Your Market and The Risks
One of the biggest issues facing a vast percentage of businesses of all sizes is market failure.
When I meet business owners and boards of directors for the first time a common problem is a drop in business, either over a long period or in some cases over a very short timescale. Often they believe that this has been caused by a new competitor or increased discounting from existing competition. Their response is either to slash their prices or to throw money at the sales and marketing.
However this approach is usually dealing with the symptoms not the root cause.
More often than not the owners or board have taken their eye off the ball and not reacted to changes in their market place. As every product or service moves through its lifecycle, the market matures and more entrants enter the market to capitalise on the sales opportunities. Enviably the market becomes saturated and a price war ensues.
In this race to the bottom the only differentiation is price and there is always someone who will offer a cheaper and often more inferior product or service. See the diagram below:
But this market failure it is not just about competitors offering the same product or service. The other source of market failure is businesses not evolving their products, services or even the market channels. This can affect even the biggest corporation.
A good example is Eastman Kodak, Kodak as a brand led the world of photography since 1888. As recently as 1976, it had a 90% market share of photographic film sales in the United States. But in the 1990’s their sales began to decline rapidly, the reason was the company had rested on its laurels had not reacted to the digital revolution and the introduction of the smartphone with high quality built in cameras.
Even in the high technology market leaders, Nokia and Blackberry both failed to develop their smartphone offering and have heavily lost sales with resultant failure to both businesses.
Another example is UK supermarkets, Morrisons did not wake up to the threat of online shopping as offered by their competition and sales suffered. They are now playing catch up. The other casualty in this market is the mighty Tesco PLC who failed to recognise and anticipate the threat from new entrants Aldi and Lidl. The result is a massive discount war.
Gain Competitive Advantage
So what can businesses learn from this?
Firstly business owners and directors need to lift their heads and look over the horizon and try to make sense of what is coming and put their business and products or services into context. This outside view is therefore vital if the owners/directors are not to be caught out.
I spend a proportion of my time researching and following ‘Thought Leaders’ like these two people in my network, Thomas Power and Nat Schooler. Check out this discussion captured on a smartphone during a break at a training event. Here Thomas and Nat discuss how social infrastructure and the business landscape are changing with massive impact on businesses.
Already these changes are happening the website https://www.airbnb.co.uk/ is having impact on hotel room bookings. Easy Car Club https://carclub.easycar.com/ is offering the chance to rent out your car to your neighbors and other people.
When mentoring business owners and boards I introduce them to a concept that I call second curve thinking. As a product or service moves up the lifecycle growth curve they should start to think about evolving the next batch of products or services to be introduced. In this way they can ride the new curve and have ‘first mover advantage’ with the associated higher prices and profit margins that come with this position.
Of course the internet is full of business gurus claiming that they have the secret to boosting your sales and will totally ignore these issues or in many cases not understand product and service lifecycles.
The most worrying outcome is that by boosting sales on products or services in those highly competitive market conditions will result in increased sales often with thin profit margins. Also these additional sales need to be financed. They require more materials, stock or staff etc. which then can cause a business to potentially run out of cash and brings the risk of overtrading resulting in business closure.
If you would like to learn more about how your business could safely perform more profitably contact me today!