Business scenario: Dealing with new competition

April 19, 2017

This post is part of our Business Scenario series. Read the entire series here on the Clover blog, and check back for more tips and tactics.

It’s one thing to thrive as the only coffee shop on the block; it’s another thing to have to compete with the fair-trade fresh-roasted product right next door. Whatever business you’re in, it’s never a pleasant surprise when a competitor opens up nearby. It’s easy to feel threatened. It’s easy to assume that you’re now in a battle that only one of you can survive. But before you panic, take stock of your situation and consider your options. Here are 5 steps to take when dealing with new competition:

1. Remember that your competition has a right to exist.

It’s natural to feel threatened when a new player enters your local market, but it’s important to have the right frame of mind as you prepare your response. Many indie bookstores are still thriving in the age of Amazon; competition doesn’t have to be winner-take-all. Try not to begrudge them their success. Start by assuming that your new competitor is here to stay—and that’s OK. Your goal is to figure out how to thrive despite them.

2. Gather intel.

Send a secret shopper, or pay the new store a visit yourself to figure out what your rival’s value proposition is. Consider every angle. Are they targeting your customer base, or are they aiming for a slightly different demographic? Maybe they’re more of a grab-and-go lunch spot, while you’re offering a welcoming spot where people can linger over their meals. Think carefully about how much your two businesses really overlap, and recognize what they are doing well.

3. Dig into the details.

Getting a sense of the overall look and feel of the rival store is a good first step, but to prepare an effective response you’re going to need to dig deeper. Take a careful look at their products. How do your prices compare? And what are customers getting for that price? It may be that your T-shirts are pricier, but they’re also made of organic cotton or designed by up-and-coming local designers. What advantages do each of you have? How does the service compare—is their store faster but yours is friendlier? How about the location? Even if the two stores are near each other, a small distance can make a real difference when it comes to foot traffic. Is there a subway or bus stop that dumps people out at one store’s doors? Is there a popular restaurant nearby that often sends people waiting for a table to the bar right next door? Evaluate product, price, service, and location carefully. Make a list of your new competitor’s strengths and weaknesses.

4. Figure out your niche.

Now that you know what your competitor is doing well, it’s time to evaluate your own business. Consider asking a friend to stop by as a secret shopper and give you their unvarnished opinion. Talk to your staff about what they feel you’re doing well and what’s not so great—they’re dealing with customers every day. Try to figure out how you can differentiate yourself. Maybe both bookstores have a good selection, but your experienced staff is more knowledgeable, and you can look for ways to highlight those great recommendations. Maybe you’re always changing up your menu to use fresh, seasonal ingredients, or maybe your service is lightning-fast to please the customers rushing off to meetings in the office building next door. Find a way to set yourself apart.

5. Aim high.

Resist the temptation to slash your prices to get people in the door. The last thing you want to do is set off a price war that will only hurt both businesses. Research shows that it’s much harder to raise prices after setting them too low than it is to cut prices if you’ve set them too high. Psychologically, if they’ve seen they can get your coffee for $3, they’ll be reluctant to go back to paying $5 later. Customers also tend to assume that very cheap products must actually be worth less. Instead of cutting prices, try to emphasize the value you’re offering. Remember that you have more experience in this market, and more name recognition with customers, than your new competitor does. Use those advantages wisely.

When a new competitor appears on the scene, it’s easy to assume it means trouble for you. But if you carefully evaluate what they’re offering, you may find some easy ways to set yourself apart without starting a race to the bottom on price. Keep your head, do your research, and play to your strengths.

[image: “Not the Same Old Grind” Coffee Shop by Mark Warner on flickr]

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