Only very few are fortunate enough that their customers can’t buy similar products or services from other vendors. The question is then if you just copy whatever your competitor is offering or if you make conscious decisions about how you want to differentiate yourself and how you want to compete?
The fact that you are in a competitive environment probably means that you have a strategy in place; it may even look something like this…
Figure 1.
Once you’ve moved past the strategy exercise and you’re in the day-to-day grind it’s important that strategic and tactical decisions are made consciously in support of your strategic objectives and based on the strengths of your business model. Also, when you find yourself in head-on competition.
Traditionally there are three areas where you compete Product, Price and Services.
In regards to product, this is where you really have an opportunity to differentiate to ensure that competition is less fierce. Some examples of differentiators that will influence your customer’s excitement about your product are: functionality, performance, design, ease of use, quality, newness and brand. Most of these aspects are more strategic in nature and difficult to influence in a tactical competitive situation, but the nature of your product (generic vs. differentiated) should influence how you decide to compete.
Price of course is another parameter and is often associated with the product and services. Price is easy for the customer to compare and it is easy for you to change. Hence it is often used as the easy, read lazy, way to compete. Of course price is important, and some industries are more price sensitive than others, but it’s perhaps not as important as one may think. The UK Customer Satisfaction Index 2015 study found that price was only ranked 20 out of 47 aspects in terms of importance.
Walker has released a study concluding that experience and product are more important than price and that this will be even more pronounced in 2020. Still, if a low(er) price environment is good for your business then make use of it. However, if it is not then decisions to simply match a competitor’s price or reducing price in general should never be taken lightly given it can have immediate and significant impact on your profitability.
Services are often somewhat neglected when it comes to competitive levers. Below is a humoristic way of looking at services in a competitive context.
Figure 2.
The point is that even if this is a humoristic illustration, someone has made some conscious decisions about how they want to compete.
Services of course is a broad term for many things, and you can work with services as a competitive parameter on both a strategic and an operational level. To name a few: access to customer service or sales team, response time to queries, problem resolution, staff training, full understanding of the customer’s business and needs to better recommend the right products, inventory availability, delivery times and conditions.
Some of these services do not necessarily cost a lot more to provide, but your customers will really appreciate them. Of course there’s the danger of offering all services to everyone, which as per the service plaque above is not an option. A practical solution is a customer segmentation model that brings products, terms and services into play as well. It could look like this…
Figure 3.
This is really where to can you can start combining….
- Where we sell
- What we sell
- How we sell
from figure 1 and add the learning from figure 2. This will enable you to make conscious decisions about how you want to compete.
Remember, you can’t offer everything to everyone.
This is a quite down to earth practical approach. What’s even better is that the knowledge of what is really important to each individual customer is likely available in your organisation. And if it is not, it’s a good discussion to have with your customer, because it allows you to learn more about how their business really works. Knowing your customer’s business is always a good thing. It allows you to service them well, make them loyal and it allows you to compete in ways that is good for your business.
Let’s have a look at what this could look like as a real life example: You have rated your customer priority 2, which means they receive some of the services in your service catalogue, but not all.
Your competitor has just launched a promotion and is offering a 10% discount on their product, which is similar but slightly inferior to yours. Your customer makes a slightly better margin (value) when selling your product.
You have decided that you don’t want to compete on price only. You have also chosen to compete by always having certain styles available for replenishment and you have the logistical set up in place to support this. Something not all of your competitors offer.
Also, you know that your customer has very limited stock room because she has mentioned to your sales manager on several occasions that she really values your available inventory as a service component.
Instead of offering a 10% discount like your competitor, you offer a 2% discount and overnight replenishment on orders placed before 2 pm. In this case say that the overnight replenishment represents an incremental cost equal to a 4% discount. You would be 4% better off and your customer doesn’t take on the inventory risk or overfill their stock room.
These 4% would easily finance the carrying cost of your inventory.
You’ve decided how you want to compete and you understand your customer’s business well enough that your offer is better than your competitor’s. You have not fallen into the costly trap of simply offering the 10% discount that your competitor did.
Here is a win for both you and your customer.
Closing remarks: this article has primarily a wholesale angle, but my view is that it is applies just as much to retailers, online and physical alike. Especially for brick and mortar retailers, finding ways to deliver that special customer service experience that can really set you apart from other retailers or online retailers can make or break your business.
Do not hesitate to comment or email me at morten@tinktank.dk if you have comments or seek further input.