How to Compete in a Commoditized Industry
What is a commodity? According to the Webster Dictionary the word commodity is defined as a a good or service whose wide availability typically leads to smaller profit margins and diminishes the importance of factors (as brand name) other than price.
In a commodity market, many companies compete and none enjoys a competitive advantage. Meaning, that each firm has equal access to such necessities as technologies, capital, clients, and labor. For example, a financial service firm that sell stock. Let’s face, all stock is the same. If I buy Microsoft (MSFT) stock from E*Trade, it that same MSFT stock that Merrill Lynch sell. Therefore, the product is the same. With that being said, how to a financial firm differentiate themselves from other financial firms? Currently these firms separate themselves by selling advice, research and create mutual funds that exclusive their firm.
If you cannot maneuver your competition, because they are consistently imitating your every move, then you must either improve your efficiency by doing the job fast and/or cheaper than your competitors. You start by analyzing the relative strengths of your competitive environment:
Current Customers – Are you getting the most out of every customer? Can you earn a higher profit margin by offer your clients’ upgrades to their current products/services they purchase from you? Can you give your clients more value by offering incentives such as discounts? Can you motivate your customers’ offers your services? Of, course these are only suggestions and each individual business circumstances will be different.
Potential buyers- there are a number of people that need your service and don’t know it. Sometime you’ll provide a service that almost meets a whole new market requirement if you just tweaked it a little. Look at it this way. Either you can expand your market/number of buyer with new products or you increase your presence in your current market. Here’s how you determine which alternative is the best for you. Whatever you think will earn you the largest, most sustaining income in the least risky manner, that what you should do.
Current competitors- your current competitors are only a small piece of the competitive landscape, because the new entrants are going to continue to enter your market; rather you know them or like them, it doesn’t matter. You need to be cautious when developing a strategy to create a competitive advantage against new competitors, because it could back-fire. Trying to destroy or marginalize the competition is dangerous-particularly if you’re competing over price. Companies that enjoy competitive advantages but that are not content with what they have can harm themselves permanently by pursuing aggressive rather than cooperative tactics. You can rarely put a well-run company out of business through price competition. Instead of competing on price, you increase output and production capacity.
Potential competitors entering your market – as Microsoft Chairman as always said, a small startup in a garage can grow up and become one of your biggest competitors. Just look at Google-a company that’s only eight years old. The common and most proven strategy uses to combat such entrants is: increase the barriers to markets. It is a fact that when new entrants enter your market you market share deceases. In addition, with new entrants you must move carefully, because you are in a position where you have a lot to lose if you already own the market. The entrant has nothing to lose and everything to gain.
Vendor relations- All your suppliers should be a part of your management or advisory team. They need to be involved in the development of new strategies and products for you. If you can get your vendors to help you operate more efficiently, you can pass the savings to your customers. In addition, you want to try to tie your vendors up in first right of refusal contracts, because you at last thing you want is your competitors from receiving the same benefit form sometime you help create.
Substitutes/Complementary services – A huge opportunity that normally lost in small businesses is the opportunity to partners with others to introduce substitute and complementary products. Why? Fear! In the Book, “Building Trust at the Speed of Change,” author Edward Marshall said, fear doesn’t increase productivity, speed, creativity, profitability. And he is right. So deal accordingly.
The six competitive categories above are six simples way to work on your business from the inside. It is highly suggested that you outline a detailed plan that address each category and how you can improve it. Good luck and I will see you up at the top.
Bobby Ellis
Xspology.com
In a commodity market, many companies compete and none enjoys a competitive advantage. Meaning, that each firm has equal access to such necessities as technologies, capital, clients, and labor. For example, a financial service firm that sell stock. Let’s face, all stock is the same. If I buy Microsoft (MSFT) stock from E*Trade, it that same MSFT stock that Merrill Lynch sell. Therefore, the product is the same. With that being said, how to a financial firm differentiate themselves from other financial firms? Currently these firms separate themselves by selling advice, research and create mutual funds that exclusive their firm.
If you cannot maneuver your competition, because they are consistently imitating your every move, then you must either improve your efficiency by doing the job fast and/or cheaper than your competitors. You start by analyzing the relative strengths of your competitive environment:
Current Customers – Are you getting the most out of every customer? Can you earn a higher profit margin by offer your clients’ upgrades to their current products/services they purchase from you? Can you give your clients more value by offering incentives such as discounts? Can you motivate your customers’ offers your services? Of, course these are only suggestions and each individual business circumstances will be different.
Potential buyers- there are a number of people that need your service and don’t know it. Sometime you’ll provide a service that almost meets a whole new market requirement if you just tweaked it a little. Look at it this way. Either you can expand your market/number of buyer with new products or you increase your presence in your current market. Here’s how you determine which alternative is the best for you. Whatever you think will earn you the largest, most sustaining income in the least risky manner, that what you should do.
Current competitors- your current competitors are only a small piece of the competitive landscape, because the new entrants are going to continue to enter your market; rather you know them or like them, it doesn’t matter. You need to be cautious when developing a strategy to create a competitive advantage against new competitors, because it could back-fire. Trying to destroy or marginalize the competition is dangerous-particularly if you’re competing over price. Companies that enjoy competitive advantages but that are not content with what they have can harm themselves permanently by pursuing aggressive rather than cooperative tactics. You can rarely put a well-run company out of business through price competition. Instead of competing on price, you increase output and production capacity.
Potential competitors entering your market – as Microsoft Chairman as always said, a small startup in a garage can grow up and become one of your biggest competitors. Just look at Google-a company that’s only eight years old. The common and most proven strategy uses to combat such entrants is: increase the barriers to markets. It is a fact that when new entrants enter your market you market share deceases. In addition, with new entrants you must move carefully, because you are in a position where you have a lot to lose if you already own the market. The entrant has nothing to lose and everything to gain.
Vendor relations- All your suppliers should be a part of your management or advisory team. They need to be involved in the development of new strategies and products for you. If you can get your vendors to help you operate more efficiently, you can pass the savings to your customers. In addition, you want to try to tie your vendors up in first right of refusal contracts, because you at last thing you want is your competitors from receiving the same benefit form sometime you help create.
Substitutes/Complementary services – A huge opportunity that normally lost in small businesses is the opportunity to partners with others to introduce substitute and complementary products. Why? Fear! In the Book, “Building Trust at the Speed of Change,” author Edward Marshall said, fear doesn’t increase productivity, speed, creativity, profitability. And he is right. So deal accordingly.
The six competitive categories above are six simples way to work on your business from the inside. It is highly suggested that you outline a detailed plan that address each category and how you can improve it. Good luck and I will see you up at the top.
Bobby Ellis
Xspology.com
posted by Xspology.com at 9:55 AM
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