In today’s market place, so many people are trying to win by being cheaper, that’s too cheap to build sustainable and progressive wealth. Saying your product is cheap is even derogatory to your brand. The long run engagement in a price war of who can be cheaper between producers, the only real winner is the consumer.
Generally, there are three ways to win competition
- Niche Focus
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.
To build sustainable sales and business, don’t sell functional benefits, sell Experience, Quality, Depth and Brand!
In my years of studying innovation, I have come to the summary that what kills 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. 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?.
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 as a way to win competition is a better alternative. When you can’t be better, then be different. I have a book called Church for the Streets for example. It’s not another religious book, it’s the type with bible insights, subliminal verses and controversial lines. I am nothing close to a pastor. So someone asked me what the concept of the highly successful book is, and I said to reach the millions of Christians who don’t go to church. That’s a huge market and black economy that pastors neglect. Like I always say, if I was to be a pastor (which I am so uninterested in), my church won’t be for Sundays, it will have more exciting lights, maybe with DJs and will be open mainly on Friday evenings (too many good Christians have nowhere fun to be, or to go on that day with too many churches, saying same thing and trying to win the same members on Sundays).
If I were to be a Fulani man selling Suya, I’ll be open mainly in the morning and afternoon, we rarely can find Suya then (and Suya goes well with drinking Garri by the way). People need to just think more out of the box. Working with Ruff N Tumble a few years ago on an expansion plan, I saw what Niche Focusing practically can be with what Mrs Adenike Ogunlesi has done by just concentrating on just children’s fashion.
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.
Still in terms of Niche Focus, you can engage more in flank and guerrilla marketing as against just direct head to head marketing using price tactics. Use market segmentation and own that segment. By the way, “Market Segmentation” simply means picking a sub-set of the entire marketplace of your industry that you can organize your sales efforts around mainly. Concentrate your forces. Don’t try to sell to everyone. Look at an uncontested market place, and apply Disruptive Innovation. Deliver products that interact between two industries or save more time, cost or scope with a more intimate customer experience. Out of all the people in the world, who will you try to sell to? Most businesses are good at carving out their corner of the market. Then they do whatever they can to own that space.
An example of flanking and guerrilla warfare is the flanking strategies Absolut Vodka used through pricing in the vodka market. Purposely pricing themselves about 50 percent higher than leading competitor Smirnoff, they flanked them on the nearly established premium vodka market. A few years later, Grey Goose offered a vodka priced 60 percent higher than Absolut, in turn flanking them in the “ultra-premium” vodka market. Today, that market has been overtaken by Ciroc, using the same strategy. This same pricing maneuver was used against GM by Benz in its American market. Benz purposely priced their luxury cars much higher than Cadillac as part of their campaign to represent Mercedes as a superior car (“engineered like no other car in the world”). It was a long-term strategy: after four decades, their yearly sales (about 73,000 cars) were still less than monthly sales for Chevrolet (one of GM’s core brands), so GM never made a move to decisively answer them. By 2004, Mercedes was outselling Cadillac; and Cadillac had long lost its reputation as being the prime example of a luxury car.
We also see flanking by Sony in the portable electronics (Walkman and Discman’s in the 90s) and Volkswagen with automobiles successfully won the position of small size. As a flank strategy, you can also try to be the first to do something in your industry – for example, Close-Up was the first gel toothpaste and Soft-soap was the first liquid soap. Or you can attempt to cross sell with another industry, for example Swatch distributed its watches in supermarkets, Timex distributed its watches in drugstores and Hanes distributed L’eggs pantyhose in supermarkets using innovative packaging and displays. We need to see more creative businesses that win not just by reducing pricing, but by creative product and market differentiation and niche focus.
Strategy. Business StartUps and Corporate Restructuring Consulting
Uwaoma Eizu is the lead strategist at Hexavia! He is a graduate of Mathematics with two MBAs and over a decade of experience working with startups and big businesses. His core is in building startups and in corporate restructuring. He is also a certified member of the Nigerian Institute of Management, Institute of Strategic Management of Nigeria and the Project Management Institute, USA. By the side, he writes weekly for the BusinessDay newspaper.