How Do We Compete?

More than a hundred people in the audience chimed in during a recent seminar when one woman asked, “How do we compete with the large companies?” As competitive bidding moves closer, this question seems to be causing more and more concern.

There are a couple of strategies that can be used by any business facing larger competitors, but going head-to-head is not one of them.

In Central Florida, for example, there have been several large grocery chains serving the market. Food Lion has completely pulled out of the area. Winn Dixie and Albertsons have closed many of their stores, but Publix seems to be stable and Wal-Mart continues to expand.

Those grocers that have closed stores have tried to attract their customers based on low prices; that is another way to say they chose to go head-to-head with Wal-Mart. Publix, on the other hand, does not compete on price. Its goods cost more, are perceived as higher quality and come with greater service from the store’s employees. Shoppers who frequent Publix can’t get what they want from Wal-Mart.

The first strategy is one that was well described by Mr. Miyagi, the martial arts master in the “Karate Kid” movie. Before an important fight, Mr. Miyagi counseled his student, “Daniel-san, best way to avoid being hit — no be there.”

Wal-Mart is now the textbook example of this strategy. As a young company, the chain would not open in the same markets as Kmart. They went to markets where competitors were smaller than they were so the big guys could not hit them. This doesn’t lead to an admonition for a small company to leave the market it is in, but is a simple description of a “niche” strategy. Wal-Mart used a niche strategy to grow its purchasing power.

There are three general ways to execute niche strategies. They are: 1) choosing a product or service niche (Lincare is an example); 2) covering a market niche (think of Pediatric Services of America); and 3) working in a super-niche (Liberty Medical and The Scooter Store come to mind as specialists in product and payer combinations).

The whole point of niche strategies is to avoid competition — if there is competition, it is not really a niche.

Finding a niche to pursue can be accomplished by performing a “market opportunity” analysis. In short, this analysis looks for problems that people will pay to have solved, and for incumbents that are already solving the problems.

There are four conditions that may be identified by such an analysis, including: 1) equilibrium, an equal supply of solutions for the problems; 2) overcapacity, a greater number of solutions than problems; 3) undercapacity, fewer solutions than problems; and 4) void, or no solutions for the problems. A void represents a true niche opportunity.

One of the keys to finding a void is to define a market more and more narrowly. For example, there are respiratory services, but high-tech respiratory services and sleep are narrower market definitions — and creative providers will use their knowledge to narrow the market further. The process of narrowing should identify a service no other provider offers.

Differentiation is the second strategy for competing with larger businesses. To execute the strategy well, the point of differentiation must be used to set the terms of the competition. A company that is not carefully setting terms on which rivals must compete is, by default, allowing others to set the terms. A company that does this well does not single out one rival; they compete against all rivals simultaneously. It is an “us vs. them” situation.

Executing this strategy requires in-depth knowledge of the company’s rivals, customers and itself. This knowledge can be used to learn what the customers’ ideal solution is; what the competitor is not, will not or cannot do to provide the ideal solution; and how you can deliver the ideal solution.

This is where you set the terms of competition with a set of specifications, drafted so that only one provider (your company) is compliant, and all others are failing. These specs can be more powerful if they are validated by independent parties, but sometimes the small rival has to promote them with pure self-confidence. And, the market must be constantly aware of the specifications.

Wallace Weeks is founder and president of Weeks Group Inc., a Melbourne, Fla.-based strategy consulting firm. He can be reached at 321/752-4514 or by e-mail at [email protected].