Growth Strategies & Competition
Every year about this time I begin looking at strategic growth alternatives for the next year. I highly recommend this for all business owners because it forces you to revisit assumptions you made in the past regarding the market you are in, the overall economy, your customers, your competitors, and where your business fits into that mix. Last year, we decided to open up a new store targeting jewelry artists with metal jewelry components. We made that decision because we did not see a competitive website that was tightly focused on just selling those types of products. Good decision for us. Hope we can hit another home run this year.
Competitive Factors
I don’t mean ill will to any competitor, but there are usually successful companies and ones who fail in any free market economy. Having too many competitors in the same space makes it hard for anyone to thrive and grow because of aggressive price discounting, the cost of acquiring a customer, and other intangibles that affect profits.
One assumption I’ve always had about competition is that as eCommerce and specific markets matured, the number of competitors would reduce through attrition and consolidation.
At this time last year, I assumed the recession would trigger both of those events in the jewelry supply business we operate in. That does not seem to be the case yet even after the worst economy in my lifetime. That makes me wonder if/when we will actually see that happen. Does eCommerce create a different kind of elasticity in the marketplace that allows vendors to hang in there when they might have been absorbed or vanished in the old “brick and mortar” world?
If we won’t see the number of competitors decrease in the future, what does that mean to our growth strategies? Is it possible that we’ll have even more competitors in the future, or are the barriers to entry finally getting too large for most entrepreneurs.
In the “Old” Days.....
I was in the enterprise software business from the mid-80s to around 2001. The software industry was very dynamic with new vendors entering markets every month. Finding a niche was how you survived initially as you tried to build the “killer app”, but you needed to grow quickly to ensure that you could withstand the copycats and “big guys” like IBM and Oracle who were sure to stake a claim to your space.
Usually, a single vendor got a big lead in a market, then about 5-10 more quickly entered that space. After a few years, there were usually just 3 viable companies left standing with the others either being bought out or slowly fading away. Eventually, all the niches sort of consolidated into one or two (think about Oracle and HP etc.) I think that type of cycle was true in many other markets beyond technology back then as well, it was certainly something I learned about in business school in college.
Because retail eCommerce is much broader, my original assumption in 2003 was that by 2010, there would be 5 huge and 10 or so mid-sized competitors. The rest would be “product specific” or “niche” suppliers. It was unclear what impact eBay would have on our markets in the long run. Amazon was not a factor at that time. I thought we would see mergers and consolidation in the mid-tier and we wanted use that opportunity for either an exit strategy or a growth strategy.
Current Observations.....
When I did this exercise 6 years ago for the first time, there were about 100 competitors on my radar screen, with about 10 who had a significant jump on everyone else. The other 90 were mom and pop operations. Made sense at the time, the barriers to entry were very small, the largest vendors were catalog companies who really didn’t “get” eCommerce, and the market growth for beading and jewelry making was HUGE in 2003.
Last week as I was looking at competitive sites, the products they carry, their pricing, their visits and page views, their advertising strategies, their SERPS, and taking a stab at current revenues, I realized there are still 80 competitors on my radar screen, there are still about 10 dominant competitors and very few of the original 100 were actually gone. There are probably 10 new competitors, some emerging from Ebay to compete directly on the web, some are international manufacturers from China and India trying to build a direct presence here. Ebay and Amazon themselves “function” like direct competitors siphoning off eyeballs through search marketing efforts to drive buyers to their vendors and products, but that’s a different discussion.
But, most competitors are the same familiar faces from 6 years ago. We’ve all grown and expanded our base and products. We sell virtually the same products at similar prices. Is it really possible for that many vendors to survive and thrive in a single marketplace? Or, is no one really “thriving” other than the top 5 or so? We don’t get to go out and meet and talk to competitors like companies did at trade shows, conventions etc like companies did 20 years ago.
The Competitive Shuffle....
A couple of competitors battled early for web traffic and market share without much regard for profits, and they are among the top sites in our industry today. The big catalog vendors have acted like the real guerillas they are and have claimed the top of the food chain, or are working hard to do so as they through vast amounts of money into their websites and search marketing effort. All in all, there has been a lot of movement in the top 25 suppliers, but the list hasn’t changed much at all.
I expected to find that many of our direct competitors would be struggling and adjusting strategies by reducing the products they carry, their advertising budgets and so forth. But, there is really only one vendor who has visibly altered their strategy in the last year along those lines by reducing their business footprint and marketing.
What’s this all mean?
Not sure! My current thoughts are the all of us who grew up with eCommerce have learned to operate a lean and mean business that can downsize or upsize quickly to meet demands. We know who our customers are and how to market to them. Maybe there is more market specialization and niche marketing going on than is obvious.
Or, maybe the eCommerce world has grown so much that no one has noticed all the competition yet? Perhaps the companies in our market don’t know how to merge or acquire competitors for growth. Is there a lack of capital to fuel expansion?
I’d love to hear your thoughts on these issues? Do you see this in your market? Do you alter your strategies based on what you see the competition doing? I’ll check back in next month with more specifics on what we decide to do based my research.
This post is filed under Evolving eBiz and has the following keyword tags: eCommerce growth strategies, competition.
