Avoiding Competition

A good strategy, therefore, should include finding ways to avoid competition.

Competition, by its very nature, means that there will be winners and losers--and in the competition for customers, those that fail to gain a competitive advantage in the market will ultimately fail altogether. A good strategy, therefore, should include finding ways to avoid competition.

Competition can be a destructive force for your organization. Consider two coffee shops that are situated next to one another, and that offer a similar standard of coffee and service. Both of the shops are suffering poor sales. To try to boost its performance one of the shops decides to offer a 10-percent discount on all orders. This is successful, and attracts more customs to the shop. In response, the second coffee shop introduces a 15-percent discount, in turn winning more of the local business, and putting pressure on the first shop to offer an even larger discount. This pattern of behavior is likely to ultimately lead to the destruction of both shops.

All markets go through this destructive competitive process, which leads--in time--to the failure of many competitors and the dominance of a very small number of the most competitive players.

ACTION POINT: Understand the destructive competitive process of price discounting.