Playing the Competitive Field - dummies

Playing the Competitive Field

Competition is the driving force in nature and it’s also the core of the free enterprise system as we’re lucky to know it. Competition occurs whenever winning attention is necessary for selection and survival. In nature, the peacock’s tail, the rose’s scent, and the apple’s sweetness are the marketing tools, while in business the battle is fought and won with marketing programs designed to attract customers to one business over another.

Thanks to the forces of competition, the free enterprise system is undergoing constant improvement. Here are a few examples:

  • Competition prompts product upgrades and innovations.

  • Competition leads to higher quality and lower prices.

  • Competition enhances selection.

  • Competition inspires business efficiencies.

Competition is the contest between businesses for customers and sales. The opposite of competition is a monopoly, where a single company has complete control of an industry or service offering.

The terminology of competition

Your sales figures provide your first indication of how you’re doing in your competitive arena. If they are strong and growing, your business is on the right track. If they’re sliding downhill, you have your work cut out for you. Either way, you can take control of your sales — and therefore of your business success — by using the information here to gauge and grow your “share” of business, as defined by your market share, share of customer, and share of opportunity.

Market share

Market share is your slice of the market pie — or your portion of all the sales of products like yours that are taking place in your market area. For example, say that you manage a movie theatre in a market with a dozen other movie theatres within a reasonable driving distance. Your market share would be the percentage that your theatre sells of all the movie tickets sold by all 13 movie theatres.

Share of customer

Share of customer is the percentage that you capture of all the possible purchases that your customer could make at your business. Continuing with the movie theatre example, in addition to tickets, the theatre sells popcorn, soda, candy, movie posters, “movie money” gift certificates, and who knows what else. Every customer who purchases just a movie ticket — nothing else — represents lots of room for growth in terms of share of customer, also known as share of billfold.

Share of opportunity

Share of opportunity looks beyond existing customers and competitors to consider who is not buying products like the ones you’re selling — and what it might take to get those people to see your product as a solution to their needs.

What satisfaction does your product address? What solution does your business provide? Think about how you can present your products to grab a greater share of that total opportunity. Here are a couple of examples:

  • A roller rink sells skating, of course, but it also provides a solution for youth and teen recreation. Its opportunity reaches to include all kids who spend money to fill out-of-school hours. When considering how to grow its share of the total market opportunity, the roller rink owners might think in terms of birthday party share or youth leisure time share.

  • An insurance brokerage sells life insurance, which provides a solution for peace of mind. Its competition comes from competing insurers and all the other ways people address their desire for financial security — including everything from investing in stocks to stashing money under the mattress to buying lottery tickets. The insurance brokerage might want to think in terms of how to increase its nest egg share.

Knowing what you’re up against

Your business faces three kinds of competition.

Direct competitors

These businesses offer the same kinds of products or services you do and appeal to customers in the same geographic markets where you do business. To increase your market share, think about how you can woo business away from your direct competitors and over to your business.

Indirect competitors

You’re either losing sales to or splitting sales with these businesses. For instance, if you’re selling paint, and your customer is buying the paintbrush somewhere else, that brush seller is an indirect competitor of your paint store, because it is capturing the secondary sale. To increase your share of customer, figure out what kind of business is being won by your indirect competitors. Then find a way to serve as a one-stop solution for your customers by offering your primary product and also the secondary, complementary, or add-on products that your customers currently leave your business to obtain elsewhere.

Phantom competitors

No one has to buy what you’re selling. In fact, one of the biggest obstacles to the purchase — and therefore the biggest phantom competition — is your customer’s inclination to do nothing at all or to find some alternative or do-it-yourself solution instead of buying what you’re selling. Taking the paint store example a step further, if you’re offering the choice between enamel and latex paint, and your customers are opting for never-need-paint vinyl siding, that siding outlet is a phantom competitor capable of roadblocking your business. For that matter, if your customers decide that their houses can go another year without a paint job, the option to do nothing is your phantom competitor. To increase your share of opportunity, think about where your phantom competitors are hiding. Then find ways to make your product an easier, more gratifying, more satisfying, and more valuable alternative.

How businesses compete

When everything else is equal, most customers opt for the product with the lowest price. If you want to charge more, make sure that everything else isnt equal between you and your lower-priced competitor. Most competitors fall into one of the following two categories:

  • Price competitors: These businesses emphasize price as their competitive advantage. They must be prepared to offset lower profit margins with higher sales volume. They also have to be prepared for some other business to beat their price and therefore take away their one-and-only competitive edge.

  • Nonprice competitors: These businesses charge a higher price than their competitors. They must be prepared to compete and win based on superior quality, prestige, service, location, reputation, uniqueness of offering, and customer convenience. In other words, they must offer an overall value that customers perceive to be worth a higher price tag.