So you know
what’s a business model and now it’s time to start implementing it.
If you are
a fresh starter and you are just entering the market with your service or
product what you do in fact is “share-building strategy”. This kind of strategy
refers to all companies in embryonic stage and is about developing competitive
advantage like efficiency, quality, innovation or customer responsiveness to attract
first customers by providing them knowledge about what you offer. This is how
you do the ground for the “market share” you are going to build, and market
share is the slice of cake you would like to bite referring business to delicatessens.
Once you
attract customers and start selling what you offer is in fact “share-increasing
strategy” and your slice of cake starts growing. Now your state of the art goes
for focusing your resources to invest in product and services development to
become a dominant competitor in the industry you operate.“Share-increasing strategy” is in fact about
attracting more customers to you from “weak” companies, which are already existing
in the market.
And how you
become dominant competitor in your industry and what’s more achieve leading
position? Let’s take a look how it’s done in mature industries.
There are
several ways for going for this, incl. in particular strategies for deterring
entries of rivals. Deterring entries of rivals is important especially if you
introduce an innovation, which can be reengineered and successfully followed by
the others. One of the strategies for deterring entries of rivals is “product
proliferation”. Sounds sophisticated? In fact it’s not, as it’s about
communicating to the market that your product or service covers broad range of
customers in terms of industries they operate and their size (small, medium,
large). If you’ll not do it you may expect followers doing what you do, but
specializing in particular type of industries or companies’ size. Product proliferation
creates barriers of entry you need to fill the niches your competitors sooner
or later will.
Another
strategy you use to deter entries of rivals is “price cutting”. You do this by charging
high prices for what you offer in the beginning of your business and focus on
short-term profits, but then aggressively cut the prices to build your market
share. When you do it you signal potential new entrants that if they enter the
industry thy will not be able to cover their costs. Sometimes it goes with your
“experience curve” and obtaining “economies of scale”, which are about
delivering your services and products at lower prices once you master the
production,and when costs fall down with
prices your profitability is still maintained. Here you must be careful with
strong competitors, as in fact they are able to withstand short-term losses to achieve
long-term successes.
Last
strategy for deterring entries of rivals in embryonic businesses is strategy
called “maintaining excess capacity”. It’s about demonstrating physical
capability to produce more products or deliver services that your customers in
fact currently demand. You do it to “warn” potential entrants that if the enter
the market you would be able attack by increasing output of your products or
services, cut prices down and make the entrance not profitable.
Above
proposed approaches look nice, but let’s not forget that we operate in times
called “era of tabulation”, and what matters is constant ability to adapt the business
model and the strategy without generating losses to business environment you
operate. Y. Doz and M. Kosonen call such ability “strategic agility”, which
characterizes companies taking advantages of changes in their surroundings,
working out the profit with not losing the pace.
