By Alex M H Smith
Generally speaking, what’s bad for our competitors is good for us.
Any slip by them—any scandal, piece of mismanagement, or boardroom turmoil—we’ll tend to welcome with glee, seeing it as an opportunity to take a few slivers of precious market share from them before the dust settles. All sounds pretty reasonable right?
What if I were to tell you that this perspective, common sense as it may seem, is actually built on a flawed assumption and may not be the right way to think about this at all? Indeed, what if I were to then tell you that, in reality, you should be cheering and supporting your competitors, rather than wishing for their demise? Sound implausible? Then let me explain.
A race to the bottom in order to keep afloat: A commodity market
The desire for your competitor’s failure is rooted in the idea that you can take their customers. However, if we go one level deeper there’s an admission here: the admission that both you and your competitor have heavily overlapping customer bases, and that if push came to shove, those customers would happily shop with either of you.
Where you see this dynamic played out most acutely is in commodity markets. If you sell a commodity, then your customers genuinely don’t care who they buy from, so long as the quality and price are right. In a commodity market, the problems of your competitor do genuinely represent a great opportunity—and so you should celebrate their demise.
However, as we all know, a commodity market isn’t a nice place to operate. Margins are razor thin. The graft is endless. You have to engage in a race to the bottom in order to keep afloat, culminating in a scrap between a bunch of undifferentiated, unprofitable businesses.
Bottom line? If your competitor’s challenges represent a big opportunity for you, that’s a sign that you’re operating in a commodity market. A sign that you and your competitors are too much alike, and that neither of you have a defensible position from which to make a strong profit.
Divide up the pie rather than compete for all of it: The decommodified alternative
So what’s the alternative?
Well, at the opposite end of the spectrum from a commodity market is a market which is divided up, very neatly, between different brands looking after different segments. In other words, a group of brands that divide up the pie, rather than compete for all of it.
To give you a hypothetical example, imagine if the only four car brands in the world were Ferrari, Skoda, Rolls-Royce, and Jeep. In this scenario, although you could argue that on paper the car market is “highly competitive” with four brands “battling” for market share, in reality it wouldn’t be competitive at all. Each of these brands brings such a different value offering to the table there will almost never be a comparative decision for consumers to make. Nobody is going to ask, “Hmm, shall I get the Ferrari or the Skoda, or the Rolls-Royce or the Jeep?” In each case, the question would answer itself, based on the consumer’s need.