P53 What To Do With New Competitors Part One

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  • Life would be so much simpler in business if we had no competitors. Unfortunately, that’s either illegal or a government owned entity or a business that is so uninteresting that no one else wants to compete.
  • So given that all of us in business have competitors, what happens when the competitive environment changes significantly. All of a sudden you find yourself with a major competitor that previously had been only a potential or minor competitor.
  • This podcast addresses this condition. The sources for the information in this podcast are drawn from a Fast Company article titled The New Rivalries plus my own independent research.
  • Let’s get started with the first example. When I talk about competitors to the iPhone, you probably think of brands like Samsung, LG, and several others. You probably have not considered Xiaomi (show me) as one of their major competitors. You probably have never heard of the company before. You can be sure that Apple views Xiaomi as a major competitor.
  • Xiaomi’s phones have a very innovative and focused business model and marketing strategy. Their target is younger customers who want a powerful phone but can’t afford the iPhone or Samsung’s comparative phones. For example, in China the Xiaomi 64 GB phone sells for about half the price of the 64 GB iPhone. There has been no shortage of companies attempting to compete in China on a lower price point but Xiaomi is the only one to experience significant success. Their phones work on the android operating system, have fast chips, and have high resolution screens. Their business model appears to be one where they sell the phone for a breakeven price and make money from apps and other content. This is a variation of the shaving business model where companies like Gillette are willing to sell the shaver handle for a very low price or even free and make their money on the many repeat blade purchases.
  • As a Chinese company, Xiaomi is a very strong competitor with Apple products in China – selling about 60 million phones in China in 2014. This makes them the third-biggest seller of smart phones in the world after Apple and Samsung. As I’m presenting this podcast in the third quarter of 2015, Apple, which is seen as a luxury product in China, has sold more smart phones in China than Xiaomi has in the last two quarters. While Apple is experiencing some success, Samsung took a big hit to their China business in 2014.
  • As Xiaomi looks to grow beyond China, they recognize that they have a very specific target audience – mostly younger consumers who cannot afford the iPhone. Their next market launches appear to be focused on countries like India and Brazil. As the author of the article states, their ideal customer just does not exist in the United States since most of the techno geeks can afford the iPhone in the United States.
  • They are already taking significant steps to enter India. They have developed a custom model for the market and entered into a production agreement with a partner to make phones in India. They clearly are hoping that the “made in India” tag will help them given the longer term reluctance by some consumers in India to Chinese made products. India is a market where Apple currently has less than a 5% share. Net, it looks like India will be a major competitive battleground for these two companies.
  • Apple clearly is not happy with Xiaomi. Apple’s design chief, John Ivey states, “I think it’s theft and it’s lazy” in referring to what they do and how they go about selling and developing smartphones.
  • What can you learn from this example that can help your business?
  • First, when it comes to identifying who your competitors are, you need to look well beyond your local markets. The competitors you have in your current markets may not be the competitors of the future. Within the United States, there are so many examples of companies in one region expanding into a whole new parts of the United States. I am reminded of Kohls a Midwest company that had a dramatic expansion into the Western United States – opening up many new major stores at the same time behind a region wide advertising campaign. You need to stay plugged into information about potential competitors outside of your market. One good way to do this is to use Google alerts to send you daily information on each of your current and potential competitors.
  • Second, you want to closely examine the business proposition of potential new competitors. In this example, to fully understand the competitive matrix between Xiamoi and Apple you needed to go beyond just a comparison of the product features. You need to understand the business model differences – Xiamoi selling hardware at breakeven and making money on services while Apple clearly makes money on their hardware sales plus their app business. This comes under the good business practice of “know your competition.” Apple might choose to compete with a much lower price than their current pricing knowing that its services and apps are far more lucrative an what Xiamoi has.
  • Let’s move to the second example. When I mention Amazon, you probably think of its competitors as Walmart – both online and the stores and just about every other online company.
  • But when you take a look at the emerging trends in Amazon’s business you realize that Instacart is a rapidly emerging and potentially serious competitor. So you may say, what is Instacart? The company started in 2012 and generated more than $100 million in 2014 revenue. Investors have beaten the door to their path so that today the company has a $2 billion evaluation. Instead of becoming the seller of a wide range of products like Amazon does, Instacart has working relationships with companies like Costco, Safeway, Kroger, and Whole Foods in 16 metropolitan areas. Whole Foods has reported that they sell about $1 million a week that gets delivered by Instacart. In those markets customers can order products via the web or an app from the stores and Instacart delivers them to the home. Their Instacart Express is an annual subscription program that offers free one hour delivery with a certain minimum order requirement.
  • You may be aware that Amazon has its eyes on the $638 billion grocery and convenience goods market. It’s looking to have home delivery of supermarket products with their Amazon fresh service. In addition, their prime now service sells major sellers in the grocery channel plus many Amazon products where prime members can get two hour delivery. More broadly, Amazon is looking to create an extensive system for expedited ordering and delivery of products. Earlier in 2015 they introduced their Dash program which is a series of Internet buttons in the home that consumers can quickly reorder items with a single tap their finger. In May 2015 Amazon made its voice controlled echo system capable of ordering products via voice commands. In addition, we know that Amazon is experimenting with drone delivery of products.
  • This will be an interesting battle. In previous podcast I took a look at the fast food home delivery category. This is another example of where customers appear to be willing to pay a certain amount to have the convenience of home delivery.
  • Instacart has a very simple system. It works with well respected names in the grocery business. It uses an independent contractor system to deliver orders. It has simple apps making it easy for customer orders.
  • On the other hand, Amazon, a very well respected name in its own right, is developing an extensive system – customer ordering and warehouse infrastructure to handle grocery products, especially perishables. This is no easy or low-cost task.
  • How might this example be valuable to your business?
  • First, if you’re in the business of selling products directly to consumers, you need to be aware of these major moves to dramatically improve delivery convenience. Almost any product sold directly to consumers can be bought at Amazon so that Amazon is probably a direct competitor of yours whether you see that or not. As I’ve mentioned in previous podcasts, convenience can be a significant benefit for many consumers. If you have competition that is selling as good or even better products than yours and they can have a delivery convenience advantage, life could get tough. Amazon has already made it tough on many competitors with their prime program and free two-day shipping.
  • Second, sometimes we look at competition as only those companies that offer comparable services to ours. As this example demonstrates, that is not always a good and prudent way of identifying your competitors. On its face, it would appear that Amazon and Instacart are very different companies with very different capabilities. Instead of looking at just the narrow definition of Instacart, you need to understand that it is part of a system and when looked at as part of a system becomes a direct competitor to Amazon. Look around your competitive landscape and see if this way of looking at competitors reveals any new insights for you.
  • The two examples in this podcast demonstrate how innovation can power business models and systems that can enable a company to become very competitive, especially with giants. Compared to Instacart, Amazon is a giant and yet Instacart looks like it has an interesting opportunity to be a successful competitor. Its biggest challenge may be that the Instacart brand is largely unknown to consumers, although its retail partners are well known. It’s an interesting competitive environment where it is too early to tell winners from losers.
  • In part two of this series will take a close look at unexpected competitors for the NFL and GoPro.

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