Across the world industries are in turmoil as the Internet and globalisation allow new competitors into once safe markets. How do the incumbents deal with the upstarts and how do innovators challenge the establishment?
One way is to redefine the market, instead of taking on the incumbent or challenger on their own terms, aim the product at a segment that hasn’t been properly developed. The best example of this is Apple’s iPod.
When the iPod was released there were hundreds of MP3 players on the market including those from Sony who were expected to continue their dominance in the personal entertainment device market which they had developed around the Sony Walkman in the early 1980s.
Apple took that market and redefined it on their terms, they then repeated the strategy with both the iPhone and the iPad.
While not every business will have Apple’s design talent, or the market opportunities that allowed Apple to time their entry with those products, their experience shows how choosing where you fight your market battles matters.
In the United States, major airlines are deciding not to compete with cut price carriers on travel websites, the reasoning being that these online comparison services only compare products on price which is not the legacy carriers’ advantage. Instead airlines like American and Delta are pushing their own websites that emphasise their advantages such as free baggage allowances, lounges, inflight meals or downtown check-in facilities that their low cost competitors don’t offer.
Qantas in Australia carried out a similar strategy when faced with low cost carriers entering their market. They set up Jetstar as a low cost carrier which started flying the price sensitive routes, mainly the leisure and holiday services, leaving the expensive full service legacy operations to focus on the business dominated routes that weren’t so concerned about price.
In doing this, Qantas chose where they were going to fight and on what terms, which has helped them remain profitable at a time when many other legacy airlines have struggled.
Traditional retailers are facing a similar problem to the airline industry as online stores are taking growing share of the shopping market. Some commentators are suggesting they need to compete with online services, but for many entering a field where someone else has the advantage would be a mistake.
Instead it may be better to choose where a business’s existing strengths lie and build upon those. For a bricks and mortar retail store, this may mean service and convenience.
A good example of this is the cornerstore of our grandparents days. With the rise of supermarkets, most of these smaller shops went out of business as they tried to compete with the better range, prices and convenience of the self service stores. We saw a similar process happen with speciality shops like butchers and greengrocers.
In recent times we’ve seen the corner store being reborn as retailers have discovered that consumers are prepared to pay more than supermarket prices in return for convenience. The modern convenience store is different to the corner shop of our grandparents’ days, but it is a recognisable descendant which caters to the changed society and customer needs.
This changing society and evolving customer demands is what today’s retailers, and every other industry, needs to consider as they look at the future of their business. The economy is going through a period of massive change and disruption.
Building on strengths and recognising other’s advantages and weaknesses is the key to survival in such an environment. For a traditional, bricks-and-mortar appliance store, an e-commerce solution might be the answer as could a social media strategy or offering bid discounts to Internet shoppers.
The key is to choose the marketplace where your business have the strengths, either by redefining markets as Apple often do or by focusing on key advantages like Qantas and the US airlines are trying to do.
A similar rule applies when challenging the incumbents in the marketplace, in fields where barriers are low and it’s difficult to simply undercut the established players, you have choose the areas in which they are weak and the demand is strong.
This isn’t to say incumbents shouldn’t adopt new technologies, they should and they can use them to build on areas they are strong while looking at how new methods can fix their weaknesses. Similarly upstarts can compete in an incumbent’s core market if the existing players are weak or aren’t adapting to changing conditions.
Choosing the battlefield is the key, whether you’re an incumbent protecting your market position or an upstart looking at building a new market, working from a position of strength makes success far more likely.