There’s no healthy market without competition. Competition indicates you have a business with high potential.
Competition can create an industry-wide network effect, in which the addition of a new player increases the value of the market. For instance, there are four major mobile telecommunication companies in Nigeria. The dynamics of the competition has expanded the market, increasing the rate of mobile phone penetration in the region. More cell phone users mean telcos have a larger market to play in.
But competition can also be dangerous.. Your competition can kill off your business. So it’s important to know how to manage this double-edged sword.
The first thing you need to do is define your competition. Jason Njoku, CEO of IrokoTV, put it succinctly:
“As a founder, the more disciplined you are in identifying your competition, the better you are at charting your own course and avoiding stupid, costly mistakes with phantom competition. The more conservative you are with your cash, the more runway you have to build the company you truly want to build.”
Who’s your competition? Your competitors are those who can take your customers away from you. This includes businesses that fill the gap that you’re trying to fill, companies offering the same or similar products as you, companies that offer products that are a substitute for yours and companies selling accessories to your products – because eventually, they may start offering complete packages.
After defining your competitors, you need to observe them.
While you shouldn’t let your competition keep you from running your business optimally, you want to keep an eye on what they’re doing. Look for aspects of their business that you could adopt and those that could be improved. Where do they advertise? How often? What kind of pricing packages do they offer?
Sometimes, competitors will lower their prices. When this happens, you need to do your homework. Why did they lower prices? Is it to undercut you and steal your customers? Or perhaps they’ve created a lower range product and are positioning it accordingly? You need to understand the “why” before responding.
If your competitors are trying to undercut your business with lower prices, then you may need to match them. But always keep an eye on your margins. Severe price cuts may hurt your business in the long term. One trick is to offer the price cuts as limited time discounts or as part of a package.
Positioning is also important. Apple sells phones in the premium range and has refused to reduce it for any reason. If you cut your prices, it may present your products as inferior or cheaply made. So think well before making such decisions.
Try to predict how your competitors would respond to your own strategic pricing decisions. Think of it like you’re playing chess. You always want to be three moves ahead.
Communicate your unique selling point to your customers, all the time. Remind them why you’re still the best choice for the services you render.
The best way to beat the competition is to focus on creating 10x more value to your customers. That will have your competitors playing catch up while you zoom off with their customers.