So you know what’s a business model and now it’s time to start implementing it.
If you are a fresh starter and you are just entering the market with your service or product what you do in fact is “share-building strategy”. This kind of strategy refers to all companies in embryonic stage and is about developing competitive advantage like efficiency, quality, innovation or customer responsiveness to attract first customers by providing them knowledge about what you offer. This is how you do the ground for the “market share” you are going to build, and market share is the slice of cake you would like to bite referring business to delicatessens.
Once you attract customers and start selling what you offer is in fact “share-increasing strategy” and your slice of cake starts growing. Now your state of the art goes for focusing your resources to invest in product and services development to become a dominant competitor in the industry you operate. “Share-increasing strategy” is in fact about attracting more customers to you from “weak” companies, which are already existing in the market.
And how you become dominant competitor in your industry and what’s more achieve leading position? Let’s take a look how it’s done in mature industries.
There are several ways for going for this, incl. in particular strategies for deterring entries of rivals. Deterring entries of rivals is important especially if you introduce an innovation, which can be reengineered and successfully followed by the others. One of the strategies for deterring entries of rivals is “product proliferation”. Sounds sophisticated? In fact it’s not, as it’s about communicating to the market that your product or service covers broad range of customers in terms of industries they operate and their size (small, medium, large). If you’ll not do it you may expect followers doing what you do, but specializing in particular type of industries or companies’ size. Product proliferation creates barriers of entry you need to fill the niches your competitors sooner or later will.
Another strategy you use to deter entries of rivals is “price cutting”. You do this by charging high prices for what you offer in the beginning of your business and focus on short-term profits, but then aggressively cut the prices to build your market share. When you do it you signal potential new entrants that if they enter the industry thy will not be able to cover their costs. Sometimes it goes with your “experience curve” and obtaining “economies of scale”, which are about delivering your services and products at lower prices once you master the production, and when costs fall down with prices your profitability is still maintained. Here you must be careful with strong competitors, as in fact they are able to withstand short-term losses to achieve long-term successes.
Last strategy for deterring entries of rivals in embryonic businesses is strategy called “maintaining excess capacity”. It’s about demonstrating physical capability to produce more products or deliver services that your customers in fact currently demand. You do it to “warn” potential entrants that if the enter the market you would be able attack by increasing output of your products or services, cut prices down and make the entrance not profitable.
Above proposed approaches look nice, but let’s not forget that we operate in times called “era of tabulation”, and what matters is constant ability to adapt the business model and the strategy without generating losses to business environment you operate. Y. Doz and M. Kosonen call such ability “strategic agility”, which characterizes companies taking advantages of changes in their surroundings, working out the profit with not losing the pace.
“How strategic agility will help you stay ahead of the game” they wrote tells how big companies successfully do this. ut hey, weren’t all the big companies small one when they were starting?