You may be aware of what more obvious forms of competition look like that may be limiting business growth- there’s lots of similar businesses offering somewhat similar services to the same types of customers, at roughly similar prices. They may be describing themselves the same way, and performing activities in their businesses in roughly similar ways.
This often comes with these businesses experiencing customers shopping around for the lowest price, and a feeling of a lack of progress despite lots of effort to improve the businesses offerings, and a flurry of activity to market their products and services.
But what if you’re experiencing these symptoms, but there doesn’t appear to be that many other similar businesses to yours? Is your problem still competition? Or is it something else?
If competition isn’t the source of your symptoms, there could be a range of different causes such as not explaining what you do clearly (and are therefore not converting your inquiries to customers), or there being no demand for what you do in the first place- to name 2.
There could be plenty of other causes of these symptoms, but to narrow down the list, we’ll explore 6 different forms that competition can take.
1: There’s regulations in place that limit your ability to compete.
An example of this may be services the Government provides. For instance- schools. Sure, there’s private schools out there that you pay to go to instead of public schools, but they still have to follow the curriculum.
These private schools mostly compete with free public schools on factors of extra attention from teachers with smaller class sizes, or more resources.
The content and form that schools must take however is somewhat more constrained. The Government mandates that certain information & subjects must be delivered in schools.
I’m sure in these times where mandatory schooling provides little practical value to the students in achieving employment outcomes, or other crucial life skills (outside of perhaps learning to read and write, and basic math)- that some form of alternative schooling would be desirable to enough people to make it a viable business.
But to be able to do so would require you to not only create and sell your education service, but get laws changed around what can be taught. And we all know the government would be slow to get on board with such an idea, as it would be controversial, and would disturb voters. It would almost require generational social change for a proposition to become popular with enough voters before they passed such a motion.
In which time, your alternative school business wouldn’t be able to get off the ground.
But hey, it’s not all doom and gloom:
Instead, you’d have to look at alternatives such as having a short course outside of regular school hours, or delivering the mandatory components alongside what you really want to deliver.
And if you’re lucky, maybe the student results from your alternative program are superior to a degree that it starts to change public perception of the value of alternative education- and hurry up the process to get education requirements changed.
2: You need 2 sides of a market to function, but picking off both from your competition at the same time is almost impossible.
A prime example is Trademe. On one side, there’s sellers, and on the other side is buyers.
Over the years there’s been several attempts to create an alternative site to rival Trademe, but all attempts have either bombed spectacularly, or limped along slowly until death. (Two examples being Zillion which had at one point a membership of 60K & Rich Lister backed Wheedle).
So how did they try to lure people away?
With lower fees.
But this was meaningless without many people on their sites selling items. So the customers came, left, and didn’t come back.
And why weren’t there many people selling things?
Because there wasn’t any customers.
Chicken and egg.
But Trademe didn’t have these issues when they started because there was no direct alternative.
There were garage sales, community noticeboards, and the Trade and exchange magazine which you could get at your local dairy.
So at the time, Trademe- even without a mass of buyers and sellers on both sides, was still an improvement on what was currently available.
Clearly trying to be them (only cheaper) isn’t going to work, so what will?
I’m not going to speculate anything here with certainty as there are many factors to determine whether an idea has merit, but a few avenues to look into came to mind:
-Are you able to pick off a single segment where you’ll be able to simply register sellers? Possibly one where the fees are also high?
-Would creating an offline trading event have any merit?
-Is there something that can be traded that Trademe doesn’t currently touch?
-We often don’t have a lot of product choice in New Zealand- being such a small market and all. Could you create a site that sells ‘the best of’ a certain type of product that you’re hunted all over the world for? (and curated your collection of items). Say, best chocolates and sweets from all over the world? Could the search criteria instead be by country?
I’m not saying any of these ideas are good, so it’s best to evaluate them properly (link).
3: When you need experience and certain credentials to win jobs & clients, but to get experience you need to win said jobs & clients.
The old catch 22.
Many of us may have experienced this after graduating from university and needing to land our first professional jobs.
We couldn’t get those ‘entry level’ jobs because they required 1-2 years experience which we didn’t have.
So instead we found more basic roles in the companies we wanted to end up in- and waited for a more desired position to open up, we volunteered at non-profits, or interned to get the experience, used our connections to get a free pass, or gave up and found an easier position to obtain.
But there are some situations where it’s more difficult to ‘start small’, and build up from there.
And that’s when there’s a big experience jump between where you are now, and where you want to be- and there’s either few, or no stepping stones in between.
The stakes may also be high.
This could happen in situations in between the small business market, and the large business market if you’re performing a critical function.
For instance, you may make marketing videos for small businesses to help explain their services on their websites, but if you want to create large scale advertisements for larger businesses with big budgets, you’re not going to be given these kind of jobs. There’s plenty of businesses already producing these larger scale advertisements, that you likely wouldn’t be given these opportunities with the experience you have thus far. Trying harder doing what you’re already doing isn’t going to get you to where you want to go.
A big detour would be needed away from what you’re currently doing to where you want to go.
So are there any ways to get from here to there?
-You could do the experienced professional version of interning and create spec work to showcase the type of and prove that you are able to do the type of work required in the bigger budget market.
-You could even volunteer your services to a non profit to get some real professional experience under your belt.
The risk however, is that you’ll still find plenty of competition in the bigger budget market.
You’re still going to need a bit of something extra so that you can compete effectively. Will it be a unique specialisation? A new method of doing things that no one else can do that will convince customers to take a chance on you despite having less experience?
We’ll be publishing an article in a few weeks about how to generate effective ideas, then evaluate these, so we’ll post the link here later.
4: You need a significant amount of money to compete effectively as there is a lot of infrastructure, materials, and $$$ to pull off your idea.
Someone once told you to follow your passion, and when you really thought about it, you realised there’d be nothing you’d love more than to create the next Disneyland.
Why of course!- it’s the happiest place on earth.
Having big dreams where you don’t limit your goals to what you think you’d be able to achieve with what skills and resources you have now is certainly admirable.
And there are plenty of places around the world without a Disneyland that people may want to visit.
But even with some generous financial backing from Daddy Dearest, on top of the savings you’ve managed to accrue throughout the years, it’s just not enough to build that roller coaster higher than 3 meters – let alone any other rides and attractions.
You’ve got the punters excited, and frenzied. People from all around the country are coming to the opening of ‘New Zealands answer to Disneyland’.
Inside the gates the disappointed themepark goers eye the worlds smallest roller coaster, a lot of grass (because you know- you’re planning on building other rides late), and a hot dog stand. You’re sitting there in a puddle unable to move with your legs bound together with tape as you’ve chosen to make the themeparks’ mascot a mermaid (and hey, it saved you a bit of coin too filling this important role yourself, as well as doing away with a proper costume).
Yeah, okay, I’m getting a bit ridiculous here.
But needless to say, the whole experience wasn’t quite what people were expecting. The reviews in the paper the next day describe your theme park as a real life version of Banksy’s Dismaland (if you’re not sure what that is check this out https://www.theguardian.com/artanddesign/2015/aug/20/banksy-dismaland-amusements-anarchism-weston-super-mare).
Are you doomed to fail if the market you want to compete in requires significant cash or other resources to compete effectively?
Yes- but there are alternatives you can look at if you’re prepared to be practical.
No doubt there’s a lot of allure for a lot of people of going to Disneyland. It’s a place you can go that is almost entirely fictional, and fantastical, and unlike many experiences we have in day to day life.
While you may not have the funds to create the next Disneyland, I’m sure there’s plenty of ways you could give someone an experience that takes them out of reality, and into a world of your creation.
There’s those mazes where you go at night where costumed zombies jump out at you whilst making your way through, or you could create a cafe where everything is huge to make you feel like you’ve shrunk. The options are endless!
5: You need significant brand awareness to compete effectively- which you may not be able to get as someone else already holds all the attention.
We’ve all drank Coke and Pepsi.
But one day, when the sugar goes to your head and activates parts of your brain that other soda’s just can’t reach- you’re hit with a moment of mathematical clarity…
Aluminium cans cost around 5c-10c, a dollop of Cola flavouring amounts to roughly 15c, and water…well that part’s free.
If I can sell a can of this for even just $2 that’s $1.75 profit. And with more than 1.9 billion servings consumed worldwide per day of just one Cola brand alone, you figure you’d be rich even if you’d only be able to sell just 0.001% of what they sell.
How hard could it be? There’s only 2 main brands- certainly it should be easy enough to compete with such low levels of competition out there you think to yourself.
But then you think back to the early 90s when Virgin Cola launched onto the scene. Whatever happened to them?
They made it onto the shelves at many supermarkets for a short period of time. You remember buying it at one point.
Well, one of the big boys went to the supermarket bosses and asked for it to be removed from the shelves- and paid them handsomely for their favour.
But why were they able to do so?
Well, because these 2 brands have high brand awareness and demand that no one else can match. From a retailers point of view, giving up precious shelf space for an unknown is just a risk without a good chance of the same return that they can get with the existing brands.
But how did it get to the situation where there’s just 2 dominant brands in the first place? Plenty of other product categories may have 3, 4, 5, 6 main brands.
Let’s travel back in time…
Around the time of Coke’s founding, and the next few decades following, many Cola ‘imitator’ companies popped up to tap into this growing market.
Many of these companies used the term ‘cola’ in their names to signify to customers the type of beverage they were selling- as customers understood what this was.
But as the inventor of carbonated cola beverages, Coke sued many of these imitator companies for trademark infringement.
One such company was Royal Crown Cola- often thought of as the #3 Cola brand in the US.
They saw their sales plunge after they were required to take the word ‘cola’ off their name, leading to a huge reduction in sales as consumers were no longer aware that their product was in fact a cola beverage.
So why was Pepsi able to keep the word ‘cola’ on their product?
This I’m unsure about as there’s not much information about it, but there are reports floating around that Pepsi decided to get in first and sue Coke for monopolising the cola market, and later courts ruled that Coke didn’t own the word ‘cola’. So perhaps, they were able to survive by fighting the trademark infringement.
Over time, by suppressing competition, a consumer would purchase Coke more often than any other cola brand, which leads to continued consumption of Coke- and our minds tend to think of Coke when we want a Cola soft drink. Which leads to a snowball effect when people in turn ask for Coke by name instead of ‘cola’ or other alternatives.
Pepsi was able to make up some ground by targeting niches, and by using heavy price based promotion during the times of the Great Depression- making them a viable #2 brand.
But what if Coke hadn’t invented the Cola category? Would we all be drinking Pepsi or some other brand?
That’s highly possible.
In fact, in Pakistan, Pepsi is the dominant brand- far outstripping sales of Coke. While Coke got there first, they pulled out of the market after a few years; after which Pepsi entered- with Coke not re-entering for a few years later.
Early on, Pepsi decided to tie their brand to their national sport (cricket) through sponsorships- giving huge visibility to the brand.
So how could you compete effectively if faced with this form of competition?
Once again, the answer lies in offering something else to the market instead of a copy-cat product or service, or by targeting markets that the dominant brands don’t cater to.
There’s 2 good examples of this in the Cola category.
In the mid 50s, the makers of Royal Crown cola produced a sugar free alternative for the mass market- this was before Coke and Pepsi had their diet alternatives.
There had been a few other sugar free alternatives prior to this, but Royal Crown’s attempt was considered the first to be both almost calorie free & tasted fairly similar to the full sugar version.
They quickly became the #4 cola brand (behind, Coke, Pepsi, & their regular RC Cola), and by the late 60s the RC cola company had captured 10% of the market- and was poised for further growth as the sugar free segment was becoming increasingly popular.
While their approach worked well, unfortunately they caught the attention of the sugar industry.
And so it began- the sugar industry searched for legal ways to thwart the diet drinks category, and studies were commissioned that suggested a link between Cyclamate (the sweetener used in diet drinks at the time), & cancer- despite scientists now regarding this ingredient as safe at very low levels.
But the damage was done. The media caught wind of this ingredient, and soon consumers everywhere were spooked, and almost overnight, the market for diet soda’s dried up.
The second example of an alternative cola brand taking on the dominant 2 is Future Cola- produced by the Wahaha company, in China.
It has captured around 12-15% of the cola market by targeting the rural areas- which the dominant 2 brands didn’t have a presence in. It is also helped along by its patriotic marketing- being known as “Chinese people’s own cola”.
6: There are more providers for a given product or service than there are customers.
This is the type of situation you may picture when you think of highly competitive markets.
There’s hundreds, or maybe thousands of businesses offering up products and services that customers may have trouble telling the difference between.
Given consumers see the alternatives as roughly similar, it’s hard for them to make a choice. So they often default to choosing based on price, or whoever is closest.
Think gas stations, or supermarkets. You’ll usually just go to the one that’s either the cheapest or the closest.
The problem with this is that it leaves almost no profit. And sometimes none at all.
Sometimes this can work if the company is large enough, as what it lacks in profit per item sold- it makes up for it when selling in high volumes.
But for smaller businesses- this can be a crippling problem.
This happens often in service businesses that sell either to individual customers, or small businesses.
Often, these businesses rely on personal expertise and require significant amounts of human labour to execute. With lower purchasing abilities of these customers, it provides a lower ceiling to both prices and volumes sold (they’d often not be need for ongoing services, so one off jobs may be the norm, increasing marketing costs).
The natural size of these businesses is often smaller too, and many of these businesses struggle to grow larger.
Given extra costs start to add up in the form of management & administrative personnel to manage larger customer numbers- it can often push their prices higher, which can result in less sales.
In addition to these two factors, there can also be low barriers to starting these types of businesses as in many cases all you need to start is your time, and a bit of effort- meaning many have piled in to the market. In the worst cases, there can be more people willing to do the work than customers wanting the work.
Examples of these types of businesses are Graphic Designers, Photographers, and House Painters.
The same can also be the case of product businesses where the cost and ease of manufacturing is low.
The good news…
This form of competition is often the easiest to get out of.
There’s already significant customer awareness and demand for these products and services- which is a great place to start.
Just small tweaks to what you’re offering can often be enough to get market attention, and more customers.
A common way of doing this is by specialising in a particular type of customer.
This way, you’ll be able to take advantage of the significant awareness and demand for your particular type of product or service, whilst marking yourself as different and superior to that of your more generalist competition- in the eyes of your target audience anyway.
It can also lead to efficiencies in your work as you may be able to standardise many parts of your service if all your customers are rather similar, leading to higher profits.
That no matter what type of competition you’re facing, the solution is to forget about competing head on, and instead find an area where you can compete- a place where your competition isn’t.