Parents sometimes try to heat up the spirit of competition in their children and when the children get a bad grade in school they are asked how their neighbours’ child has got a better one. Who cares?
This parenting trick appeals to the child’s motivation to be better than others. It only works if the child shares the same logic. However, it speaks nothing about the child, the differences in characteristics, skills and interest. The individual development path, whether the child has shown any progress compared to the previous achievements, or the current influencing events, that might help or hinder, are totally ignored. The parents and the child can have different short and long term goals. Instead of talking about the effort and its consequences or understanding if this very happening is relevant and important, the passive-aggressive question creates shame or anger. Nobody takes advantage of it.
Market structures can be grouped into four categories: perfect competition, monopolistic competition, oligopoly and monopoly. There are certain characteristics of the market based on how easy it is to enter the market, how many suppliers meet the demand, how different the products are and how the prices are set and interrelated with each other.
In many cases, we as customers meet with monopolistic competition or oligopoly. These are the structures we find the most competitive features in. Monopolistic competition has many suppliers, but there are subtle differences in the exact propositions among them which opens up the opportunity not to compete with prices only. In oligopoly, the quality and other value elements are used to differentiate on the market. As a result, there are two extreme interpretations of competition.
Competition has no or little relevance. The bakery on the corner supplies the demand of the surrounding area. It offers fresh products that are bought by those who move around the neighbourhood. In this sense, it has nothing to do with the other bakery at the other end of the city or the supermarkets. It simply supplies a similar, yet different need. You can have bakery products for many reasons, but they complement each other and there are certain needs that the bakery on the corner can meet. You can interpret the market as a whole, but in practice, actually there are many separate and sometimes overlapping markets.
On the other hand, you can define your competition as anything that can have an effect on your business. Beverage companies sometimes measure themselves by their shares of throat, because people can drink only a certain amount. Even if the different beverages serve different needs. Besides thirst, you might want to drink something to get energised (coffee or energy drinks) or to take in vital elements (during sport or health treatment). If you want to get your share, you will need to squeeze out everything that can be substituted within the remaining domain. In this case, the market is one and interdependent, so you compete with everything.
Based on how you see your business you can easily get obsessed with your competition.
Zack was working for a technology company that operated in an oligopoly market. They were the market leaders in terms of subscribers and value, too. It had been the case for quite some time, no wonder that the management got used to being number one. They were interested in keeping the status quo. There were some slight modifications in the offerings and these changes were told as huge innovations, but the market dynamics were never really challenged.
After a while a technology shift was on the rise, which gave the opportunity for the competitors to re-define themselves and the market. Zack’s company was enjoying the benefits of the previous version of the technology so they felt no urge to change for the new version. They investigated the topic, but they came to the conclusion that there was no need to hurry.
One of the competitors soon introduced the novelty and another one followed it within a short time. Zack’s company had no choice but to react to competition and they launched the technology as well. After a few weeks it was clear that they could reach a huge uplift in revenue and margin, the innovation generated an enormous success. While they were financially successful in the short term, they lost some momentum in innovative and brand image in the long term. The competition defined Zack’s company as a laggard, which is especially painful in a technology business.
Zack’s company had been too comfortable with their market leader position. They got used to it and they defined their operation based on the achievements of the past. They had got stuck in the past and eventually they missed the train of change. But the number one position has nothing to do with the right positioning.
When you have a clear vision-mission and you act accordingly, even when the circumstances change, you will keep your operation up-to-date and you keep on delivering the results. If it is missing and you consciously or subconsciously define yourself and your performance according to the market and the competition, you can easily miss the opportunity of growth.
Let’s take the other approach that Apple does.
Once Steve Jobs was asked about the premium pricing of Apple. The journalist who asked the question was thinking of the computer market as a whole where the PCs and the Mac competed with each other and customers could choose either this or that. However, Jobs answered based on a completely different logic. He was on a mission to create tools that he could recommend to his friends and family. Apple was producing computers of some of the best technologies and features and they did not make any compromise along the way. Jobs believed they did a fair job at pricing taking the quality into consideration. Jobs defined their market separately from other computers.
When mp3 players were a thing and Apple was making a huge success with its iPods, Microsoft was so obsessed with competition that they wanted to beat Apple. As Simon Sinek revealed, Apple had no interest in Microsoft’s Zune, an alternative to the iPods. In some aspects, Zune was probably better than the iPod, but Apple was already focusing on the iPhone, their next big hit. Because Apple was walking its own path.
It is clear that when running a business, you need to know your competition. It can have direct and indirect effects on your performance. Yet, in his book, The infinite game, Sinek offers a different logic. If you think of other companies as your rivals, you can learn from them in areas where they perform better, or you can get confirmation that you are doing good in areas where you are ahead of them. The competition can serve as a reference point.
Actually, your company is perceived through the lenses of these reference points:
1. Any industry might have an impact you have to deal with. Online businesses put pressure on the traditionally offline businesses so now the latter ones also offer online sales and care features.
2. Your own industry has a clear effect on your performance as companies within the same domain define the most directly how the propositions and the processes are expected by the customers. You don’t need to beat them in every possible way, but you can definitely learn from your rivals.
3. And finally, you are the most responsible for the success of your company by creating a sustainable path that you are walking along. Regardless of your competitors.
