3 Competitors and the market place
In a market economy, such as exists in the UK, there are very few areas of life that are not subject to some form of competition. As noted earlier, even in the public sector services may be delivered by private contractors, bidding competitively against other similar organisations. It is an area that many organisations ignore, however, as it can be uncomfortable to face the reality of competition.
The most successful businesses embrace the concept of competition and actively seek out information about their competitors. There are good reasons for this.
- The existence of competition demonstrates that there is a market for the product or service being sold and that others are surviving in this marketplace. Although no one really likes competition, this is reassuring, and studying the methods, practices, mistakes and false steps of competitors can helpfully reveal the strengths and weaknesses of your own organisation.
- Strong competition can encourage an organisation to strive harder to be successful and to seek new ways to develop its products, services and potential markets. This is good for the business and also good for the customer, who will benefit from innovation and change.
Activity 4 Responding to competition
The following short case study should help you to think about the value of assessing the level of competition in your particular field.
In the High Street of Anytown, there are two greengrocers about half a mile apart. Both businesses, Johnson’s and Robinson’s, are traditional family-run outlets catering for the needs of people living in the local area, many of whom have shopped with them for a long time. Almost exactly halfway between them a supermarket chain, PriceCut, has taken advantage of land becoming available and opened a new store with a fresh fruit and vegetable department. Owing to economies of scale, its prices are lower than either Johnson’s or Robinson’s, and both shops begin to notice their takings decreasing.
Johnson’s decides that it should fight fire with fire. It lowers its prices and reduces its range of produce in order to compete on what it considers are basic purchases: onions, potatoes, carrots, apples, etc. This strategy seems to work as some customers start to return and shop there.
Robinson’s takes a deep breath and carries out some market research to find out what its customers think of PriceCut. It asks them what might encourage those who have started shopping at PriceCut to return, and what might help them to develop new customers. Robinson’s discovers that older customers like the friendliness of its shop and that new customers might be tempted in if they were to offer local and organic produce, acting as a kind of neighbourhood farmers’ market.
Which of these businesses is more likely to succeed, and which to fail, in the face of the new competition from PriceCut?
There is no right answer to this simplified case study but it is worth bearing in mind a few thoughts. Johnson’s has chosen to compete on price, but you might question such a strategy when supermarkets are always likely to be able to exercise their superior buying power, cut their prices and outlast the competition. In addition, reducing the range of produce sold may backfire on Johnson’s as there is evidence that people prefer to buy all their goods in one store rather than have to make several separate trips (even though they might have to pay more for some goods).
Robinson’s, by contrast, appears to have identified some key facts about its customers. Firstly, they seem to value individual face-to-face contact, which is difficult to replicate in a large supermarket. Secondly, there seems to be an untapped market for local and organic produce, for which customers might be happy to pay more. PriceCut would find it difficult to compete in these areas and will also, as part of a large chain, be constrained by the corporate philosophy of ‘pile-it-high and sell-it-cheap’.
Activity 4 demonstrates, through the simple case study, that understanding the competition can be a very helpful method of deciding on strategy. In the case of Robinson’s, the emergence of PriceCut as a competitor forced them to think about what they were offering to their customers and to find out whether there were other avenues that they might profitably explore.
Essentially, what Robinson’s was doing was looking at the competition to assess its own strategy and, in doing so, identifying and exploiting its unique selling point. You will look at this in more detail in the next section.