That is Not Our Competition

competition-2Most of us running a business, building a product or starting a venture think we get to choose who our competition is and exclude those who are not. It is commonplace to see the refrains,

“Their product is completely different from what we are building”

“Spunk is just a log analysis tool, we are about application analytics”

Well here is a sobering thought,

“We do not get to decide. Customers get to decide that.”

Here is a simple rule, for enterprise customers or consumers, whether you sell enterprise software or cycling class. Ask what budget is customer going to pay for your product? Everyone who gets paid from that budget is your competition, whether you like it or not. They need not be in the same industry classification, category, or provide same utilitarian purpose.

You need to focus on what job is the customer hiring the products for. Every product competing for that job to be done is paid for from the same budget and hence are alternatives.

Let me make this concrete with an analysis I recently did on Cycling classes. SoulCycle offers cycling classes at the cost of $35 per class. They position themselves as more than an exercise class at local gym,

“SoulCycle isn’t in the business of changing bodies. It’s in the business of changing lives.”

A quick analysis of twitter bios of fans of SoulCycle point out  this about customer job to be done-

soulcycle

They love life, they are into fashion, they are enthusiastic about life, they love music and food.

That means they are not hiring SoulCycle for just fitness but seeing it as part of their lifestyle choice. They pay for it from the same budget they would for fashion, pop culture or trying out gourmet food.

From the broader pattern from analyzing 44000 twitter followers let us see a specific  anecdote of one such customer,

“It’s definitely a bigger investment,” says Ms. Dougherty, who has curbed shopping trips and brought her lunch to work to afford her boxing-boutique investment.

So competition for SoulCycle is not just other cycling classes, Peloton that sells ride at home cycles, or other gyms. It is everything that is positioned as , “changing lives”. These customers pay for SoulCycle from the budget for “changing lives”.  Fashion, food, music, etc. all compete for the same customer spend.

If you do not define your competition this way and ignore a large swath of products positioned for the same customer job to be done you likely will not have a viable business for much longer.

What Job Will Your Customers Hire Your Products For?

When marketers narrowly define their product(service) and its end use it is very easy to declare that the product is unique with no competition whatsoever. True, there may not be a competition that offers a product that is similar to yours but the customers may have many alternatives that render your product useless. Customers could be more than happy to live by without your product.

Instead of looking for similar products and how to position your product features you need to ask the question, “What job will your customers hire your brands for?” (Clayton Christensen). Answering this question helps you see what you are truly competing against, be it competing brand, other unrelated alternatives or simple customer apathy. Your messaging and positioning should be defined to address this final job. This is true whether you are a startup with the next social media application or a giant like Pepsi with billion dollar global market.

Let us take Pepsi’s case. Pepsi’s messaging for the US and European market reads, “Refresh Everything”. The messaging is not really about thirst, or encouraging use. It is more at an emotional level and less at utilitarian level. Even their previous messages were all defined at the emotional level (Drink Pepsi Feel Young, The Joy of Pepsi etc). They are positioning their brand to serve the job of making the customer “feel cool/young/hip”. The job the US/EU customers hiring Pepsi for is not quenching thirst. For this job Pepsi is not competing with water or milk but with Coke. The competition is clear and everything Pepsi does in these markets is aligned to gain advantage over this competitor.

But take the case of Pepsi in India – a marker with billion people that promises so much yet where most global brands are struggling. What is Pepsi’s competition in India? Coke? Local brands? Coke is struggling and many of the local brands were bought out or do not have the resource wherewithal of Pepsi. So can Pepsi declare it has no competition in India?

Their current messaging is less emotional and more utilitarian. Plastered across billboards and all newspapers are promotional Ads from local eateries. All these Ads offer “Free 200ml Pepsi” with a meal. All these Ads have the tag line, “Food tastes best with Pepsi”. What is Pepsi competing against? It is competing against tradition and a really powerful alternative – Water.

Customers in India prefer just plain water during their meals over any other beverage. Pepsi is not trying to get the customers to hire its brand over Coke but replace water. It wants the customers to fire water and hire Pepsi because,  “food tastes best with Pepsi” (let us ignore the veracity of this claim for the scope of this discussion).

Pepsi did not get this right the first time, its initial messaging in India was just a slight adaptation of the emotional messaging that worked in developed markets. However, in India , its fiercest competitor Coke turned out to be not its competition but plain old water. As Pepsi realized this its messaging and promotions are aligned to fight this competition.

Do you know your competitors?

Do you know what job your customers will your hire your products for?

Small Business Pricing – 5 Steps To Effective Price Management

Linda runs a sewing business that does works like alterations and hemming.  Unlike most small business owners, Linda writes a blog that is about “Sewing for profit” in which she shares her ideas and practices to help others like her to run an alterations business.

In the down economy when people postpone purchases, alterations should be good business. But the barriers to entry are low, there are many individuals and businesses offering this service and the market alters (pun intended) with the economy. There are also challenges in reaching the right customer segments. All these make this a highly competitive market with challenges in communicating differentiation and price list becomes the main piece of any messaging.

Linda is thinking about pricing and wrote about it recently. A very well written article that considers factors like opportunity cost of the business owner’s time, competitive analysis and a pricing model for someone starting new in this business. Linda recommends a pricing that is based on the time it takes the individual to do the work and based on pricing from other competitors in the area.

If I were to suggest changes, it is avoiding what Mr. James Mason described as the 8 deadly pricing sins and practicing what I described in Effective Price Management. Pricing a product or service based on what it takes to produce and deliver it is cost based pricing. The risk is that in any undifferentiated market there will always be someone willing to price it lower and quickly prices will spiral down.

What can a small business, like an alterations or any such business, can do to practice effective price management in a highly competitive environment? Here are five steps to get there:

  1. Recognize that cost to produce is not relevant to your customers. Your costs are relevant only to see if you can run a profitable business given the addresable market and prices you can charge.
  2. Recognize that price is not differentiation. Competing on price does not let you have a conversation about the value you add.
  3. Identify the different customer segments and the economic value to them from your service.In the case of alterations the segmentation is based on usage scenarios, sometimes a customer would want to get their work pants altered and other times their expensive evening wear. The economic value is different for each case. Practice a pricing model that is based on this value add.
  4. What is “ownable”? When many other competitors are in the same market, what sets you apart from the rest? Is that defensible and unique and no one else can claim the same? In other words is that “ownable”? Identify that and make the marketing conversations about this and not lower prices. On the last point, salons excel in offering multiple prices based for the same service based on who does the work.
  5. Offer multiple versions of your product/service, be it based on material that is worked on, raw materials you use, convenience or based on person who is doing the work in your business.