I’m going to stick my neck out here and make a bold statement: Most entrepreneurs and small-business owners look at their competition completely wrong.
That’s because they’re looking at their competition through the lens of products only. They think about the functional attributes that their businesses offer, and they study and follow other businesses that offer those same attributes. Then they hyper-focus on beating those businesses on price, service or promotion.
That’s way too shortsighted.
Sure, following your direct competition is a necessary evil in managing your business. You have to keep track, on a continual basis, of your direct competition and all of their activity. You have to remain competitive with those businesses that have the ability to easily replicate your functional benefits.
But if you really want to defend and build your business, then you also have to think more like a brand, and you have to take a look beyond just your products and study everything that competes with your brand. You have to think through all the competition that can take time, attention, and money from your target audience.
That’s often far beyond how you compete on a product level.
There’s an exercise that I teach in my New York University class that helps bring the range of competition I am referencing to life. I call it the “Concentric Circles of Competition.”
The exercise is relatively simple, but the visualization of your competition is incredibly insightful in analyzing your business.
In the inner most circle, simply list your closest competition: the products that are the most similar and offer the same functional benefits. These are your top-of-mind competitors you face daily.
In the next circle out, list the competition that is perhaps a little less direct, but still a threat to your product’s success.
Keep going, layer by layer, listing competitors that are less and less direct. Once you get passed the first couple of circles, your competition becomes more about your brand and about the emotional benefits you offer rather than just your products.
By the time you are outlining the most indirect competition in the outer most circle, these businesses are generally fighting against your brand, challenging what it stands for. You are competing with them on an emotional level, often with little bearing to the product features.
Let’s take a look at an example. We will continue with the mega-brand Starbucks that we’ve been using in this series to illustrate the point about competition.
In the inner most circle for Starbucks, you would probably list Dunkin’ Donuts, Tim Hortons, Peets and any other big national/regional coffee shop chain. These are the most direct competitors to Starbucks, because they offer similar products in a very similar manner. The functional benefits are largely interchangeable, although they clearly try to differentiate themselves.
In the next circle out, you would likely list fast food chains such as McDonald’s and convenience stores such as 7-Eleven as Starbucks’ next most direct competitors. Depending on the location, you might also include local delis in this sphere of competition. These are all places where you can grab a quick cup of coffee in the morning, or anytime throughout the day, just like at Starbucks. Of course, in these locations, the experience is quite different, which factors into the consumer’s decision.
In the next circle out, Starbucks has to think a little harder about its competition. I would likely list the brands of coffee that you can make at home. Brewing a cup of coffee at home is certainly a competitive threat to Starbucks, but at this point it’s an emotional decision as much as it is a functional one, and the brand has to fight to prove its value. Consumers are still getting their coffee and caffeine (product), but the branded experience is a much bigger factor.
Is the Starbucks experience worth the time of stopping into a location and worth the higher price? That’s a brand decision as much as a product one.
In the next circle out, Starbucks would have to consider other factors that compete with their consumers’ time, attention and money, such as buying a magazine instead a cup of coffee, picking up a breakfast bar or saving the time and getting to work early to catch up on emails rather than waiting on line in a store. While it may seem like a stretch, these factors actually do compete with stopping at Starbucks to grab a cup of coffee. And this is where the merits of the brand help sway people to take the time, spend the money and swing by a Starbucks on their way to work. Or skip it, keep the change and grab a cup at work.
The last circle out gets even more vague, but is still incredibly valid as a competitive threat, perhaps even more so. This is where you see Starbucks being affected by greater societal trends such as caffeine consumption, financial worries and saving rates and even fair trade practices that may make a consumer choose one brand over another.
These issues in the outer most circle certainly affect Starbucks sales, and can impact the perception of the brand immensely.
If Starbucks only concentrated on the competitors in the most inner circle, then it would be missing the far greater threat to its business from consumer behaviors around their morning routines and attitudes about where and how they spend their money.
You don’t have to be a mega-brand to look at your competition in this manner.
Draw some concentric circles and map out your direct and indirect competition. I’m betting you’ll see that the threats to your brand are far greater than those to your products, but you may not have ever thought about it that way before. This means your action plans are going to be very different as a result, and perhaps more impactful.