Revisiting competitive strategy is one way to respond to a more competitive market. For example, in marketing, businesses identify what needs to be adapted to be relevant to today’s competition and customer needs, whether related to the product, price, promotion, or place. Then, they devise various alternative strategies and choose the most appropriate ones.
The company’s unique selling proposition continues to be relevant by adapting the marketing strategy according to the context. As a result, it not only satisfies the customers’ needs and suits their tastes. But, it is also unique and better than the competitor’s.
Some markets face increased competition as barriers to entry become lower. For example, the government may previously restrict foreign investment. But, now, the government is changing it to encourage more competition by loosening regulations. Finally, the policy encourages foreign companies to invest in the market, encouraging more players to compete for market share.
In other cases, competition may be intense due to changing consumer tastes. Consumers have several alternatives after substitute products are present. Some turn to substitute products. Finally, this situation forces companies not only to compete in the existing market. But, they also have to compete with firms in substitute markets.
Why is the market becoming more competitive?
Slowing growth is forcing existing firms to compete for smaller market sizes. They can no longer acquire new customers because all consumers have used the product. As a result, they rely solely on repeat sales.
In the decline stage, a business can only maintain high sales only by capturing customers from competitors. Then, of course, competitors retaliated fiercely. Finally, the intensity of competition between them increases.
Second, changes in competition can also be associated with changes in Porter’s five forces. For example, barriers to entry have decreased as the government relaxes its foreign investment policy. Consequently, the threat of new entrants increases.
New entrants bring capacity to the market, lowering market prices and depressing market profitability. This situation increases competition as companies try to maintain their market share.
Factors causing the market to become more competitive
Changes in the industry life cycle and Porter’s five forces can occur due to changes in external factors. They include:
- Government policies
Globalization. A more integrated cross-border economy makes it easier for companies to enter other countries with fewer barriers. For example, they may invest directly by establishing a subsidiary in the domestic market. Or, they sell their products to the domestic market by exporting. Finally, globalization makes markets more competitive by lowering barriers to entry and increasing the threat of new entrants.
Technology. Technology is responsible for short life cycles in some markets. For example, the market for MP3 players was short-lived thanks to advances in the smartphone market, which buried the technology into mobile phones. Finally, people abandon MP3 players because they have them on their phones.
The above case also shows us how technology does more than speeding up the life cycle. But, it also presents the threat of substitutes, where smartphones come to substitute MP3 players.
Technology also increases the bargaining power of consumers. For example, e-commerce allows consumers to get the cheapest products with the desired quality. Many options are available on e-commerce sites with various price ranges. In addition, offers not only come from local but also international companies.
In addition to providing more alternatives, e-commerce also reduces search costs. Consumers can easily search for products through smartphones without visiting stores to compare prices, brands, and quality.
Government policy. For example, the government abolished import tariffs for being a member of an economic union. This policy finally encourages companies from member countries to freely enter the domestic market. Consequently, the threat of new entrants increases. And it brings more intense competition to the market.
Why should competitive strategies change in response to the increasing competition?
Changes in the competitive landscape often make competitive strategies no longer relevant. For example, the presence of new entrants not only increases supply and pushes prices down. That might encourage people’s appetites to change and become more price-conscious.
If your company previously relied on a differentiation strategy, tougher competition puts you at a disadvantage. As consumers become more price-conscious, they consider how much money they must spend to get your product.
This situation forces you to rethink your strategy. For example, do you need to keep a differentiation strategy by offering a high price but adding unique features? Or are you switching to a cost leadership strategy with a focus on lowering costs while offering products around the average price in the market?
Long story short, increasing competition is forcing companies to rethink their strategies. Without doing so, their competitive advantage could quickly become a competitive disadvantage.
How are businesses responding to a more competitive market?
Rethinking competitive strategy is a way to stay competitive amid increasing competition. It may sound easy, but the implementation may be difficult. And companies may have different approaches to finding new, more effective strategies.
In general, rethinking competitive strategy requires your company to scan your business environment and map out existing and potential opportunities and threats. Then, you scan internal resources and capabilities to determine strengths and weaknesses. Finally, you have a list of external opportunities, external threats, internal strengths, and internal weaknesses.
The list is not all you have to consider in formulating a strategy. Instead, you have to sort.
- Which is the most significant factor impacting your business?
- Which one is likely to happen?
- Which is relevant in the short term and long term?
After sorting, you finally find the most vital factors influencing the business. And they become your main consideration for formulating strategies. And in theory, your strategy, on the one hand, should maximize the internal strengths to exploit opportunities in the market. But on the other hand, your strategy minimizes external threats to internal weaknesses. Implementation and evaluation are the next stages.
These processes must be carried out continuously because, as I said earlier, the old strategies may no longer be relevant to the context. So, when at the evaluation stage, your company must return to the initial stage, namely identifying opportunities and threats in the business environment.
Changing marketing strategy
In the marketing area, rethinking a marketing strategy may require a company to look again at elements in the marketing mix, such as:
Product. A company may have to upgrade an existing product to increase consumer appeal. For example, they may add new features which are not only unique but also offer better solutions to satisfy needs. Finally, the product remains relevant to changing consumer tastes, enabling it to be purchased. For example, Microsoft is constantly improving and developing its operating system.
In addition to improving existing products, companies can introduce new products. The company may introduce the product as a complement to or around an existing product. For instance, Microsoft introduced Office 365 to complement its old product to facilitate online consumers.
Or, the company may introduce a new product to satisfy a different need. For example, Meta Platforms, Inc. acquired WhatsApp for US$19 billion. As a result, it adds to existing platforms besides Facebook and Instagram. If the latter two are social media platforms, WhatsApp offers a mobile messaging platform.
Price. The company may have to change its pricing strategy. For example, it may combine product improvements with price increases. Or conversely, they lower prices and offer standard products. The first option focuses on differentiation. Meanwhile, the second focuses on costs.
In other cases, the company may switch to the razor-blade business model. This pricing strategy requires them to launch high-priced complementary products around the core product. For example, inkjet printer manufacturers introduce ink cartridges, which are expensive. But, although expensive, consumers need it to use the printer.
Promotion. For example, companies are shifting their advertising focus to online channels. As a result, they are trying to reach more potential customers, attracting them to buy.
Or, they entice consumers to buy by offering discounts, contests, gift offers and buy one get one free. E-commerce platforms are a great example in this case. They offer various promotional programs to attract consumers to visit their stores amid intense competition.
Place. For example, many retailers were forced to switch to online channels after the competitive landscape changed drastically. E-commerce retail is emerging. And they don’t just increase competition. But, they also changed the retailing paradigm about how to sell products.
Customer relationship management. In addition to rethinking the four elements above, revisiting the customer relationship strategy is key. Offering new and cheaper products may attract customers. However, this strategy doesn’t necessarily lead to loyal customers.
Loyalty is important to ensure money continues to flow to your company. That lowers costs – because acquiring new customers is often more expensive than retaining existing customers and makes your company the first choice when consumers buy products. Long story short, building loyalty and strong customer relationships is another way to respond to a more competitive market.