I have posted a couple of times recently about competition – one was about how to win by taking ‘loose bricks’ out of a competitor’s business, and another told how an equipment distributor beat competitors to grow sales and profits in a falling market.
Put the scatter-gun away
It is surprising how many companies view competition as an amorphous whole, with a general aspiration to grow market share, and marketing and pricing tactics hoping to capture more sales any old how.
Smarter competitors know there are many mechanisms in play, and that tactics must be crafted to hit specific targets that offer the best prospects. This is especially vital for smaller competitors who simply don’t have the resources for such scatter-gun approaches.
So what are the details we need to master? Well, start by recognising the 3 basic sources of sales growth
- win new customers faster
- lose existing customers slower
- sell more to existing customers
Then recognise that each tactic or decision will have specific impacts on each of these 3 distinct customer behaviours. What, for example, might a price-change do to the customer win-rate, to the customer loss-rate, and to the customer purchase rate. Then of course, you may be able to do different pricing tactics – and certainly different marketing tactics – to target each of those rates.
And when figuring out those choices, don’t forget that other factors are at work, both within your own business and beyond. A new-customer campaign could fizzle out if those targets are wow’ed by a competitor’s new product; a customer retention tactic could be scuppered if those customers are hacked of with poor product or service quality; or efforts to get customers to buy more may fail simply because they already have product in their cupboard from the last time you tried.
Competition multiplies the detail
When we throw competition into the mix, those three mechanisms driving sales growth multiply.
Here’s a case where we had to dig into the competition mechanisms in some detail – an established brand in the drinks sector that was losing out to newer brands.
We needed to ask where customers come from, and go to?
- Are we trying to win customers who are new to the market? Here, these would be consumers trying the product category for the first time. In other cases, it may be because it’s a novel product or service for which new potential customers are emerging (like household solar panels), or because of demographics (new generations of kids needing school shoes or elderly folk needing mobility scooters). In either case we are in a race to win those potential customers before those pesky competitors do.
- Are we trying to steal existing customers from rivals – or stop them stealing ours? That process may be continuous, with customers able to switch at any time, or periodic, if it’s about, say, replacing a car or renewing a service subscription.
- Are we trying to keep customers loyal – buying only from us. And if they are disloyal, are we trying to increase our share of their purchases?
… and all 3 processes can be happening at the same time.
… and those processes may vary between the different competitors we are up against – which competitor is winning new customers faster, which is stealing our existing customers, which is getting more sales from disloyal customers?
… and there may be segments of customers, each with distinct behaviours, and we may have to compete for intermediaries (the retail stores in this case), as well as for end-customers.
Not only do the options for our pricing, marketing and sales tactics multiply across these competitive mechanisms, but new factors come into play too, such as ‘adoption costs’ for new customers, and switching costs for established customers.
Pick the tactics
It may be obvious already, but for this intelligence to actually drive sales, we have to figure out which of the many causal mechanisms we want to influence. Do we think a specific promo can win new customers in segment A faster; could a value-added offer slow the loss of segment B customers to competitor X; could a small price cut through certain channels win from competitor Y a bigger share of sales to disloyal customers?
Then, we have to follow the data to tell us exactly how effective each of the many tactics and decision options turns out to be, relative to expectations and prior experience.
And to stand any chance of mastering all this, we need a digital-twin competition model to both plan and execute the strategy.
Forget the spreadsheet!
The complexity of this consumer brand case is not at all unique. Pretty much any product or service in a significant market – B2C or B2B – may raise all of these questions.
And the human brain is simply not able to handle this complexity if all it has to work with is rows and columns of numbers. It needs to see the time-path behaviour of everything that is changing, and it needs to see the causal connections driving those changes,
Our extension-class 7 explains exactly how the three competition mechanisms listed above actually work, and shows how to build digital-twin competition models that can handle the complexity … and it comes with an easy-to-use software that does visualise those mechanisms and the behaviour of everything in the system.