Irrespective of what you do, there are only three ways to win competition in business. They include: 1. Pricing, 2. Niche focus, 3. Differentiation
Low pricing strategy is not the only way to win competition, concentrate on building a brand so you can try niche focused strategy or differentiation strategy by standing your proposition as a brand out enough to justify good reasons why your clients should buy from you, even it’s not as cheap as the rest. It’s the Apple model.
In today’s market place, efficiency is key. For that reason, many people are trying to win by being cheaper (from production to selling price); that’s too cheap to build sustainable and progressive wealth. In every long run curve of a price war between producers, the only real winner is the consumer. Today’s world is redefining what efficiency and functionality is. Don’t sell functional benefits, don’t describe your product as cheap, rather justify what it cost. I mean sell experience, quality, depth and brand!
Cost cutting is important. Efficiency is powerful, but most times blinding of effectiveness. In my years of studying innovation, I have come to the summary that what kills effectiveness and the growth of companies is that they move strategic business decision making to the accounting department, always trying to cut cost as against increasing revenue.
Collaboration is a better form of competition. You mustn’t always buy from the source, to make more profit, you mustn’t always short change the supply chain by cutting off the middle man so you can save cost, how about being a platform, for all the supply chains and value chain to converge?
That’s what Uber, Netflix, Instagram, and Google are doing. Be a platform. In the long run, you’d make more profit through dependency. Sadly, strategic decisions are now dependent on P&L Statements, ROI with higher IRR and NPVs (returns on investments with higher internal rate of returns and net present values) and shorter payback period, as against how truly the user’s lives can be made easier, more exciting and better with their products, till a new company comes from the bottom and provides more for more price.
Differentiation and niche focusing is more powerful than price wars in beating competition. Zooming into both, take for example, approximately two million women get pregnant in Nigeria every year. Imagine if you’re a fashion company that concentrates only on that niche and then you begin to build a brand as the main clothing line for pregnant women. That’s differentiation and niche focusing at play. That’s a huge niche there. Even with only 1% market penetration and an average annual spend of N20,000 per customer, that’s about N400m turnover and with a high margin of safety and profit margin of 20 to 30%, that SME is in for annual EAITA of over N20m. That’s with ease and comfort from home.
Uwaoma is a start-up, corporate restructuring and strategy consultant, and writes via: firstname.lastname@example.org