Author: Bud Gayhart, University of Wisconsin-Whitewater
Business owners need to know who their competition is. The value of identifying competitors is critical for the survival of your company. Not all companies that offer the same products and services as you do are your competitors. Narrowing the definition of a competitor for your company allows you to take steps to attract and retain customers based on competitive advantage.
One way to define your competitors is by how they compare in terms of quality, value and price. Using the hotel industry as an example, we see that hotels differentiate themselves from one another in many ways, but the “quality” of their lodging facility is a major feature separating one provider from another. For instance, travelers planning a trip to Las Vegas find a wide range of lodging options. A simple search for a Saturday night stay using the search engine on http://www.vegas.com generates a list of hotels with prices and quality ranging from $161.25 at the Villa Roma Inn to $1,150.00 for a salon suite at Wynn Las Vegas. Would you consider these two hotels competitors? While each provides lodging for travelers, the differences between the two facilities indicate that they are not direct competitors; they just happen to be located in the same city.
Taking a closer look at what differentiates these hotels, we see that a “standard room” at the Wynn Las Vegas includes floor-to-ceiling windows, a seating area with couch, table, chairs and ottoman, bedding with 320-thread count European linen, automatic bedside drapery-controls, flat screen LCD high-definition television, cordless phone, fax, soaking tub, separate glass-enclosed shower, private toilet, his & her sinks, LCD TV in bathroom, hair dryer, electronic door locks, alarm clock and radio, laptop-sized in-room safe, iron and ironing board, pay-per-view movies, and voice mail. The more upscale salon tower suites operate as a boutique hotel within the Wynn Las Vegas, and were the first in Las Vegas to earn Mobil Travel Guide's highest rating – five stars. In granting that rating, Mobil praised the Tower Suites for its fine, white-glove service and accommodations that feel like posh private residences.
In contrast, the Villa Roma Inn provides a more subdued atmosphere with far less opulance. The facility itself is much smaller, does not have a private lake with waterfall, nor do they have a wedding chapel. Guest rooms have standard televisions (with cable), wireless Internet service, a bathroom with “shower over tub” design, single vanity sink, and a view that is far less inviting.
So do these hotels compete for the same customer? Doubtful. The Wynn Las Vegas caters to a more discerning clientele looking for creature comforts that are not available at the Villa Roma Inn. The Villa Roma’s customers are typically looking for cost-effective lodging within close proximity to the “Strip.” Quality of product is critical to defining competition in the hotel industry and it may be a major defining characteristic in your industry as well. Quality is a standard that can be applied to products or services and offering your customers “the highest quality” is certainly one way to differentiate yourself from the competition. Customers will pay for higher quality if they perceive that higher quality brings value to them.
Invest time identifying your competition based on comparable quality. Gather information on them. What makes them different from your business and in what areas are they similar? What advertising and promotion tools do they employ? What is their pricing strategy? What quality statement do they support? Where are they vulnerable? Conduct a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis of your competition. This will help you identify the true “opportunities” for you to separate your company from the competition, become more important to the customer, and find those niche markets that generate additional profits. My goal for you is to increase your business so that next year at this time you can be sitting in one of the salon suites at Wynn Las Vegas thinking about the quality similarities between your enterprise and the hotel.
This article was written by Bud Gayhart, Director of the Center for Innovation & Business Development at the University of Wisconsin-Whitewater.