Basic Principles of Competition

 Basic Principles of Competition

Irrespective of brands & individuals aspirations, competition has existed since time immemorial.

Moreso it becomes important to realize that timing is a very crucial factor in remaining relevant in every type of the competition.

And that brings us to some basic principles that can be equally applied on micro as well as macro level.

A) Understanding your consumers mindset: The entire business model revolves around the theory, which itself is evolving, any business model that must have carried out a proper Value Stream Mapping, can easily testify how many NVA's they were able to identify & remove that they must have been religiously practicing for decades. Anything and everything that any business is involved in & is not adding any value to the consumer, or the end user than it automatically becomes an absolute waste of time & resources. Dump it or it may remain the bottleneck of your business forever.

Today's consumer mindset is driven by those major brands that are heavily invested in R & D to make sure that every 2 years they roll out newer & better versions of their products. So while the new customers are lured to get into the brand, the old ones, if capable of selling their older versions or even putting it aside, will show the loyalty to get the newer version. Once an zphone user will always remain a zphone user, once a zonda car user will always remain a zonda car user, why? Because zphone & zonda are investing & reinvesting in their new products & features development to keep their part of the loyalty towards their customers & thereby not only increasing their market stake, but also multiplying their profitability in folds.

B) Periodically study your competitors : Set a schedule for a periodic review on the entire business model of your immediate competitors, at least three of them that are above your own brand, sales value & market stake, while the three of them that are below your brand & business but are trying hard to level up. This will form a very fundamental basis for your strategies & can help you minimize the losses on profits, in other words it will immediately help your business to improve its profitability. Every business venture in one or another ways will be invested in KAIZEN of their own business models. Everyday in & out they will be striving to improve their sales, profit margins & get better than they were a day before. When a periodic study of their business model is being held & compared with the past records one may identify the areas where they may have made some course corrections. Evaluate your own business model with their changed course correction & review the probability to improve your market stake & profitability. Do not remain invested in KSPs that are not being offered by either of your competitors, you may think that you are standing out, yes you are but as a novice. Unless you have established your brand as a market leader for over a decade, do not invest in any schemes, strategies or offers that are more expensive in a longer run, because with every better response that you may have to meet or beat your immediate competitors, it is going to burn a deep hole in your pocket.

C) Sales Vs Profitability Reviews : Value of profitability is directly proportional to the volume of sales. The higher the sale volume the lesser % of profit margin will be, but at the same point in time with a very well articulated business strategy every business can offer improved volume of profitability with increased sales value. While a higher sale volume is a commitment to a better market stake that can always offer promised ROI. Mostly we see businesses adjusting their balance sheets after the analysis on business done, rather a set margin of profits must be at the center of the entire costing process to help arrive at a pricing that is competitive for a long run. Yes there are always going to remain some exigencies & circumstances that may have not formed part of the Business Forecast, but then a projection of 12% profit margins cannot go wrong to become 4%, if such happens then the fundamentals of entire business models have not been reviewed accurately. Religiously work on all the quarters of the business aspect to form the bases of costing & pricing, that the profitability targeted with reference to the projected sales value. The net differential graph must not keep varying more than the risk mitigation of the segment.

D) Cost Heads : One of the most underrated aspects of any business operation. In Lean Six Sigma terminology, what is not accounted for, cannot be monitored & controlled. So every business must have a system whereby every expense, cost, spending, be it a purchase of a pin of an airplane it must be recorded. While during the Operational cost analysis, a clear comparison can be drawn on various cost heads & that may also become the foundation for Value Stream Mapping for the business. The same cost heads analysis can give an understanding on where the business is bleeding, and where the business operations ends up spending. When a product is competing with similar products in the market, the common factors like transportation cost, storage cost, packaging cost, electricity, taxes & to an extent the raw material cost may remain at a negligible difference, so the only way to improve profitability is by looking inward, it is the efficiency of entire business operation that will help get better profit margins and nothing else. Innovative ideas will be replicated in couple of months or even worse that the competitor may come up with an improvised version of your own idea & get an upper hand in the market stake, but what you are able to optimize with given resources & convert them into your profitability from your operations excellence cannot be replicated or copied by your competition. 

Ask why that pin was purchased? What is the application? When was it last purchased? How long did that pin last to its purpose? At what price was it purchased then & now? Who all are using it? Will the business cease to exist if the pin wasn't purchased?

That extra effort made in running a prudent & cost effective business operation is what will fetch additional 2% to 3 % of profit margin & that is what best difference any business can make if they offer genuine right price for their products in an open market.

E) Strategies balancing 80-20 Rules : A well known business RULE that may not need any introduction. Which can imply claiming that most businesses will have its 80% of sales value coming from sale of items & products that might only contribute to 20% of the entire profit margin. And most of the times business strategies remains focused on these 80% of sale volume, whereas there are two opportunities in here, one to introduce innovations in these 80% whereby it can get sales boosts & at the same point in time there can be some saving made by deploying alternative solutions, two the remaining products that are resulting into 80% of entire profit margin can be reviewed to get better at least by another 5 to 10%, that is reduce that profit margin in those items to increase the market stake & that will automatically cover up the reduced profit margins.

An example will do the needful here.

A business with monthly profits of 100K $, with two products, blue pen making profit of 20k & green pen of 80K.

Entire business sale value is 1 M $, so we can say here that the net profit margin is 10%

Blue pen sales are 600K $ while that of green pens are 400K $.

So the sales cost price of blue pen is 580K & that of green pen is 320K.

Blue pen is a general purpose pen hence is selling at say 6 $ per unit, 100k Units in a month, while the green pen is signature edition & hence is selling at  20 $ per unit & 20K units in a month.

For sure the cost of quality for blue pen may remain negligible & the demand for it may remain more likely to be of an use & throw type, while many competitors are in the market offering the same pen around the same price.

Whereas the 20 $ pen may need more precision & presentation along with marketing to attract those niche customers, here too the competitors might be doing their own needful to get their stake in the segment.

The idea is to get into the immediate competitors' market share by reducing the profits % of that green pen that will make that very classy & niche product more attractive in price to the elite group of customers & thereby increase the sales volume to still make up the same or even more profits. 

F) Policies & Rules based on Past experiences: The Irony of Human History is that we haven't been sincere with our lessons learnt from our own past experiences & we tend to continue with the new ideas & visions making the same old mistakes & wasting time & resources to recall the past lessons. There is one technical term called OEE, Original Equipment Experience. It means that after having worked on a machine for over 3 to 5 years, there must be a list & record of operational limitations and opportunities that may help make the machine better with its purpose of application, efficiency, thresholds & quality. So when any business is planning to expand its manufacturing capacity, they will use this OEE to redesign & improve the new machines during its manufacturing state so that it can start giving those expected results from day one, which actually took 5 or more years to arrive with the older machine as it was upgraded & modified as & when the problem was faced, analyzed & finally resolved. 

Here when any business is in operation for over 5 to 10 years, there should be a Competition based experience record that must have formed to be part of a policy or a rule book for every other strategies & measures being considered for future. This will help to narrow down efforts on investing resources when new strategies are formed to get better & get ahead of the Competitors. If something has worked in past, for a good period of time, there are more probability that it may work if once again it can be strategies & executed carefully, likewise if something did not worked well as it was envisaged in past then trying it one more time without a proper analysis and addressing the core issues that made it not to work may not be able to give any different results.

Continue to replicate the successful schemes & strategies by implementing them with newly learned aspect of the business, it will go a long way in fortifying the business foothold in the market.

G) R & D, in 1 year, in 3 years, in 5 years & in 10 years : Once again the Mobile phone generation today does not believe in brand loyalty or and legendary promotions of any product, they are very choosy at the same point in time very unpredictable, they may like & love your brand ambassador on whom you are investing a lot as they endorse your products, but if any another brand in the same segment is offering better feature, quality & value for money, then they will rather go for it than to blindly run after the advertisement being done by any celebrity. The modern day consumer is SMARTER than it was a couple of decades ago.

Every product has its life span, with respect to its application & utility not as a product life shell but as its application. Today we no longer see the ink pen that used to have a ink refilling compartment & the ink bottles were sold separately,  the entire product has like wiped out from the market & replaced by gel pens that are lasting longer, does not require frequent ink refilling, does not leak, the nip remains consistent & so does the handwritings. And the ink pen was not phased out overnight & if we now look into the brands that used to manufacture & promote these ink pens, majority of them do not are no longer in the business.

Every manufacturing business must have a very strong R & D section with a philosophy allowing it to run as an independent entity within the business operations, whereby 1000 ideas must have been recorded, all available methodologies in the world to evaluate & analyzed those ideas are used & a proper trajectory must be drafted for products to be launched in next 1 year, 3 years, 5 years & 10 years.

Business cannot keep growing if every strategy is an after thought, an reaction to stand our ground, a strategy to do only the needful. If a brand isn't able to bring about an revolutionary product at least once in every 5 years, it is more likely to see a decline in its market stake, as every new entrant in the segment will strive hard to do something better & get ahead.

Any business who is running its operations without such properly laid down 1 year, 3 years, 5 years & 10 years plan is actually helping their competitors to get ahead & better irrespectively.

H) Your team is the only Monopoly you will ever have : In every every business, they have their own various KSPs, fortunately it may remain a KSP for a while as it is never going to be a rocket science & hence the competitors will work around it to either come up with a similar strategy or even a better one, that may immediately displace your KSP by a considerable distance, leaving to even roll out more benefits for the channel partners and the end-users & burn a hole in your own profitability.

So practically there is no monopoly with either of your products or schemes or strategies.

The only monopoly then you might have is your team!

How carefully you have defined your business vision & mission statements & how religiously you are following them to lead it from the front & trying to give that value, leverage &  support to your team to imbibe the same business vision & mission statements, will make the difference.

Take care of your employees & your business will be take care off!

Competitors can lay their hands on anything & everything, but when you have a team who is working in the interest of your business with ownership in their deliverables, working hard with dedication, saving costs & handling the operations diligently, your business will have a kind of Monopoly that no competitors can every break.

A professionally motivated & encouraged team will continue to go that extra mile and make sure that the business remain on the top of its segment, there is an case study of TATA STEEL, whereby the homemakers of the employees living in TATA township sow the seeds of sacrifice & ownership, that not only brought out the entire business from loss but it went ahead to start acquiring other steel industries around the globe.

I too have worked with an Employer who had well being of its employees at the center of all his strategies, & that made the homemaker of their employees to motivate & encourage their spouse to go to work even during curfew! 

I) Always aim to do better: Efficiency is a very underrated terminology in almost every business, as mostly it is assigned to machines & their output & performance. Little do the investors emphasize on the efficiency of  individuals output. And that is where the entire business keeps getting derailed. When every business is striving to get ahead there is no amount of deliberation that could be termed as enough, a 360 of efficient operation is what will make any business keep getting better then their counterparts.

Have clear JDs, KPIs, for every profiles, SWOT analysis for products, markets, channel partners & KSPs, let there be a clear road map for those who are capable to learning, growing & contributing. Let every quarter of the business get realized to its potentials & from there start getting better in terms of its over all efficiency.

All these efforts inside your business model will remain unpredictable to all your competitors & that will bring about the needed growth & brand penetration in the segment.

These are fundamentals of every business that will remain undisputable stepping stones for the entire tenure of the business. Everyone & every aspect of the business operations must be evolving to become better versions of itself. Every strategy, scheme, plan & option must be a better version of its predecessor. 

J) Volume game must be the backbone: Given the fact that technological evolution has made the business more competitive in its nature, the abundance of information makes it very difficult to make margins like how business used to make before a couple of decades. If you try to look deeper into the brands today, you may see that 90% of those brands that were thriving then are no longer in the business, & the major reasons behind it is their profit margins. Then in those days they were able to fetch anything around 25 to 30% profit margins with ease & if they went ahead to slice them down, then the turnover increments in lips & bounds were guaranteed. But fortunately enough today the business profit margins have not only reduced but the ROI itself is at risk. The reason is volume game, more and more business investors are now coming to this very realization that the only way in modern times to improve their profitability is by increase the volume of their turn overs, that also goes to say that the profits will have to remain marginal & thereby the business continues to sustain & grow while the capital investment continues to remain in rotation.

For example, it be better to do sale of 1000 $ and make a profit of 30 $, that is 3%, than to do a sales of 100 $ & be happy with a profit of 3$, yes its the same 3%. Because these two are assured strategies to either grow or cease to exist respectively, and it is a no brainer game.

The more your product has been able to penetrate inside the market the more returns it will guaranty, the more availability of your product will work as a top of the mind awareness on the buyers, the more your product is used the more mouth publicity & repeat customers for your brand will be generated.

Business isn't as usual, the competitors are active & powerful predators, when you choose not to be proactive & careful, the ROI will remain at risk & so will be the entire business.