Choice of Market and Choice of Competition

 

A competitive strategy shows how a business intends to compete and succeed in the markets it chooses to serve (George S. Day, Market Driven Strategy).

There are two elements in this statement that every business must consider:

  1. Choice of competitive strategy.  A business does not simply start on a whim. It must assess its competitive environment and it must determine why it will succeed.
  2. Choice of markets. No business can be the solution for all customers, and therefore it needs to clearly select whom it wants to serve. The choice should be based on its strengths and its competitive advantage.

To select its competitive arena and its customers every business must answer the following questions:

  1. What markets do we want to serve?
  2. Which segments of these markets are we best suited to serve?
  3. What is our competitive advantage that allows us to serve them better than anyone else?
  4. How are we going to reach this market?
  5. What activities will we perform that add more value to the consumer?

Making these choices forces a business to limit its customer base. It forces it to clearly define the competition and measure itself against it. Finally, the business must know what Critical Success Factors (CSF) must be mastered to succeed.

Here are some examples:

Not every client is good for every accounting firm. Some clients are too small to warrant the billing rates that cover the services the firm is capable of providing. Some are too large and not worth marketing to. Some clients have special needs that are not addressed by other firms, and some are just right.

Not every homeowner is suitable for every renovator. Some homeowners are terribly price conscious and only want the lowest price. Some are status oriented and require innovation. Some want ultimate quality. The renovator must know its strengths and what appeals to that segment. A one man contractor with a pickup truck and a ladder can always undercut a company with staff, an office and other overhead.  When it comes to the high end market, price is usually less of an issue; quality, reliability and performance are more important.

Our choice of markets and our competition will ultimately dictate the Critical Success Factors that we must possess. Sometimes it’s a strong financial base to carry the large inventory or receivables. It may be superior marketing strength. At other times being the low cost provider, having a superior management team, or financial reporting system may be essential. Whichever they are, we must always understand that mastery of these CSF allow us to serve our customers better than our competition.

In summary, three ingredients are necessary for all businesses today. The proper choice of market, the proper competitive arena, and mastery of the critical success factors required to implement the other two.

Does this apply in your business?