Four Stages of Competition
According to Dictionary.com, the origin of the word “competition” is Latin, around 1600 AD. One definition is “a contest for some prize, honor, or advantage”. Another definition is “the act of competing; rivalry for supremacy”. In business, we often think of our competition as other organizations that compete with similar products in a marketplace.
It seems that the formal definitions of competition are stronger, harsher than what we experience in our day-to-day business lives. There is only one prize in sports, for example. Many teams compete each year, but only one is the “national champion”. Many individuals compete in the Olympics, but only one can win the gold medal. In business, only a single product or brand can be number one in a given category. And winning means the highest profit.
Competition and the Product Life Cycle
In sports, the “best” teams usually are sorted out early in the season. Unfortunately, players suffer injuries that can decrease the skill level and balance of a team. When Klay Thompson suffered back-to-back injuries, the chances dwindled for the Golden State Warriors to win an NBA championship this year. That injury on top of losing Kevin Durant to another team, reduced the skill and balance of the team from a position of “winner” to “needing to recruit”. While Golden State has been a perennial competitor in the NBA, their losses created space for stronger competition in the league by Utah and the LA Clippers, for instance. (Read more about Who is Your Competition here.)
In business, early market entrants might be the strongest competitors. Yet, over time, different companies produce and market products that offer competitive advantages. Just like NBA teams have an initial ranking that morphs and adjusts throughout the season, new products also have different competitors throughout the product life cycle (PLC).
The Product Life Cycle (PLC)
Most products go through a similar life cycle, though the speed of the life cycle varies. New-to-the-world products are launched into the introductory phase of the PLC. Often there is little direct competition at this stage. The new product is designed to meet a unique market need and the target customer might represent a small market.
As more customers adopt the product and via intensive product promotion, the market share grows. This is, of course, called the growth stage of the PLC. Companies focus on building brand awareness and increasing distribution during this phase. However, as more firms view the success of the product in meeting customer needs, competition also grows.
As a market becomes saturated with the availability of a high number of like products, a product enters the maturity phase. In this stage of the PLC, companies face price pressures and begin to focus on cost-cutting. Products with differentiation can maintain profit margins but, in general, the product faces commoditization.
Finally, an organization must make the tough decision to abandon the product or reinvest. This decision occurs in the decline phase of the PLC. Competition actually dries up because profit margins are so low. Unfortunately, paying customers also dry up.
Your Product, Your Competition
Knowing where the product is at on the PLC is a starting point to analyzing its competitiveness. You have to understand if the market presents an opportunity for growth in market share or in market penetration. It is also crucial for firms to make the (sometimes unpleasant) decision to abandon a product when it is in decline.
Analyzing the number and type of competitors (direct or indirect) can help organizational leaders make the best, most profitable decisions. These decisions also must include alignment of new product innovation programs, business acquisition strategies, and overall growth goals and objectives. Economic and regulatory factors, external to the firm, impact markets and innovation as well.
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