Best Candidates for Market Dominance

I’ve been doing B2B market dominance strategy and execution for (gulp) 25 years now, and I’ve seen a pattern in the types of companies that are good candidates for market dominance and those that will never get there without an “attitude adjustment.”  Ditto for the executive leadership.  I’ve found that the best candidates for market dominance share certain characteristics. Take a little look in the mirror to see where you stand.

 Best Candidate Companies for Market Dominance

• Seeking high growth
• Intent on creating dominant market position
• Fighting increased competition and shrinking margins and/or are intent on achieving higher margins
• Provide services in rapidly-changing environments (industry, technical, business)
• Forward-thinking, progressive
• Results-oriented, action-oriented, have a sense of urgency
• Have smart people, a “team” culture, quality orientation

Best Candidate Individuals for Leading a Company to Market Dominance

• Visionary leaders
• Accountable for strategic results
• Responsible for growing the business
  • Increased revenues
  • Increased profits
  • Market penetration
  • Identification and penetration of markets
• Focused on the Future
  • Long-term vision
  • Long-term positioning
  • Long-term client value
  • Getting from “where we are” to “where we want to be”
• Results-oriented, action-oriented, have a sense of urgency

Think through whether your company and executive leadership seem to possess these characteristics. If so, you are great candidates for pursuing market dominance. If not, you have work to do.

What’s It Like? (Walk a Mile in…)

Try this exercise to see what it’s like to be one of your prospects:

• List five of your closest competitors
• Pull from each company’s website the one short paragraph (1-3 sentences) that best summarizes what each does
• Do the same for your company
• Remove the names and make a list of the paragraphs, mixing yours in among them
• Give them to a colleague who knows the market well, and see whether they can identify the companies the paragraphs came from

This is what a prospect encounters when shopping for your services, software or products. Do you all sound the same? How distinctive do you sound?

Where Are You on the Commodity Curve?

One quick way to gauge the health of your long-term prospects as a business is to determine where you sit on the Commodity Curve.  This is a little model I developed over a decade ago to illustrate what happens when you fail to adequately differentiate in an increasingly competitive market. It’s not rocket science – Econ 101 and business strategy courses cover this in depth. But after watching clients and other companies conveniently forget this basic tenet, I developed an illustration specific to the situation.  Consider this just a little reminder.

It’s very simple: If competition is increasing and you don’t adequately differentiate yourself, margins drop.  The red line below is the typical scenario when there are a lot of look-alikes in the market.  The blue line is the company that stands apart from the competition by offering something unique that’s in high demand.  By being unique, there is little or no direct competition. The company can name its prices and actually increase margins while others are lowering their prices.

How unique are you? Your margins will give you the answer.

It Stinks to Compete on Price

The implication of the trends discussed in my last post, Hey Stop Copying Me! is that many business-to-business products and services are struggling against commoditization and must, by default, compete on price. When you boil down all the problems and challenges affecting the health of these companies past, present and future, it comes down to commoditization. That is the fundamental threat.  And it becomes even more dire in the face of a sudden drop in overall market demand, such as in a recession.

Don’t just take it from me, though. Hear it from your peers.

I’ve formally and informally interviewed thousands of senior executives in the sectors I listed in Who’s at Risk.  I’ve asked for one sentence or phrase that sums up their biggest business problem. The refrain has not changed in twenty years. Here is what they say:

• “How to escape commoditization — It’s become very difficult to differentiate ourselves from the competition.”
• “How to protect our margins —   We have to be competitive, and clients are pressuring us to reduce our prices.”
• “How to establish awareness in the marketplace — We are a well-kept secret, but it’s been hard to stand out from the crowd.”
• “How to improve our business model to do ‘repeatable projects,’ so we can leverage our experience and reduce delivery costs.”
• “How to attract and retain the right people.”
• “We are completely skill constrained, because we’re competing with so many companies that need exactly the same skills.”
• “We have a lot of business…it’s just not necessarily the right business — it won’t build our future.”

Commoditization is a gigantic issue that plagues executives everywhere, and almost no one worldwide is immune in today’s global economy. For example, the United States has seen thousands upon thousands of even high-skill jobs move to India, because labor is so much less expensive. But in a dramatic twist of fate, even India is feeling the squeeze.  According to Quantum Information Services, “Increasing competition, pressure on billing rates and increasing commoditization of lower-end application development and maintenance services are among the key reasons forcing the Indian software industry to make a fast move up the software value chain.”  In other words, for the types of businesses we’re talking about in this blog, someone will always find a way to look like you or be cheaper.

Find out why in the next post: Where Are You on the Commodity Curve?

Service providers: I’m interested to hear from you. Can you relate?  What’s your biggest business problem?

“Hey, Stop Copying Me!”

I don’t know who says this phrase more often – my oldest daughter talking to her little sister or B2B technology and service providers talking to the competition.

The ease with which competitors can match each other on functions and features is just one of several trends forcing companies to reevaluate their competitive strategies, what they offer, and the way in which they approach marketing.  First, it’s becoming increasingly difficult for customers to see what makes one company different from or better than another.  Second, enterprise business problems, processes and technology infrastructure have become so complex and interdependent that customers want vendors to bring them complete, integrated business solutions, which are often a combination of products and services provided by several companies partnering together. This requires a business model that’s very different from what most companies have.

For emerging sectors such as cleantech, there is a significant market development challenge: Providers are introducing new technology or new ways of doing business; they are asking customers to buy an entirely new type of product, such as solar technology, or somehow change their business processes. This calls for positioning and marketing practices that go beyond traditional approaches.

In addition, the barriers to entry in many business-to-business markets are very low.  In services, just hang out a shingle, and you’re in business with little capital investment and low risk.  Or just partner with another company, and you’re off and running. As a result, new entrants jump into the market every day.

The copycat trend comes from the speed at which some markets and competitors move. Software providers, particularly those offered as a service via the Internet, can match one another on functions and features in a matter of hours or days. Even highly specialized products such as optical technology or telecommunications routers and switches rapidly become commodities.  These companies are so accustomed to operating in fiercely competitive environments that they are very nimble and responsive to market changes. As soon as one competitor adds a new product or set of features, others match it.

Many products are software driven, meaning what used to be physical features are now software. Back in the day, a change in a product feature set meant a change to the manufacturing process and possibly even the supply chain. Changes were not easy to make, so competitors couldn’t match each other easily. Now it’s often a matter of modifying software code. Competitive barriers have almost evaporated.

The bottom line is that, with time, B2B technology and service providers within a market all start to look and sound alike. As a result, they become commoditized and increasingly pressured to compete on price. And that’s a big problem.

Next up:  It Stinks to Compete on Price.

Commoditization: Who’s At Risk?

Much of what I espouse about strategic marketing, market dominance and differentiation applies to many types of B2B companies, but the sector I’ve studied most closely and with which I’ve had the most direct experience is the business solutions ecosystem selling to large and medium-sized enterprises. In information technology sectors alone, this is more than a $3 trillion ecosystem employing over 20 million people worldwide (sources: Gartner, Software Magazine, IDC – probably a conservative estimate that excludes many emerging companies and subsectors).  It includes:

• IT services and technology service providers
• Systems integrators
• Enterprise software companies
• Enterprise cloud/software-as-a-service (Saas) providers
• Computing and telecommunications hardware and equipment providers
• Telecommunications service providers selling to businesses
• Business solution providers
• Management consulting firms
• Business process outsourcing providers (e.g., payroll processing, accounts receivable)

What they have in common is that they sell intangibles. Customers can’t see, touch or experience these companies’ offerings. Customers have to buy on faith. They can only evaluate whether they got what they wanted and whether it was worth the price after they’ve bought and implemented the offering. Customers are evaluating promises and reputations during the buying process as opposed to evaluating tangible products.

There is another $1 trillion+ market with a similar issue.  It includes:

• Advertising, public relations, marketing and market research firms
• Non-technology professional services firms, such as law, architecture, construction, engineering, and other types of management consulting
• Other business services

In addition, there is an emerging population of companies in cleantech/energy and life sciences that sell business-to-business services and solutions, as opposed to straight products.

Every company in existence needs to differentiate itself in the face of competition, but the invisible nature of services and solutions makes differentiation exceptionally challenging.  The good news is that there is a relatively straightforward way to clearly differentiate one’s offerings in a crowded services market – I’ll be covering that soon. However, first it’s useful to understand what “differentiation” really means for a services company: Be truly unique. Don’t just take my word for it. See what leading management gurus have to say.