SELF TEST #7: Wins and Failures in a Marketplace
You compete in a market where sales are growing 7% a year. Define a strong competitor and give an example of your definition. Also, define a weak competitor and give an example of your definition.
Answer: A strong competitor is a company that gains market share during a period of time. In the case of your market, a strong competitor would have to have a growth rate faster than 7% a year, so a 9% growth rate would identify a strong competitor. A weak competitor is a company that loses market share over a period of time. In your market a weak competitor would have to grow slower than the market's 7% per annum, so a 5% annual growth rate for the competitor would identify him as weak.
Define a "win" and give an example in any market.
Answer: A win occurs when a competitor offers something that less than half the other competitors offer. The two most common forms of wins are Function or Price benefits. An example of a Function benefit might be a unique technology in an electronic product. An example of a Price win might be a discount offer that other competitors refuse to match.
Define a "failure" and give an example.
Answer: A failure occurs when a competitor can not, or will not, do something that more than half the other competitors can or will do. Pricing failures are quite common. If the majority of the industry's competitors reduced their price to a new, lower level and at least one company refuses to follow, that company is likely to fail in some of its customer relationships due to its high price. This is an example of a Leader's Trap Failure A company can also have failures in the three performance categories of the Customer Buying Hierarchy, including Function, Reliability and Convenience.
You are in the scheduled airline transportation business and your customer is a consumer. Are wins or failures more likely to drive the majority of share in your business?
Answer: It is likely that failures are driving the greatest amount of volatility in your industry. The customers are well established with their purchasing patterns in the industry. They would prefer to keep those patterns the same, providing the airline does not fail them.
Why is failure the most common cause of volatility in hostility?
Answer: In a Hostile marketplace there is usually very little difference among competitors in Function and Price. As a result, most buying decisions are made on Reliability and Convenience. Differences in levels of Reliability and Convenience move less volume than do differences in Function and Price. Once a customer has established his relationships in each role in which he buys, he prefers not to change his relationships because he knows these suppliers. He continues to buy from these known suppliers, which is a form of Reliability, and knows how to order from them efficiently, a form of Convenience. Established customers are difficult to move because of these Reliability and Convenience benefits of remaining with their established relationships.
What is a "weak win"?
Answer: A weak win occurs when a company gains volume from a competitor in a marketplace after the competitor has failed his customer relationship in some way and opened the customer relationship to new bidders.
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