We managers usually complain about our sector, moaning about how competitive it is, how hard and how different it is from all others and grumble about it because it is less profitable than every other sector. I also hear managers complaining about their companies, claiming they are hard to manage, so complicated and different from all others. They usually say that if they were in the market next door –obviously a lot easier than theirs, they would do far better.
With this idea in mind, I found that, just outside my home there are two fruit shops, one in front of the other. The first thought that comes to my mind is that the second fruit shop which entered this retail market was really brave to do so, but I suddenly realise that this is the dream of any micro-economist: am I before the perfect-competence scenario? Obviously not, but it looks like it –the kind of information consumers get from their products is transparent and the products themselves are homogeneous, there are almost no entry barriers, there are no significant increases in sales profits since the availability of the shops is relatively small, the rules are applied for both places and the prices are almost the same as their margin cost. Then, what do I have to do to bring this model down and become the leader in this market? Well: success happens when you manage to get you products in a non-homogeneous way to become real substitutes for consumers, adding value or trying to do it in a certain way so that your consumers think you are doing it differently and are therefore willing to pay more for your products or just buy from you instead of your competitors. This way, what you get is a better strategy to position and display your products as well as getting a better service in your post-sales activity: from taking your shopping home to organising courses on cooking with fruits or just changing the packaging. It is important to highlight that, if once here, our competitors still follow us, we could carry out the opposite move in order to get back to the start, and get in the low-cost market betting our chips on the price.
Can this be applied to any sector? Absolutely. For those who are interested in the retail sector, I advice them to have a look at Trader Joe’s (http://www.traderjoes.com/) and their keys to success. Just like some retailer have done, getting away from their competitors, it is possible to go shopping and enjoy, at the same time, an activity which is highly valued by its clients due to it cultural value.
The key factor which determines whether a market is more or less competitive is information and the way you handle that information. In the case of our fruit shops, the information our clients get is straightforward, transparent and totally comparable, which makes you want to have a more-competitive offer, different and more attractive one –if you want to survive, that is.
There are no non-competitive markets: they are all hard and no company is very different from the rest, no matter how different their managers think they are. Do you think the fruit shop owners of our example face an easier situation? What is true is that there are different methods of management; whether it is in the world of cooperative companies or in the advanced biotechnology sector, but no sector is more or less difficult because of lack of competitors.
All in all; the best way to compete is maximise the concept of differentiation, more differentiation, total differentiation… and if competitors still get close to you, then get even more differentiation. I think that “a pound of desire” is just the same as a “pound of apples” but a little different in terms of sales due to their virtues. Which fruit shop do you think that will sell the most? The one selling fulfilled desires or the one selling fruit?.