Competition And conflict - The Market As A Jungle
Early in life, I had many opportunities to visit many wildlife reserves in India such as Ranthambore, Corbett and Sariska.
Looking for the elusive tiger made me understand the concept of territory. I came to appreciate its need for large contiguous areas of habitat which supported its requirements for prey. I realised two tigers don’t share turf.
Survival in the jungle is about conflict and competition. It has a parallel in the world of business which is often overlooked. This idea has a metaphorical and conceptual value. There is an inverse correlation between sharing territorial space with the largest competitor and return on capital.
The appearance of competition displaces a brand or business off its natural trajectory. To then survive, protect turf and continue to grow, it needs to act. Pricing power is eroded and margin is shaved off. The impact is proportional to the proximity and power of competitors. Weak conflict indicates a distant or non-interacting competitor. Strong conflict implies a competitor who is eyeball to eyeball.
The most obvious case of imminent conflict is if the competitor is in exactly the same quadrant in terms of size, offering, customer type and geography. Conversely, if the customers, products, geographies and strategic intent are different then such competitors are distant and dissimilar and may fundamentally not be interested in conflict.
As in the wild, in the world of business too there are places that are free of jungle style Darwinism. These white spaces can be defined as entire sectors, geographical markets, segments or portfolios where competition does not operate. Here, margins are limited not by competition but by what customers can afford. Such a non-competitive space is as idyllic a place as can be imagined in a world of commerce and capital. It is rare to find but it must be considered and hoped for in every business or market opportunity plan.
Since competition creates an existential crisis, it follows that we must always know how near and large our biggest competitor is. An eruption of conflict between two prime competitors will throw both off course but the question to ask is who has more to lose? A small but well-resourced competitor that is very adjacent may give more trouble than a much bigger, richer and more successful corporation that may have shallow interest in one’s market. Conflict is closely linked to turf and territoriality.
Is conflict always bad? Not really. Looked at from the perspective of the resulting market efficiency and creation of customer value, competition is usually beneficial. But because it depresses margins, it is bloodletting where the dominant incumbent is concerned. It is from this profit impact perspective that competitors – both big and small – must the mapped. One has to see their competence, resources, target markets and modality of serving their customers. If one cannot defend, one has to move away.
Impact of the relative market share on competitive intensity is a logarithmic rather than a linear relationship. Managing it calls for excellent manoeuvring. If one can increase the distance away from a big or small competitor, one can protect pricing power and margins. The potential for conflict decreases more than proportionately to the distance or the diminishing relative size of the competitor.
There is a well-known correlation between high market share and profitability. However this relationship is also not linear. The greatest benefit in profit terms usually comes from increasing market share in markets where one is already very strong. A 10% improvement in relative market share produces a much greater than 10% increase in profitability.
A competitive white space has to be secured by increasing relative market share. Plainly put, sales have to increase faster than of competition. One way of doing this is to find new customers. The easier way is to sell more to existing ones or at least at a rate faster than the competitor. Further one has to increase the retention of customers one already has. This needs empathy and an ability to serve customers well. It calls for brand esteem and good reputation. To make a white space possible one has to commit financial resources and demonstrate staying power in the market. Through a superior understanding of market and consumers one has to land better products with fast delivery, superior marketing and lower prices.
In principle, it sounds simple. One avoids conflict or wins by differentiating oneself and accelerating the stages of value add. But it is easier said than done. It requires a corporate general of genius to execute and bring it to reality.
I can hear the old forest guard in Ranthambore saying “Listen to the call of the deer, the Tiger is on the move” ...
