Basic Competition Strategies?admin
What is competition?
Competition – the struggle of market participants for the buyer, for the opportunity to sell their product or service on the most favorable conditions, receiving maximum profit. There are few cases when an enterprise exists on the market alone, so competition is an integral part of any business. This means that entrepreneurs must find ways to attract customers specifically to their product (service), despite the presence of similar products from competitors.
Competition helps businesses to regulate the market for goods and services, forcing companies to expand offers for customers. The struggle for sales markets is the basis of market relations, therefore, due to competition, only leaders and professionals remain, ready to fight and improve.
Why do you need a competition strategy
The company cannot win the competition by acting blindly at random. The business that has the developed strategy wins. The goal of a competitive strategy is to achieve superiority over competitors in the offer of goods and services.
The strategy in this case is the process of planning and implementing actions that will lead to success in the business, and therefore, to maximize profits.
Analytical tools for forming a competition strategy
To formulate a competition strategy, analytical tools are used:
PESTEL – understand what interests consumers at a given time under specific external conditions;
VRIO – evaluate your own capabilities and available resources.
Answers to these questions will suggest ways to gain a sustainable competitive advantage.
PESTEL is an acronym for six groups of factors: political ( political ), economic ( economic ), social ( social ), technological ( technological ), environmental ( environmental ) and legal ( legal ).
Political aspects : taxes, legal and regulatory interventions of authorities in the market situation. They determine the extent to which government policies can affect an organization or a specific industry. They include the political situation and stability, trade, tax policy of the country. Public policy has a profound impact on the national education system, infrastructure, etc. These are factors that must be considered when assessing the attractiveness of a potential market.
Economic aspects : general macroeconomic situation (economic growth, inflation, interest rates, exchange rates, etc.) They have a long-term impact on the company, since the purchasing power of consumers depends on them. They also influence how a company evaluates its products and services.
Social aspects : general social situation (trends related to the population, types of consumption, age distribution of the population, etc.) Consideration of these aspects helps the marketer better understand the needs and desires of their customers.
Technological aspects : the main trends in R&D (research and development) and innovations affecting products and production, threats from substitute products (interchangeable goods or services).
These factors can influence the decision: is it worth it to enter a new market, is it worth planning to launch new products, or reduce the range of products. To prevent a company from spending money on technology development, companies can outsource part of the production cycle.
Environmental aspects : the main trends associated with changes in weather and climate, their impact on the activities of the company and customer preferences. They have become important due to the growing shortage of raw materials, indicators of environmental pollution. Trends in the modern world are pushing businesses to switch to environmentally friendly technologies.
Legal aspects : the main trends in the legislative sphere affecting the company’s activities and decisions made (hiring personnel, creating conditions for ensuring health and labor safety rules, antitrust activities, consumer protection, capital adequacy of financial institutions, management laws, etc. .d.) The company needs to understand what kind of activity and what operations are legal and permitted on its territory. You must be aware of any changes in the law – for the same reason. Factors include labor law, consumer law, health and safety, international as well as trade regulations and restrictions.
VRIO is an acronym for the following resources and capabilities of a company: value, rarity, difficulty in imitating and reproducing imitability, and the ability to organize proper use.
Value . This refers to the value of the product or service to the consumer, i.e. value proposition to the market, when the buyer can give himself the answer: “Why do we need to spend money on the purchase of this product?”. The increase in company profits is achieved by increasing differentiation and / or reducing costs associated with production.
Rarity . The rarity (in the exceptional case of uniqueness) of a product or service in the market reduces competition. Selling the same type of goods and services, it is difficult to achieve a competitive advantage. For example, consumables used in production, in certain cases, can also provide the desired differentiation (for example, jewelry and jewelry differ in the value of the materials used).
The cost of imitation / reproduction . Offering to the market should be costly for competitors to imitate / reproduce if the company wants a sustainable competitive advantage. The application of know-how provides additional benefits. Repeating the invention is an expensive process.
Organization . A product or service alone does not provide benefits if the company cannot extract and retain the benefits of their use. Only a company that, thanks to the proper organization of the business, is able to profitably use valuable, rare and hard to “copy” resources, can achieve a sustainable competitive advantage.
Basic competition strategies
There are five basic competition strategies. The condition for choosing is to assess the strengths and weaknesses of each of them, in relation to a specific situation for a particular company. Each company should choose one of them for itself and adhere to this strategy until the situation on the market changes dramatically.
Cost reduction strategy.
This strategy is applied when price is a determining factor. Significant savings on the scale of production allows you to offer the product on the market at the lowest price and attract a large number of customers. Mass production of standard products is usually more efficient and requires lower unit costs than the production of small batches of dissimilar products. Due to the high specialization of production, savings on variable costs are achieved. Fixed costs per unit of production decrease with increasing volumes of production and are an additional reserve for the cheapening of goods.
Tastes of people make manufacturers offer something special to the market and the consumer is willing to spend more on this “special” than on a typical offer. This is the case when a client needs a product with more advanced technical parameters, workmanship, functionality, providing a wider selection of services in the implementation and operation compared to ordinary goods. The differentiation strategy allows you to satisfy the needs of a certain category of customers – those who are not satisfied with the standard product, and they are willing to spend more money to satisfy their needs.
It is aimed at providing advantages over competitors in a certain segment of the market (based on geographical, behavioral, demographic or other principles of segmentation). A company can serve its narrow segment more efficiently than competitors dispersing their resources throughout the market. In this case, a competitive advantage is created by more fully meeting the needs of the target market, or by achieving lower costs in the segment.
Niche competition strategy with low competition.
In this case, the company focuses on finding new, effective technologies, designing necessary, but unfamiliar types of products, methods of organizing production, sales promotion methods, etc., with the main goal of getting ahead of competitors and occupying a market niche where competition is absent or insignificant.
Immediate response strategy.
Companies implementing this strategy are aimed at meeting the emerging market needs in various business areas as quickly as possible. The basic principle of behavior is the selection and implementation of projects that are most profitable in the current market situation.
The listed basic strategies determine the competition policy. Any of the selected options contains a series of steps that should ultimately lead the company to victory. The issue of implementing each individual step is the tactics of competitive battle.
How strategy differs from tactics
If the strategy is determined by the goals and the situation on the market, then competitive tactics are the forms and methods of competing. Offensive, defensive and cooperative – these are the three main types of competitive tactics.
Offensive tactics – an open assault on a competitor’s position. For example, a frontal attack. This is an offensive in all positions: price, quality of products, services, etc. To achieve the result, the attacker must have superiority in financial resources, production capacity.
Defensive tactics are the protection of “your” market. The forms of protection are diverse. For example, a company takes actions to make it difficult for a competitor to enter “their” market in the form of artificial obstacles. As an example, exclusion from a competitor of sales channels of products, sources of raw materials, etc.
Cooperation tactics are aimed at “negotiating” with a competitor without violating the antitrust law. A situation where competitors, based on certain agreements, act jointly in the market.
In business practice, situations often arise when it is better not to fight with a competitor, but to negotiate. This is the goal of cooperative tactics, in which competitors act together in the market on the basis of certain agreements. Such alliances are, as a rule, temporary, and they are created “in favor of a strong player.”