power may be working against them, slowing responses, being arrogant or management being unaware of how staff treat customers.
Working out how you can compete with the identified companies may seem like a daunting task, especially if they are larger and ruthless. On the other hand not working out how you can compete is likely to lead to extremely unpleasant tasks like winding up your business, so take the plunge. You have two broad opportunities to compete – you can have lower costs or you can be distinctively different in the eyes of the market. Focus on how you can compete in areas where the competitors are weak. If they are large bullies get the community on your side, if they are bureaucratic be responsive, if they have quality failures make sure you have none, if they are arrogant be especially receptive to customers and their issues.
To be distinctively different means much more than just doing things differently. The difference must be desirable for customers. They must get more value when buying from you; lower prices or higher performance. Higher performance is not only of the product or service, it may mean higher quality, faster or easier availability or better financial terms. You need to think creatively; look at successful marketers. Motor dealers have service plans, cell phone companies bundle free and paid calls into packages, countries offer tax free ‘holidays’ to encourage industrialists to set up new factories. Barack Obama used social media to effectively deliver his ‘yes we can’ message to the electorate. Nandos and Kulula made it fun to deal with them. Small businesses can borrow and use these and many other ideas.
While you are planning, you may find that competitive strategies which look as if they would work against one competitor may not be the same for other competitors. Devise the best compromise of actions, focusing on the most threatening competitors.
If your competitive strategies are implemented it is likely you will take business from your competitors. They will not sit back and let you eat their lunch, they are going to react, possibly intensely or viciously. Be prepared. Keep monitoring their style, strengths and weaknesses at regular intervals. Do the same to your own organisation; you do not want to fall into the same traps they did. This takes time, money and effort, but it is one of the easiest ways to grow your business significantly, and become stronger than competitors. You will need to adjust your strategies as this happens, but you may now be able to afford formal competitive market research. Have fixed times set aside for competitive strategy focus, and monitoring how your strategies are working, it’s well worth the effort.
If you have read to this point you presumably are thinking seriously of competitive strategy. A percentage of you will be thinking that this is something you and your team really should do, but with the workloads of managers of entrepreneurial small and medium businesses doing it may be a challenge. You may be thinking “How do we find time to do all this work? How do we find the money?” It really is a question of priorities. Would it be worth your while to not respond to a tender, to postpone the product development, to again delay the company profile that should have been done months ago? Only you can answer these questions, but while doing so remember that good competitive strategy may mean you are creating a much better and bigger business over time, but gaining significant short term advantages. Competitive strategy gets my vote as the priority.
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