Business Distilled


two very different motorcycles and riders

The choice of a competitive strategy is best done during the planning of a new business, or strategic business unit. Once a competitive strategy is selected and an enterprise is developed around it, undoing or shifting the choice is difficult at best and may be downright akin to business suicide. However, it can be done.

The two choices are to Discount or to Differentiate. Neither are easy to execute but every business chooses one and executes it. Before the decision is made the managers should know how they will succeed with it.

The enterprise which chooses to compete on the basis of price (discounting) should know how they will achieve competitive scale, avoid competition until it is reached, and how they will apply their ability to discount against rivals. In my career, I got to watch Walmart write the textbook for building a discounting strategy.

Walmart began its expansion at the time Kmart already had a solid position as the major discounter in larger markets. Rather than going head-to-head with Kmart, Walmart put stores in small cities where Kmart wasn't. I dubbed their strategy "hit'em where they ain't." Or, like Mr. Miyagi told Daniel, "the best way to not get hit is don't be there." When Walmart had achieved its competitive scale they took on the leader and we know that over the next 20-years Walmart grew to dominate the space.

The discounting strategy has some significant challenges, but one stands out above others. Because margins are thin the sustainable growth rate is small and requires external capital to fund growth. To the extent the founders are capable of raising the capital, problem handled. Once the ability to fund growth is maxed out, real problems start to challenge the business.

The other strategy is differentiation. Differentiation can be achieved with products or business model. Airbnb, Uber, and Amazon created new business models. Tesla created a new product and Apple creates product designs.

The enterprise which chooses to compete on the basis of differentiation, should know how to make their product or business model so different that the marketplace cannot compare it to others, how they will find customers that are away from the masses the discounters feed on, how they will educate the market about the new value proposition, and how they will fund the long slog to positive cash flow.

Tagged with: #businesscompetition, #businessrivals, #businessstrategy

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