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Sunday, November 17, 2013

Competitive Strategies

A business can be a “me too” business. That is, it offers the same products, in essentially the same market for essentially the same price. This is a losing proposition. Let me provide an example.

An entrepreneur saw an opportunity and opened an ice cream shop in a tourist shopping area. He determined that no one offered similar products in the area. He rented space and funded significant leasehold improvements. His business did well the first season.

When the second season came around, he found another ice cream shop opened three shops from his in yet another rented space. Now the market opportunity was being shared.

In the next, now third season, yet another ice cream shop opened across the street.

By the end of this season two of the three shops closed, one having been evicted by the owner of the space he rented, due to lack of rent payments. He was he last one in, but could not make enough to support the business. He saw success and felt he wanted in. But in the end he saturated the market. The only survivor was the shop that had the support of a national brand.

No one attempted to discourage the second or third shop from opening. After all they were committed to pay the rents.

In the forth and fifth seasons, the two shops remained vacant and other shops in the complex were running out their leases and preparing to move elsewhere. So the landlord lost it all, because he did not manage his business. The tenants could not trust the landlord and the word spread this was not a good location for any business.

So how do you succeed in an environment such as this?

First and foremost, is you do not set up shop in a complex that will not help and support your business. You examine the history of the location and perform due diligence, before investing your time, effort and resources.

Then you seek and maintain competitive advantages, keeping in mind that changing strategies is also a competitive advantage. But I am getting ahead of myself.

Let’s examine the major strategies of competitive advantage:

Cost Leadership Strategies offer products/services at the lowest price. But can a small business survive this way? Some may make it for a while.

Differentiation Strategies provide a variety of offerings that others may not be able to provide. Keeping this up for the long term is important.

Innovation Strategies jump ahead of others in the market with new and/or better offerings. Some of these may disrupt the existing market.  A risk here is that you have to continue innovating so someone else does not get ahead of you.

Operating Leadership Strategies focuses on efficiencies making the firm easier to do business with, with improved flexibilities.

Now let me return to the point I raised earlier. Altering strategies is a method to keep you ahead of the competition.  You may initially attract customers with one strategy, if the competition increases, you can change your approach to keep them looking in the rear view mirror. Be careful to keep the customers you already have developed as well.

How is your strategy working for you today?

Steve Koenig, SCORE Counselor



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