The Concept of Competition
Competitors, as it relates to marketing, are companies that satisfy the same customer need or want. Someone in the market for a car wants “a means of transportation” - subways, buses, bicycles can meet that need. From a marketing perspective, the concept of competition involves a broad set of potential and actual competitors.
Dealing with competitors is important but don't lose sight of who's most important – customers. Be alert and watch for weaknesses (yours and those of your competitors) but goals, rather than competitors, should be the main driving force of your business activities.
The Importance of Identifying Latent Competitors
Identifying competitors might sound like a simple task. No doubt Toyota realizes that Honda is a major competitor, and Coca-Cola knows that Pepsi-Cola is a competitor. The actual range of competition most companies face is much broader than the obvious. Your company is more likely to be hurt by new technologies or emerging competitors than by known competitors.
We can look to the classic example of how in Canada, Barnes & Noble, Indigo and Chapters were all competing to build the most stores where customers could spend their time reading while sipping coffee. At the same time, Jeffry Bezos was building Amazon.com, exclusively online. This had the advantage of providing an enormous selection of books without the cost of stocking large inventories and the overhead of brick-and-mortar megastores. The incumbents scrambled to play catch up in building online stores yet, at the time of this writing, Amazon still dominates Internet sales. The “traditional” bookstores have survived in this case, however focusing on current competitors instead of the latent ones has been the downfall of many businesses. Amazon and Barnes & Noble are all big companies, but the same lesson applies to small businesses as well.
Once competitors have been identified, it's important to try to identify their objectives, strengths and weaknesses and their reaction patterns. This make it easier to anticipate competitor moves and come up with successful strategies to deal with them.
- Objectives: What are your competitors looking for in the marketplace? For example, are they trying to increase market share or maximize current profits?
- Strengths and weaknesses: How dominant is each competitor in the marketplace? Can any given competitor control the behavior of other competitors? How much market share does each main competitor have and what are their product quality levels?
Reaction patterns: Businesses deal with competition in different ways but most companies fall into one of four categories.
- Laid-back competitors: Are ones that react slowly and weakly to competitor moves. It doesn't necessarily mean the company lacks funds to react, it may be that they feel their customers are loyal or are slow in noticing the move.
- Selective competitors: Are ones that react only to certain types of attacks, such as to price cuts but not advertising increases.
- “Respond to all” competitors: Are ones that react strongly and quickly to any attack.
- Unpredictable competitors: Are ones that don't seem to have any kind of pattern to their reactions. Small companies are often the unpredictable ones because they tend to compete on a variety of fronts when they can afford to.
Gathering Information on the Competition
It's not always easy to find out about the your competitors, nevertheless information is often available from a variety of sources.
Your sales force, suppliers, market research firms, trade associations and published data can be excellent sources of information. If you have a former employee of a competitor as part of your staff, have him or her serve as the resident expert on that competitor.
Use competitor websites to find out information on what they are doing to attract customers and partners. Many post press releases on their websites announcing new products. Trade association websites are also valuable because they often provide information about industry players.
Stay away from information gathering methods of questionable legality or ethics. Some companies have been discovered buying their competitors' garbage and holding interviews for non-existent jobs to get information from competitor employees.
General Attack Strategies
Attacking a competitor on several fronts or head-on by matching their marketing mix (products, pricing, advertising and distribution) is often a difficult approach, especially if the competitor enjoys advantages such as larger market share. However, direct attacks can be effective if the competitor commands fewer resources.
A better approach for smaller firms is to attack indirectly. One way is to spot areas where the competitor is underperforming and to better serve those areas. These areas could be untapped geographic locations or uncovered market needs. In other words, attacking indirectly means identifying shifts in market segments that cause supply gaps to develop, and then filling in those gaps while developing them into stronger segments. This is the essence of marketing, discovering needs and satisfying them.
Most companies target weaker competitors because it's less costly, but this usually results in small gains. Remember, even strong competitors have weaknesses that can be exploited.
Specific Attack Strategies
Depending on the particular situation, different strategies should be developed. Some of these include:
- Intensive advertising and promotion: Increasing advertising and promotion expenditures makes sense if your product or advertising message is superior.
- Price discounts: To successfully offer a comparable product at a lower price, you have to convince buyers that your product is similar to that of the competitor and that the competitor won't lower prices in response. Buyers must also be price sensitive for price discounts to have an effect.
- Cheaper products: Offering average or low-quality products at a much lower price can work, but his strategy is vulnerable to competitors with even lower prices.
- Prestige products: Launching a higher quality product at a higher price than the market leader can work well if customers can be made aware of the quality difference.
- Product variety: Giving buyers more choice can help build market share. Baskin-Robins is an example, it opened stores that served 31 flavors of ice-cream while most offered just a few.
- Product innovation: Product innovations or improvements help differentiate offerings from those of the competition.
- Cost reductions: Reducing manufacturing, labor or purchasing costs can create a lot of options when it comes to dealing with competition. Savings can be used to fund advertising, promotions and other activities.
- Service improvements: Serving customers better than the competition is another differentiator.
- Distribution changes: Using different or improved distribution channels can give an edge. Victoria Secret became a major women's wear company by perfecting catalog sales instead of battling other firms in traditional stores.