Question Time with Mentor John – Dealing with the competition

This article first appeared in Business Times on 21 July 2018

Question Time with Mentor John – Dealing with the competition

In today’s technologically-advanced, business-savvy environment, it’s never been easier to start a business. This has meant increased levels of competition and difficulties in retaining customers. Some competition can be healthy, as it encourages companies to constantly improve their products, services and operations in an innovative manner. What are the best ways to deal with your competitors? Mentor John shares his advice:

Some people say “Never ignore the competition”, while others tell me to just focus on my business. What are the best strategies for staying ahead of the competition, especially for companies with limited resources?

Deal with the competition by having the right attitude to it. It is there to teach us, to sharpen our thinking. Competitors can cooperate with us in perfectly legal ways. They can take us over, too, and make our lives intolerable. Very big competitors can deploy a ‘loss-leader tactic’ and sell below cost, ruining our business in the process.

Know your unique selling advantages and disadvantages – and those of the competition. Let sensible accounting provide enough flexibility to keep a market share even in the worst of times. Great companies have been brought to the ground by accountants insisting on overhead distribution that was unsustainable for a time. Develop new products, new ingredients, new uses, new services. “The old order changeth” and you must change as well. New is not a panacea, it doesn’t solve all problems but in the process of inventing new, many improvements to your existing product come to light.

My main competitor, who is a larger business with deeper pockets, has just lowered their prices. I don’t want to start a price war. What should I do?

First, assess how long he can keep up the price war. It sounds as though it may be a long strategy. Know what your margin of profit is. How much can you compete on price if it comes to a showdown? Can you retaliate by undercutting him in some profitable area – enough to hurt him? It also sounds as though this is a non-starter. Price wars, and tariff wars, are, in any case, real. They can be very destructive. Next consider what you can sell that the competitor doesn’t or can’t that may attract customers to you. You won’t recapture all the sales you have lost, but you will get some back. You want to let your existing customers become aware that you could go out of business. Loyal customers who need you will try to help by giving you business. However, none of these tactics will save you if your competitor is determined to ruin you. Calculate how much a year’s price war will cost him. Add that to the intrinsic value of your business. That is probably what he is willing to pay to buy you out. Consider that possibility seriously. A fight to the death is not worth it.

Several competitors in my industry play dirty. This includes cutting corners, using unethical marketing ploys or trying to steal my employees. How do I retaliate?

It depends on how dirty, how unethical and how illegal they are being. If your competitors are breaking the law, bring the fact to the notice of the police, if you live in a law-and-order country. Cutting corners is a broad expression and can be a legitimate way to reduce costs. Stealing customers from your competitors is not in itself illegal, it is the basis of capitalist business. Similarly, stealing your employees is a business tactic employed by all competitive businesses. Examine how well you treat your employees. If the answer is ‘less than very well’ equip yourself to be a better boss. Employees are generally inclined to remain with a good boss.

One of the newer players has reached out to my company in a friendly manner, making a nice change from other competitors, who tend to be hostile. Is it possible to collaborate with a competitor? What do I need to look out for?

Reasonable and decent cooperation is the best way to run businesses. You must be careful not to infringe the law of competition, wherever you are. Price-fixing is illegal in most developed countries. However, there is usually nothing to stop you agreeing what lines each of you will stock. You can also compare notes about promotions. Tread warily and ask a friendly lawyer. S/he will be able to guide your cooperation.

For example, as fuel prices rose and the cost of distribution to farmers increased faster than farmers’ incomes, a group of competing agricultural merchants agreed to set up a central registry point for all farmers in outlying areas, long distances from depots. Each company would man this point in turn and calls during his ‘duty time’ would be served by that farmer. As one depot then served several farms on each run the savings thus created, net of costs, increased each farmer’s profits by some 8%. Delivery costs to the farmer remained the same. A clear case of cooperation that did not disadvantage the customer.