July 10, 2019
It’s easy for us to view competition as “the reason we can’t charge more.” However, if you only view competition through this lens, you will continue slashing your prices until you’re unprofitable. We must recognize that competition doesn’t only force companies to cut their prices (and profits). Competition drives companies to be better, and thus serve their customers better.
More specifically, competition drives you to differentiate, innovate, and assimilate (match industry standards). All three of these actions produce additional value for your customers, and your success as a company will depend on your ability to choose among them at the appropriate time.
Though an inability to match our competition may inspire us to beat them at their own game—which is what happens when a company cuts prices and profits—we may just as likely examine our unique makeup to see if we have another advantage. If you’re not the best basketball player, maybe you’d be better at soccer. If you’re not the best accountant, maybe software development is your gift. In each of these cases, the person acting would lose if they stay in the same game, but they have a chance at winning if they pivot. Without competition, however, they’d never know where to pivot to and from. So, we have competition to thank for the intricate web of specialized and personalized job titles/descriptions that comprise our economy.
This insight is clear at the individual level, but we also must apply it to our organizations. The market elegantly allows us to focus on those products/services which we are most proficient at producing, as we concede to our competitors the products/services which they are most proficient at producing. Here, we’re not just differentiating for its own sake. We differentiate to the degree that it improves our value proposition. In fact, differentiation is the very reason your value proposition differs from that of your competitors. It is when your competitors start beating you at your value proposition that you should change it.
The best part about differentiation is that it greatly benefits the consumer. In short, you’re not wasting the customer’s time trying to do for them what your competitors can do better. Successful businesses often create niche markets that cater to the specific needs of consumers. By doing this, they’ve changed the rules of the game. Changing the rules doesn’t make you cheaper, but it makes you better.
Differentiation can be the perfect strategy, but only at certain times. If you currently have a point of difference, and competitive advantage, the key is to make sure you keep that differentiation and continue to be relevant.
Instead of lowering your prices or changing your point of differentiation, you can improve your offering overall. Innovation can take the form of an improved product, a new product, an improved process, or any other form of adding to your offering. We often say that necessity is the mother of invention, and your competition is the necessity to your invention! If you don’t innovate, they will.
When you innovate ahead of your competitors, you have an advantage for as long as it takes them to catch up. If there is adequate competition, you’re never safe relying on one innovation; you must constantly innovate to maintain your advantage. The best companies are consistently balancing the cost of R&D, process improvement, and other such innovations with the temporary benefit they yield.
Though we often think of innovations concerning the product itself, or its delivery, we should not be so quick to limit ourselves. Marketing and branding innovations are excellent investments, as your customer must know about your product/service before they buy it. Communicating with the customer effectively and concisely saves time and energy for both us and them. Without competition, there would be no need for us to invest in innovation and improvement, so we have our competitors to thank for the new ways we find to create value for our customers.
Competition drives companies to differentiation and innovation, both of which set the company apart, but competition can also push toward a type of conformity. Ideally, your company would be the one at the cutting edge, always one step ahead of your competition. However, what if you’re beaten to the punch and your competition has successfully innovated? You could develop your own unique innovation, but this would cost too much time and money. What if you could just adopt theirs? This is where assimilation comes in. When a company in an industry innovates, and the innovation is ubiquitously applicable, they’ve generated an industry standard. Effectively, they’ve made everyone better at what they do, as long as others assimilate.
Your bottom line may take a hit when one of your competitors leads the industry to a new standard, but you will become a better company because of it; that is, only if you are able to maintain the balance between assimilation, differentiation, and innovation. You don’t want to assimilate too much, thereby becoming a copy of someone else. However, it’d be foolish to pass up the opportunity to leverage the work your competition has done for you. Many of your competitors’ innovations are ones you never would’ve discovered. Your rival has presumably innovated to beat you, but they’ve benefited your customers, as long as your customers are loyal to your differentiators, by providing the idea/strategy/process you’ve adopted to serve the market better.
You may have to sift through many of your competitors’ innovations to find ones applicable to your specific makeup, and the cost of doing so must be accounted for. However, assimilation is often worth the cost, as it may prove to be less costly than differentiation or innovation. Every customer benefits from industry standards, because such standards ensure that they don’t have to sacrifice to move from your competitor’s product/service to yours.
Finding the balance between differentiation, innovation, and assimilation is seriously difficult, but it becomes nearly impossible if a company is not keeping a close eye on their competitors. To know whether you’re different, or how to be different, you need to know where everyone else stands. To know if your investments in innovation are worth it, you need to ensure that you won’t be late to the game. To know whether you’re up to par on industry standards, you need to see the improvements your competitors have made.
So, to truly harness the value your competition can provide, you must conduct competitor research, keeping close tabs on their innovations and differentiators. Don’t forget that this all requires an understanding of your capabilities and where your company stands in relation to others. Moving to a new place based on where your competitors are is useless if you don’t first know where you’re starting.
If you embrace competition and keep a close eye on your competitors, you will be able to hone your skills, think differently, examine your abilities, adopt disruptive innovations, and be better.
Jesse Newton is currently learning about the consulting industry through his internship with Aspirant. He graduated Magna Cum Laude from Grove City College with a major in economics, and minors in business and philosophy. He is looking to apply his critical thinking abilities in the realm of business to create value and improve lives.
July 10, 2019
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