{"id":63802,"date":"2022-04-01T08:20:42","date_gmt":"2022-04-01T12:20:42","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=63802"},"modified":"2022-04-06T08:45:27","modified_gmt":"2022-04-06T12:45:27","slug":"beat-your-competitors","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/beat-your-competitors\/","title":{"rendered":"How to Beat Your Competitors and Win the Market"},"content":{"rendered":"\n

Is your business part of a competitive market? How can you beat your competitors and become the market leader<\/a>?<\/p>\n\n\n\n

There are two main strategies for winning your chosen market: cost leadership and differentiation. Different companies have different strengths that contribute to their ability to excel in unique ways. For instance, small companies can often provide a more targeted, boutique service (differentiation) while larger companies can often deliver quality products at a more competitive price point (cost leadership).<\/p>\n\n\n\n

Let’s take a look at each strategy in more detail. <\/p>\n\n\n\n\n\n\n\n

Winning the Market<\/strong><\/h2>\n\n\n\n

How do you succeed in your chosen markets and beat your competitors?<\/strong> You need to create sustainable value for customers<\/a>.<\/p>\n\n\n\n

In their book Playing to Win, <\/em>Lafley and Martin say that there are two main ways to harness your strengths and find victory in your chosen market: cost leadership (beating your competitors\u2019 prices) and differentiation (offering something your competitors don\u2019t).<\/strong> <\/p>\n\n\n\n

(Shortform note: In Purple Cow<\/em><\/a>, Godin makes the case that the only way to succeed is with a remarkable product<\/a> or service that attracts attention. He uses IKEA as an example of standing out through cost leadership: By selling mass-produced, disassembled furniture in easy-to-stack boxes, the company greatly reduces production and shipping costs. As a result, IKEA can sell furniture much more cheaply than its competitors. Though IKEA is a large company today, originally it was innovation rather than size that allowed it to beat the competition<\/a> on prices.)<\/p>\n\n\n\n

Strategy #1: Cost Leadership<\/strong><\/h3>\n\n\n\n

In this approach, you win by selling a similar quality product at a cheaper price than your competitors.<\/strong> <\/p>\n\n\n\n

Lafley and Martin say that if three companies have products that are essentially the same, customers will buy the cheapest of the products. Companies that spend less to make their products have more flexibility on pricing. Therefore, the company that can make the product most <\/strong>efficiently <\/em><\/strong>can sell it at the lowest price and control the market<\/strong>.<\/p>\n\n\n\n

Furthermore, according to Lafley and Martin, the company that makes the product in the cheapest manner can use this advantage in other ways. For example, the company could instead sell its product<\/a> at the same price as its competitors and use the extra profit to pay for bigger marketing campaigns<\/a> or more prominent shelves at the store, thereby increasing sales.<\/p>\n\n\n\n

(Shortform note: In extreme cases of cost leadership, large retailers will drive their competition out of the market by intentionally setting prices so low that smaller companies can\u2019t possibly match them. The large retailers absorb the temporary profit losses, while smaller companies can\u2019t and go out of business. Then, once the competitors are gone, the large company raises its prices to recoup the losses and increase long-term profit<\/a>. This particular type of cost leadership is called predatory pricing<\/a>.)<\/p>\n\n\n\n

Strategy #2: Differentiation<\/strong><\/h3>\n\n\n\n

Lafley and Martin\u2019s alternative to lower prices is having a product that consumers want more than others because it\u2019s of higher quality or has better branding and more prestige<\/strong>. If it costs two companies the same amount to make similar products, but consumers like one more than the other, they\u2019re willing to pay more for it. This leads to higher margins that companies can then use to increase their advantage through higher-priced marketing campaigns or better placement in stores. <\/p>\n\n\n\n

Selling a quality product can also help develop loyalty, which makes a company less vulnerable to the whims of the market:<\/strong> Loyal consumers believe that a particular company adds value to their lives, so they don\u2019t shop around as much. <\/p>\n\n\n\n

The Elements of Brand Loyalty<\/strong>

Brand loyalty has two main components<\/a>:

Popularity: <\/strong>People assume that the top-selling brands must be the best quality, and they become loyal to those brands without exploring other options. 

Personality: <\/strong>People are attracted to brands when the advertising and presentation matches their personality, or how they see themselves. For example, Red Bull and Monster are two popular brands of energy drink\u2014Red Bull advertises with silly, cartoonish commercials, while Monster presents itself as intense, athletic, and powerful. By using two different approaches, these brands capture different sections of the energy drink market. <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Employing These Strategies<\/strong><\/h3>\n\n\n\n

Sometimes, Lafley and Martin add, a firm can use cost leadership and differentiation strategies at the same time\u2014driving down the cost of manufacturing and keeping their prices low while still driving up comparative quality. However, this is difficult to pull off unless your company already dominates the market to the point that it can afford to split focus among two different strategies, so most companies have to choose one strategy or the other.<\/strong><\/p>\n\n\n\n

Lafley and Martin point out that companies aiming to be cost leaders must strategize and sacrifice differently than companies that are aiming to be differentiators:<\/p>\n\n\n\n