Find a Defensible Niche for Your Business
A very powerful strategy, especially in larger market areas, is to focus your entire business on one specific niche. For example, let’s say you own a local lumberyard and a national lumberyard chain moves into your sales region. You may be better off focusing your attention on serving local contractors, for example, where the ongoing personal relationship may be more important than for more occasional consumer shoppers.
If the market niche or niches you are considering are very small markets, you may want to retain some products and services that appeal to a wider range of customers, but have exceptional product depth in a few niche areas. For example, a local ski shop faced with competition from a national chain might decide to focus its primary effort on racing skis, while still retaining some selection for all levels of skiers.
You Can Compete Against National Businesses on Price
For example, many local retailers feel they can’t compete with national discounters because national discounters are selling at prices far less than they can even purchase the merchandise for. This is defeatist thinking!
You can turn the tables on nationally based competitors. For example, for years a very powerful local chain of general merchandise discount stores in the Boston area called Building #19 successfully competed with the big guys. Unlike so many other regional discounters, they didn’t roll over and disappear when Walmart and the warehouse clubs first moved into town.
And it’s no wonder: Building #19 typically sold goods for a little as one-quarter the price that tough national competitors can buy them for! How’s that? Building #19 bought odd lots, closeouts, and damaged goods. And the beauty in this strategy was that their selection changed continually, giving shoppers more reasons to visit their stores on a regular basis.
You can adopt Building #19’s strategy for just part of your business by devoting a portion of your retail space to off-price products. Many local businesses have traveled that road with great success.
However, competing on price is not a strategy I generally recommend. It takes a lot of ongoing management effort and careful purchasing. While Building #19 was incredibly successful for many years, it did eventually run into financial difficulties.
Find Your Loss Leaders
A local business or service can use “loss leaders” to sell against a tough national competitor in almost any category, be it retail, wholesale, service, product, or something else.
Many national businesses often use complex pricing strategies to powerful competitive advantage. For example, grocery stores may sell milk at a smaller markup than most other goods because they feel that consumers are particularly conscious of the price they pay for milk. Similarly, a discount department store typically sells name-brand health and beauty aids at a smaller markup than other goods.
Airlines offer special prices on travel over Saturday night to lure more price-conscious nonbusiness travelers. For a time, McDonald’s sold its hamburgers for a mere 15¢ while marking up sodas significantly to realize an overall profit.
If you don’t have a cost advantage over a competing larger national firm, consider offering very low prices on a limited quantity of heavily branded items that consumers are most likely to have noted the competitor’s pricing on. Also, consider running very deep discounts for short periods of time, and change at least some of the items receiving the deepest discounts.
While a small business won’t generally run into legal problems by selling goods below cost to stay in business, it is illegal to sell items below cost for the explicit purpose of driving a competitor out of business.
Creative Aerial Dogfights
Even when you are planning to go head-to-head against a large national firm, you can deploy creative competitive strategies.
For example, some years ago, a relatively new airline, Southwest, decided to carve out a major market share of the Houston-to-Dallas airline route. This strategy involved competing against an entrenched national airline. Southwest struck at its competition with a dramatically lower airfare offer. The national airline quickly matched the lower fares. Southwest went lower. The national airline went still lower.
Fares finally bottomed at $19, and both airlines were losing money hand over fist. Then Southwest noted that most of the travelers were corporate executives who handled their own flight arrangements but didn’t get involved in paying for them. Price wasn’t the main selling factor and therefore wasn’t the strongest point to compete on. So, Southwest changed its tactics, and jacked up its fares, but offered each adult passenger a complimentary bottle of Chivas Regal. Southwest soon dominated the market even with a higher ticket price!
A powerful tool for holding on to your best customers is to give them specific rewards. One common strategy is the frequent-buyer program used by many retailers and service businesses. Witness the popularity of the frequent-flyer programs offered by airlines, wherein you earn discounted or free travel for specified levels of air mileage achieved.
Customers get incredibly attached to the frequent-buyer programs they have enrolled in. They often continue to patronize a store or use a product or service even if the competitor’s prices are lower. People just enjoy receiving special treatment!
One of the most common suggestions you will get from others on how to survive against major national competitors is to provide great service. While I want you to know that this is common advice, I want to tell you that I think you will generally be making a big mistake to bank on great service alone for your survival.
Frankly, I think a lot of small stores retreat to the service option because it is the cheapest option and one of the hardest to measure. Also, more and more larger national businesses are doing an increasingly good job of offering good service.
Study, Block, and Tackle!
Study, but don’t necessarily copy your competitor’s moves. Visit their businesses, watch their ads, figure out their strategies, and find their Achilles’ heels. Always watch them like a hawk!
You may not be able to keep up with your competitor’s strategy move by move. You should, however, be ready and able to blunt or block the impact of their moves. Then, later, you can make your own offensive move at your own pace and in your own home court.
For example, let’s say you are selling a product on a national basis through retail outlets. You discover that your competitor is about to launch a gigantic, multimillion-dollar advertising campaign. You don’t have the time or money to create a competing campaign. What you may be able to do, though, is offer a special onetime deal to the trade—something like buy five items, get one free—for a limited period of time. This way, you can stock up the trade and limit the shelf space that is available to your competition. The added consumer traffic attributable to your competitor’s advertising efforts will largely benefit your product because it is the available product. At a later point in time, you can launch your own marketing effort or product introduction—perhaps during a typically slow period for your competitor.
Takeaways You Can Use
- Find your niche.
- Off-price products can help you compete.
- Heavily promote loss leaders.
- Consider a customer rewards program.
- Study your competition.