So why would someone buy from you? What makes you different from your competitors that will get your potential customers buying from you this is just as relevant for those looking to improve their career as it is for running a business think you instead of business why would someone buy you?
You need a Niche
There are basically three generic strategies you can follow to gain a competitive advantage within your chosen market and start to create your niche.
You can sell whatever it is you are offering for less than everyone else, you can sell it in a different way such as specialising with higher levels of service or you can sell something that no one else can offer like something you hold the patent for or only you can do.
Each strategy has its pro’s and con’s and some are more difficult to implement or stay on top of than others but they are all valid.
The most obvious and most commonly used by a new business yet not necessarily the most effective especially for a new business is to try and gain market share or compete on price or using what is known as a cost led strategy.
Basically here you are trying to attract customers by being cheaper than everyone else thus gaining market share from those customers who are price sensitive. In order for this to work you need to have close to the lowest prices in your target market. To succeed this way while still achieving a profit you must be able to operate with lower costs than your competitors.
There are three main parts to operate at lower costs the first is a higher asset turnover than your competitors, for example a restaurant that turns tables around for new customers very quickly or an Airline like Easy Jet who turn their planes around within 20 minutes when the normal time is about 45 minutes to an hour.
In a manufacturing business it would involve production with high volumes of output, meaning fixed costs are spread over a larger number of units of the product or service, resulting in a lower unit cost to take advantage of economies of scale. It can also be in mass production or in bulk buying materials or end products. Higher levels of output both require and result in a high market share, and create an entry barrier to potential competitors, who may be unable to achieve the scale necessary to match the low costs and prices. It is worth keeping in mind all these approaches can be costly to introduce and can require very high levels of investment
The second part is to competing on price is by having low direct and indirect operating costs such as offering high volumes of standard products, basic no frills products or services and limiting the amount of customisation you offer. You will also have to keep production costs low by using standard or low cost components or services. You would have to pay low wages and locating your premises in low cost areas, think of companies that have their production facilitates in the Far East or Africa.
The third part is to have control over your supply chain encompassing all the functional groups that make this up. If you control the raw ingredients of your supply chain all the way to the finished product you can probably compete here, this is however really costly and usually smaller businesses just don’t have the financial clout to achieve this. The other way of controlling your supply chain is to have a distribution network that your suppliers just cannot afford to ignore. The big supermarkets are famous for squeezing their supply chain to compete on price and they successfully use just in time deliveries to keep their costs low.
Competing on price is usually referred to as a cost leadership strategy. Cost leadership strategies are really only viable for large companies who can enjoy the economies of scale with large production volumes or buying power and a large market share. Small businesses can be cost focused if they can enjoy some advantages that help with lower costs for example being below the VAT threshold allows a 20% reduction in costs yet limits growth but they are rarely cost leaders, likewise a small local restaurant in a low rent location can attract price sensitive customers and compete if they turn tables quickly enough and pay minimum wage.
Innovation of products or services may also allow a small company or start up to offer a cheaper product or service where the competitions processes and costs have become high.
Another major disadvantage of a cost leadership strategy is that your customers loyalty lies with the price and not with you and they will switch as soon as someone else offers a lower price and of course low prices often equate in customers heads as low quality which will damage your brand.
Differentiating yourself from your competition by doing things differently is another way to compete successfully while not focusing on price. Take the BMW group for example, they sell cars just the same as Ford and yet people the world over see them as different they are perceived to be higher quality more reliable and in some way just better than other non prestige cars, this is also true of Apple Computers, Coca Cola or Mercedes-Benz.
In order to use this kind of strategy you need to ensure you have a target market that is not price sensitive it also works when your market is saturated or competitive. If you can discover needs that are under served or you have some unique resources available.
This could be a patent or Intellectual Property (IP) or a new type of process. Typically you can charge higher prices if this is the case due to your competitive advantage being something other than price, as a rule it also comes with higher levels of customer loyalty.
This is not all about actual differences it can be as much about perceived differences even if your physical product is the same as your competitors. This way, Starbucks could brand coffee, and Nike could brand sports clothing. Fashion brands rely heavily on this form of perceived differentiation.
Take a look at Google, they are at their core a search engine and they started like other search engines but they wanted to be different. These days Google is arguably one of the most widely used and recognised brands on the planet. From innovative marketing strategies to being an insanely popular search engine, Google has essentially embedded itself into pop and business cultures. The company has also been noteworthy for its working environment, pioneering a model that allows employees to have flexible workdays. It creates an environment that fosters responsibility and creativity. This forward-thinking company attracts some of the world’s brightest and most creative minds, and love it or hate it you have to admit it is different to other search engines and that goes some way to explaining its incredible success.
Apple will go down in history as one of the most dazzling and innovative companies in history (Forbes notes that Boston Consulting Group has named it the most innovative company in the world every year since 2005). Apple do things differently whether you love them or hate them their success is founded on it.
Focusing is definitely an appropriate strategy for small-sized companies especially for those who want to avoid competition with big ones.
In adopting a narrow focus, you ideally focus on one or a few target markets this is also referred to as a niche strategy. You are looking for distinct groups of potential customers with specific needs you can then tailor the offering so that you can better meet the needs of that target market. You would typically look to gain an advantage through product innovation and or brand marketing rather than efficiency. A niche strategy should target market segments that are less vulnerable to substitutes or low cost alternatives.
A niche strategy can be a very successful strategy no matter what size your company is, in order to be successful in business of any type you have to find something that people need and then fulfil that need, there are lots and lots of needs out there all you have to do is pick the one you are going to fill. This is in effect what a niche is, what is the need you satisfy and importantly what makes you different to everyone else?
If you are starting a new business no matter if it’s producing a product or providing a service you have to be doing something that distinguishes you from what’s already available, if you’re working in a business that already exists you must think how you can distinguish yourself. Look for a void that is not currently being filled or serviced in the market place and how is this going to define or how does this define what you do. Your success will be relevant to how you, or your company’s is different unique or better.
How will you do this? How can you differentiate yourself in making a product or providing a service and that will become your edge or your niche. If you can’t enter a market with that difference then think of something else, simply put how are you going to be able to succeed if you don’t know what you are going to do to succeed?