Tired of reading, then listen.
A business survival is categorically depended on the ability to compete in its market. Merriam-Webster described competition as a rivalry – “such as the effort of two or more parties acting independently to secure the business of a third party by offering the most favorable terms”. Over the years several businesses have failed to survive especially startup businesses due to the strategy adopted to compete as a new entry. A common asinine competition strategy adopted by failed businesses is ‘price wars’.
Price wars occurs when one competitor lower its price, then others lower their prices to match. If one of them reduces their price again, a new round of reductions starts. Often, they are not good for the companies involved because the lower prices reduce profit margins and can threaten their survival. In the medium to long term, price wars can be good for the dominant firms in the industry. Typically, the smaller, more marginal firms cannot compete and must close.
Having studied a few companies operating in a perfect competitive industry, I came up with three strategies adopted by dominant firms.
- Staying Innovative
Innovation is often viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs. With updated researches, improved technologies, product alterations or by improving the customer experience, products or services are expected to more desirable by the consumers. Consumers are naturally attracted to a better service and are often very willing to pay even if it cost more to acquire it. In order to competitively dominate in a market where there are several others in the same business, you must consistently innovate in your business.
- Creating a Unique (Substitute) Product
So many startups are attracted to a market because of the industry’s profit margin. Sometimes, these startups are only coming into the market as a carbon-copy rather than as a substitute. Consumers will always welcome an alternative product which can be easily substituted for the same satisfaction. In economics, this can be explained as the law of ‘diminishing marginal utility’. The law states that, as a person consumes an item or a product, the satisfaction or utility that they derive from the product wanes as they consume more and more of that product. For example, an individual might choose to buy a certain type of chocolate A. After a certain period, his satisfaction from consuming chocolate A diminishes. Rather than quit on chocolates, he alternates for chocloate B for the same satisfaction.
- Distinctive Branding
Every business exists on the basis of branding and branding is a reflection of competition. Without a brand a business can’t be identified but to be well distinguished from your competitors, your brand must be distinctive. An effective brand strategy subliminally gives you a major edge in increasingly competitive markets. But what exactly does “branding” mean? Simply put, your brand is your promise to your customer. It tells them what they can expect from your products and services, and it differentiates your offering from that of your competitors.
Your brand is derived from who you are, who you want to be and who people perceive you to be. The foundation of your brand is your logo, your website, packaging and promotional materials–all of which should integrate your logo – communicate your brand. Branding is a powerful strategy adopted by dominating firms such that these firms’ products are used to describe other substitutes. An example is Coca-Cola. Coca-Cola has built a strong brand equity compared to other generic sodas, such that an individual will pay more to get Coca-Cola.
- Use of Customer Feedback
Another strategy enacted on my list is the use of customer feedback. The importance of customer feedback can’t be over emphasized especially as an influence to business growth. Dominant firms understand how important building a product or service from the customer point of view can help reassure the reuse of a product or service. Any firm that refuses to acknowledge the needs/complaints of its consumers can’t retain them. But if otherwise, such a firm will experience an increase in market share through customer referrals. With the information shared by the customers, the firm will remain ahead of its competitors.
P.S: Though competition has been highly criticized, it is also a very important practice in business for consistent growth, survival, quality production, efficiency, proper utilization of available resources and so on. But most importantly, it has created diverse options for consumer utility maximization.