Tuesday, November 26, 2013

Competitive Physics

One of Sir Isaac Newton's laws of physics relates to inertia: a body in motion tends to stay in motion unless there's some force applied to it; and a body at rest stays at rest. Customers are creatures of habit. Customers have brand loyalty; they continue to buy the same product or service from the same provider because it’s worked for them in the past. Customers tend to be more loyal if they’ve had a problem but the company has fixed it than if they never had a problem with the company. If it’s so easy to make or do, then anyone can do it, right? If you're starting a new business or launching a new product/service, how will you overcome the connections the market has with your competition? How will you get them to switch? Are there points of dissatisfaction? Or can you prove you have better performance?

Another one of Newton's laws is that for every action there's an equal and opposite reaction. Your competitors will not just let you take customers away. They will not respond, “Oh sure, take 10% or 50% of my customers. I don’t care.” They will take some action to keep their customers. What will be the likely responses your competition will have to your entry, and your attempts to shake up customer expectations? Will they copy, create a workaround/end-run on your offer or will they escalate the battle on the value dimension—price, quality, delivery, service, technology? One of the quickest responses is to lower prices and create a new value point. (“Okay, maybe our quality is less but so are our prices.”) If the basis of competition is strictly to lower prices then you both will go out of business as prices drop below costs.

Hopefully, the response won’t be, as one person told me, one of physical harm to the business, his body or his family.

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