When running a business, you’ll find yourself facing a whole host of different challenges. Complying with new laws, filing your accounts, and managing supply chain issues are all common problems that present themselves to business owners regularly.
Another problem that can pop up from time to time is a new competitor entering the market. The likelihood and frequency of this will vary on how many and how big the barriers to entry are for your market, but the risk will always be present.
Competition is a fact of life and is a fundamental part of the capitalist system. At least in theory, businesses that must fight for a market share are more likely to innovate to drive down costs, offer a better service, or improve the quality of a product as they search for a competitive advantage.
While this is great for consumers and the economy, it does mean that, as a business owner, you will be kept on your toes.
If you find yourself facing a lot of competition, either from existing businesses in the market or new entrants that are trying to disrupt it, here are some of the tools you can employ.
A well-constructed promotion could help you to attract new customers to your website or through your door rather than a competitor’s. The type of promotion you consider will depend on the product or service that you sell.
For example, if you sell a new product that many people haven’t tried before, a free sample could be a good way to show off the benefits and quality of your offering and encourage some to buy more. Similarly, those that sell cloud-hosted software might choose to offer a free trial that lets the customer evaluate it to see if it’s right for them.
The iGaming industry also uses a technique like this. With so much competition, most online betting companies offer a free bet for new customers so that they can test out their platform before they make a deposit.
Be Careful of Price Wars
A well-thought-out promotion can offer short-term savings that attract new customers, but you may also be tempted to permanently lower your prices. The logic behind this is that being cheaper will attract new customers or encourage your old ones to spend even more.
Unfortunately, it doesn’t always work this way and it comes with other consequences. Lowering your prices also cuts your profit margin. If you’re selling pens for $10 and they cost you $5 to buy, you make $5 of profit per sale on a 50% margin.
However, if you drop your price to $8, the cost price stays at $5 and your profit drops to $3 and the margin slides to 37.5%. This small drop in profit means that you’ll need to sell a whopping 66.7% more products to make the same profit.
As well as creating more work for yourself, you could also spark a price war where you and your competitors try to outdo each other in a race to the bottom. No one wins from this scenario as you’ll all cut your margins to a level that makes all your businesses unsustainable.
Focus on Your USP
Price isn’t the only thing you can compete on. Some customers are willing to spend more money to receive a better service, a product of higher quality, or greater convenience. That’s why a Ferrari costs more than a Fiat but is still in high demand or why you’ll be happy to spend more on milk at the convenience store if you don’t have to drive all the way across town.
Find what your unique selling point (USP) is and then focus on demonstrating this to your customers. Your rival might have lower prices, but if you can produce and ship products in half the time, people may be happy to pay the premium.