No well designed business should have competitors. Other companies in the same general category? Sure. But not competitors – other companies who your customers consider to be “viable alternatives” to dealing with you.
Your goal instead should be to create a form of “micro-monopoly” within your category, where only you provide the specific value you specialise in, so people who are looking for that value choose your product as a fait accompli, without even considering the other options.
Nowhere has the power of this approach been more starkly demonstrated than with the news earlier in the year that the iPhone had lost market share. Uh-oh, sounds like bad news right? Well, only if you’re in competition…
The thing about the iPhone is this. Nobody goes into a phone shop and weighs up the pros and cons of an iPhone vs. an HTC vs. a Samsung. Nobody. They do it with HTC and Samsung, sure, but they don’t do it with the iPhone in the mix. This is because you’re either an iPhone guy or you’re not. If you are, you just get the iPhone, without thinking about the other manufacturers. If you’re not, then the iPhone isn’t even on your radar.
What we see here is a product that exists in a nominally very competitive market, but which isn’t actually in direct competition with its “competitors” at all. It is instead incubated from them, existing in a walled garden where it effectively has a monopoly over that chunk of people.
Such a market position has a very profound effect on business performance.
You see, whilst the iPhone only has 14.5% market share, it holds a whopping 79% profit share. Samsung, on the other hand, are the “market leaders” (a laughable term in many respects) with a 21% market share, but only a measly 14.6% profit share. Why? Because Samsung have competitors, and the iPhone doesn’t. That means Samsung have to fight to sell their phones, spending huge amounts on marketing and remaining “competitive” on prices, whilst Apple can – relatively speaking – sit back, relax, and charge what they want.
This is all because the perception is that the iPhone offers value that no other product on the market does. It’s funny really, because whilst that may once have been true in terms of usability and design, the difference is now much less pronounced. But no matter, the dye is set.
Such a phenomenon can take hold in any market. If you manage to offer a genuinely different form of value to your competitors, in a way that is blatantly obvious to the customer (not just something that exists in your own mind), then you to will start to build a wall around your chunk of the category. You’ll know when you’ve succeeded because, naturally, your loyalty will be extremely high, you’ll be able to charge prices that sit outside of category norms, you won’t have to spend much on building artificial preference through marketing, and, ultimately, you’ll stop worrying about market share.
Instead you’ll become comfortable with the role you play in your market, and will happily let other brands have the customers that are right for them – just as Apple are happy to let other brands scrap over non-Apple buyers.
So, unless the goal of your business is simply to “provide competition” in order to compress prices for customers, ask whether you are really bringing anything new to the table. There’s bound to be quirk that sits just outside of the category mainstream – and if you double down on it (or more like triple or even quadruple down) then eventually you might just start to build a walled garden of your very own.
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