Even if you think you have no competition, it’s always ‘out there’
A scary thought, isn’t it: that after so much reassurance that there was no ‘boogey man’ under your bed, he actually does exist – and has all along.
Far be it from me to try and scare anyone, but I wouldn’t be doing my job if I didn’t remind clients from time to time that competitive threats are always lurking. Often, they’re lurking in the least expected places.
Thanks to one of my competitive strategy heroes, Michael E. Porter, we know that another product or service provider is just one competitive threat that any business or organization has to defend against. I’m simplifying here of course, but according to Porter, there are five competitive forces that must be accounted for in nearly any operation. They are:
- Threat of new entry. A market newcomer who can divert attention of your ideal customers can pose a real threat. Do you suppose the lodging, auto manufacturers, taxi services and car rental industry saw Airbnb and Uber coming? Clearly, in a digital world a big threat can come from anywhere.
- Customer bargaining power. Of course, we all love our customers, but we know it’s very easy to compare prices and switch providers. It’s better of course not to compete on price. Only by knowing your customers can you maintain “preferred” or better “demanded” status that keeps prices in line with your profit goals and keeps them satisfied.
- Supplier bargaining power. Suppliers as competition? Yes, sometimes. What happens if a critical supplier raises its prices or goes out of business? To keep a step ahead of a possible supplier threat, build in redundancy and consider other leverage you can use to keep your troops (suppliers) in line.
- Threat of substitutes. If your customer no longer thinks they need your product or service because he or she has found a replacement, you’ve lost again – at least on the face of it. We’ve helped our clients win against this kind of threat from a cheaper substitute without lowering our clients’ price. But when it’s not possible to defend against a substitute, consider some other pre-emptive steps. You might consider being another substitute they could switch to. When you compete against yourself, some of that switching will be from your old brand to the new one.
- The industry itself – jockeying and competing for market position. This is good old-fashioned competitive rivalry among players in any given industry. This is the kind of competition that many believe must be defended against. It’s important to know things about your competitors like who, how many, and products, services and pricing options offered, to name just a few. We suggest regularly scheduled objective research at reasonable intervals that give you a look at what’s going on around you.
Read more about Porter’s 5 Forces in his classic Harvard Business Review article. You often hear that what’s old is new again. In this case, it’s still new, like the competitor lurking in the shadows.