Everyone sees this at times. Your response should depend on whether this is a long-term challenge to your business and not a reaction to a one-time event. If you operate a small department store in a mid-west town and you hear that Wal-Mart is coming, you have a different set of challenges than if you unexpectedly lost a deal because a competitor underbid you. The latter situation could be a red flag for a bigger problem, which means you do need to constantly analyze these events.
Good versus cheap versus fast – the competitive triangle
Most people have heard of the competitive triangle and how it applies to business.
You can be good. You can be cheap. Or you can be fast. But you can’t be more than two at a time and, even then, picking two means there will be compromises. As an example, you can be good and cheap but the two won’t work if your definition of good is a personalized, Cadillac-level of service. Southwest Airlines would be an example of combining good service and low prices. A side-effect of choosing two is they will be in a state of constant agitation trying to pull each other out of balance. Picking one makes for a clearer focus but you will be continually challenged emotionally when you lose to a competitor specializing in one of the other two.
You can’t be all things to all people. If you don’t immediately know the answer to this question, take some quiet time and think about this or talk to key people in your organization.
Now that you have at least a preliminary answer to this question, let’s go back and look at the short-term and long-term challenges to your competitive position.
Sometimes you know who the competitor is but it may be someone you have never heard of. If you are in the technology business or operate in many different locals, you will find yourselves constantly coming up against new competitors. It’s a fact of life and you can’t afford to be reactive to every potential threat that comes along. You need to do what you do best, and keep doing it, and doing it. This is probably a good time to mention the book by Jim Collins entitled “Good to Great”. It introduces the flywheel concept of taking a key concept and continuing to push it until it generates its own momentum.
If you view yourself as a low-cost competitor, there are some questions you need to answer.
Is this a one-time event? Is a new competitor trying to break into your market or build up their own client base at any cost? How should you react? If this is the first time, mark the event with a yellow warning flag. If it happens a second time, this warrants a red flag and a review of your position.
Sometimes lower prices are a consequence of an economic downturn or financial instability in a competitor trying to stay alive at any cost. In the event of a downturn, you should already have your strategy in place and unless you have some long-term contracts in place, you will likely need to review your prices. This loss may be the canary in the coal mine and suggest you have bigger problems. If the lower price bid is from a desperate competitor, you are probably better off by ignoring the lower bid and reinforcing your relationship with your customers. This problem should go away as it isn’t sustainable.
If your business model is to deliver excellent or fast service, you aren’t trying to compete on price anyway.
Normal people don’t like losing business but the harsh reality is that if you aren’t a low-cost competitor, you won’t be a match for customers who are always looking for the best deal. I will buy some groceries at Wal-Mart because I view them as commodities, neither better there nor anywhere else, but I rarely buy clothes there because I am looking for a higher standard of quality. If I am looking for advanced tools or new technology that needs some explaining, I am definitely not going to Wal-Mart. No offense to them, as I really appreciate the value proposition Wal-Mart provides but it has a certain place in my life. If you are not trying to be a low-cost competitor you shouldn’t try to be. I was talking to an employee of Home Depot recently who felt the chain had lost their way once Lowe’s entered the market. He said Home Depot wouldn’t open a store until they had sourced a minimum of a journeyman electrician to walk the floor. Once Lowe’s opened up, Home Depot became concerned with matching Lowe’s reputation for lower prices and somewhat abandoned their quality position.
The short-term answer in this situation is to do a report card on your adherence to your core principles and ruthlessly eliminate any distractions.
The answer for long-term threats is to reassess whether your business needs to make a transition. Throughout the various cycles in an industry businesses may naturally have to evolve as they move from engaging industry leaders willing to pay more to the early and late majority members who are looking for better prices and standardized functionality. Read “Crossing the Chasm” by Geoffrey Moore for an explanation of how this works if you need a reminder.
Sell what you are good at
That doesn’t necessarily mean widgets or even services. If you are trying to be the low cost provider, you may need to dig down to figure out how to lower costs, whether by negotiating better prices from a supplier, finding new suppliers, or even abandoning non-competitive product lines. Find some new product lines if you view the new competition as simply too fierce and non-competitive. We had a customer who refused to stock boom lifts for rental customers because of their cost, high maintenance requirements, and competitive pressure. They just sub-rented them from competitors anytime they needed one for a customer.
For companies emphasizing customer service and speed of execution, it may be your socks have been slipping. Do an honest appraisal and welcome the competitive challenge as a warning sign to allow you to get on top of the problem before it grows. Stay true to your roots or grow new ones as you find new areas in which to show excellence. Don’t get distracted.
Be creative and innovate
Success in business is definitely a moving target. It takes consistent effort to be creative on an ongoing basis but you need to do this. Don’t be ashamed to copy from competitors and companies not in your own industry. Even though you may not be involved with online retail sales, you can learn a lot from Amazon and other innovative companies. They are always pushing the envelope and thinking several steps ahead. Innovation is what will keep you ahead of your competition, especially the low cost ones. They generally don’t have the same budget for research and development.
So to summarize, don’t be reactive. Depending on your corporate emphasis, whether speed, cost, or quality, stick to and work on improving and innovating. Getting distracted will only pull you off course.
For more information contact me, Malcolm Roach, at 877.777.7764 ext 105.