@chrislema Do you think it better/easier/more profitable 2 try 2 gain competitor's customers if their product is known to be inferior OR
— Angie Meeker (@angiemeeker) April 5, 2014
@chrislema to focus on customer's not yet using the product at all.
— Angie Meeker (@angiemeeker) April 5, 2014
If you know you're going to step into competition with someone, do you go after their existing customers, or go for the ones they haven't attracted yet?
To answer it, let me tell you a story about some banks.
The Banks on Main Street, USA
Once upon a time, there were several banks on Main street, in the little town of EveryPlace. They, like most banks, opened at 9 and closed at 4 pm, Mondays thru Fridays. And each bank had roughly the same percentage of the town's customers.
One day (surely after interacting with a management consultant) one of the banks decided that they would stay open until 7 pm. Immediately the other banks saw some churn and this bank increased its customers by 15%. It was a happy day.
Until a second bank decided that it too would stay open until 7pm, but also open at 7 am. It immediately saw that previous attrition disappear, as well as some new growth. For them, it was a very happy day.
A third bank realizing it had lost customers to both banks decided it needed to act. So it announced that it would be open on Saturdays until noon. And low and behold, it saw its numbers increase beyond its initial loss. They sang all the way home that night.
Finally the fourth bank decided enough was enough. They announced they'd be open from 7 am until 7 pm on the weekdays but also from 8 am until 5 pm on Saturdays. And they saw their numbers increase from the losses they'd taken.
The result of all these moves and counter-moves was plain as day to those watching from the outside – after all the churn, the only difference was that the operating costs of the four banks had increased.
The moral of my story is pretty simple:
competitive strategy isn't easy and sometimes the only result is your own increased cost.
Now can I tell you one more story to help me make my point? Can you hang on just a bit?
Wine in the USA
If you had thought about entering the wine business in 2000, just about anyone would have told you that were crazy. The markets had a full aisle filled with wines – who would need another option. Additionally, most of the prime shelf space was occupied by one of three large brands with strong distribution power.
But that didn't stop an Australian company, Casella, from deciding it wanted to enter the market. Their hope was that they might sell just over 25,000 cases in 2001. But the result surprised even them – they sold about nine times that and in two years they became the largest wine import in the US.
They did it by going after the untapped market.
Traditional wine offered fancy labels, a complex taste, a need to know which years were good years, and more. In short, it was pretentious and intimidating.
So they did everything different (as highlighted in an amazing book called Blue Ocean Strategy). They asked a series of questions (what could they eliminate, what could they decrease, what could they introduce and what could they improve) that helped them design a completely different kind of wine.
They made wine that was sweeter, had a smooth taste, was fun in it's design, was easy to find and pick (no worries about years), and eliminated all the standard dimensions that had driven the wine industry for so long.
In short, they appealed to non-wine drinkers. And they won. Big!
The moral of this story is also pretty simple:
Going where others aren't going, and competing on different dimensions lets you change the game.
Dealing with Competitors
Is it better to go after someone's customers or to go after people that aren't yet customers of anyone? My answer will always be to go after non-customers.
Here's my rationale.
When you go after customers of a competitor, you're still playing by the dimensions of that space (often defined by them).
When you go after competitor's customers, they can take a temporary financial hit to watch you run out of money.
When you ignore the vastly huge market of people who (for some reason) still haven't gone with the competitor, you ignore a market ready to make a decision for you (if you remove, reduce, increase and introduce the right elements).