To Grow, or To Steal?
Grow or steal? That's one of the fundamental questions that marketers ask themselves when they look at how best to expand their businesses. Do I grow a market, and generate more sales and revenue through that strategy -- even though my share-of-market may remain the same or actually go down? Or do I focus my efforts on stealing share from my competitors? While there is no single answer, here are some different scenarios -- and questions to ask yourself -- that should help you arrive at the right strategy for your particular situation.
How mature is your market? If you're competing in a mature category -- one with a high level of penetration and with single-digit growth, then it doesn't make much sense for you to invest in expanding a category that has little runway ahead of it. For example, if you are a tire retailer, you're facing a situation where the number of tires-per-auto puts a natural cap on the category. You're not going to convince people to buy a fifth, so chances are you'll have to grow by taking business from the guy around the corner. (In the fashion business, there are no such limits.)
On the other hand, you might be able to get people to replace their tires faster. So if your tire dealership introduced a check-your-tread promotion during the time of year when college kids are ready to drive up to school -- and played on parental anxiety about their sons and daughters taking to the road with dangerous tires -- you might be able to accelerate purchase, which is back-door way to grow the category.
If you're in a business with low penetration, you might be able to expand the category, but only if you understand the barriers to growth. As an example, let's take the lawn service business. Since under 50% of homeowners pay someone to cut their grass each month, it seems like category expansion is possible. Cost is obviously an obstacle. You could cut your price, but it is always best to look for a marketing solution that doesn't reduce your margin. A better approach would be to learn from the utility companies and their "balanced billing" approach. In other words, help consumers overcome the highly seasonal cost of lawn care by spreading payments over the year. $100/year for six months is more painful than $50/month all year long.
Another approach to category expansion is to target those most likely to take the plunge, who are at the cusp of conversion. (In other words, segment your prospects). In this case, the most promising group would be the baby boomers in your neighborhood, who have the discretionary income and whose creaky knees and backs might finally convince them to hire someone else to do the work. Buy a mailing list of boomers, and develop a direct mail piece that targets their needs (without being too heavy-handed about it).
Are you in a position to expand the share? Marketers call this "missionary work," and not every company in a category is equally well-positioned to embark upon it. You need the resources to invest in growing the category, and enough of a time-horizon to enable your business to reap the rewards down the road. Keep in mind that any strong competitor could be in a position to benefit from your spadework, so this strategy needs thorough consideration and scenario-building. But if you have a unique product or service that offers a new benefit with category-expansion possibilities, and if you have the ability to maintain this proprietary advantage for a while, this approach can make sound business sense.
What kind of product or service innovations are you contemplating? Picking up on the last point, what is currently a "mature" category actually might be a category on the brink of a steep growth curve, driven by new products or services you have in development. If you're in a sleepy category with drowsy competitors, suddenly invigorating an industry with some real innovation is a way to win the Double Double: expand the category and drive market share simultaneously.
How weak are your competitors? Even if there is category growth possible, often it makes sense to seize the shorter-term opportunity of capitalizing on a competitor's weakness by grabbing share from them. Weaknesses can come from any number of directions -- management exodus; financial problems; distractions in specific business areas, from sourcing to pricing. Which means that a strategy focused on expanding the category needs to have the flexibility to change, should a competitor suddenly become weakened in a significant way -- predatory as it may sound.
It also means that you need to be constantly monitoring competitive activity. Many entrepreneurs are overly-focused on their own businesses, and display an astounding lack of interest in what the competitors are up to. I've seen examples of it dozens of times, and it never fails to amaze me.
What's the "X" factor? A host of external, surprise factors can change the dynamics of the grow/steal calculus. A new competitor, either domestic or international, can open up a market. So can regulatory changes; for example, a client of mine once benefited from a law that mandated certain child-proof packaging that his competitors weren't able to adopt quickly. Changes in raw-material pricing -- either technology or access-driven -- can drive down costs and open market-expansion possibilities. The bottom line is that you need to be constantly assessing your grow/steal strategy as a central component of your marketing framework. If not, somebody might be growing and stealing at your expense.
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