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Reflections on Business: competition

Copyright 2008, Dorian Scott Cole

One of the hallmarks of US business, and much of world-wide business, is the role of competition. It makes us more efficient, keeps us innovative, keeps prices down, and keeps quality up.

The side effects of competition are that quality and innovation often go down, and everyone in the industry becomes uniformly poor. Why? Because many markets have limited size and growth potential, especially in smaller geographic areas. A town may support one candy store. The introduction of a second candy store is likely to cause them both to fail, and neither are likely to be profitable.

Smart businesses handle competition very differently. They research the market potential for a range of products, and position a new product so that it differs significantly from other offerings in the market. They carve out a new space for themselves. Technically this is part of product differentiation and positioning. This way they are going after new markets that can be profitable, and not clashing over market share. Often they become stronger by using each other's services to comlement their own offerings.

- Scott

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