Entrepreneurship Week 7 Competition

Existing Competitors New Entrants Suppliers Buyers New concepts Your Competitors Existing Competitors New Entrants Suppliers Buyers New concepts

Sources of Competition - Example Clothing store Existing Competitors – another clothing store in the mall New Entrants – a new clothing store being built across the street Suppliers – dress designer decides to sell directly to customers – they open an on-line shop Buyers – customers decide to go directly to the on-line web site of the designer New concepts – Whole new approach to clothing takes place – use of plastic or new materials

Sources of Competition - Example Restaurant Existing Competitors – another restaurant in the area New Entrants – a new restaurant down the street Suppliers – Your best employee opens a restaurant of her own Buyers – customers decide to drive to a different area to eat New concepts – Someone invents a new kind of food – giros or organic chicken

Competitive advantages Your competitors will use one of these 7 strategies Lower costs - High barriers to market entrants – high costs to start a business High switching costs – customers have long contracts New products or services – Special products or services – Alliances - Size – no room for the competition

Competitive Strategies Low costs Some companies have lower costs. Maybe they have low labor costs because they use family members, or they buy materials at a discount. Maybe they are just more efficient. Remember McDonalds. With fewer menu items they were able to keep their costs lower – lower than any other restaurant in America. If you had a restaurant, how would you keep your costs low? If you had a clothing store, how would you keep your costs low? If you sold perfume, how would you keep your costs low?

Competitive Strategies High Barriers to entry Some businesses are very expensive to start. What would it cost if you wanted to start an oil company? What if you wanted to start manufacturing cars? Starting a restaurant can be expensive too. You need a building, equipment, parking, employees, food, table service. How could you cut the start-up costs of a restaurant? How could you cut the start-up costs of a clothing store?

Competitive Strategies High Switching costs Some businesses make it very hard to change to another company. Cell phone providers are typical here. You sign a two year contract. So, you will not go to another cell phone company for two years. Switching costs will be lower for a restaurant. Maybe there are no costs. But a good restaurant will try to keep customers by frequent purchase systems, or by keeping customer information that makes ordering more simple (“I’ll have my regular meal.”) How could you create switching costs for a restaurant? How could you create switching costs for a clothing store?

Competitive Strategies New Products or services Customers may be attracted to a business because it has something new. It might be a restaurant that has new soups, or a perfume shop that has a new French brand. Maybe it is the first grocery store to carry groceries out to your car. What new products could you provide for a clothing store? What new services could you provide for a clothing store? What new products could you provide for a restaurant? What new services could you provide for a restaurant?

Competitive Strategies Special Products or services Customers may be attracted to a business because it has something special. It might be a restaurant that has a large parking area and is close to the highway. Maybe the service is especially friendly, or the interior is very attractive. If it is very special you will go there more often, and you might be willing to pay more for food there. How could you create special products or services for a clothing store? How could you create special products or services for an ice cream shop? BUT – what are minimal products and services? What do you expect to find at a restaurant? What would make you NOT go there?

Competitive Strategies Alliances Often times a gas station will also have a small restaurant with it. They think you will be more likely stop there if you have two reasons to stop (gas and food) and not just one reason (gas). What kind of alliance would work for an ice cream shop? What kind of alliance would work for a children’s clothing store?

Competitive Strategies Size Sometimes a competitor is so big, they are almost impossible to beat. If you try to complete with Lulu Hypermarket, you will lose (only Carrefour is big enough). For Lulu, size gives them large volumes and economies of scale. Their costs are lower, and their products are more numerous. You cannot compete with them on price or volume. So how do you compete? You differentiate – products or service. A cold store may be closer to your house, and it may be quicker (just a short walk into the store and a short walk inside the store). How can a clothing store compete with Carrefour?

Competitive Strategies Which of these 7 competitive strategies does McDonalds use? Lower costs - High barriers to market entrants – high costs to start a business High switching costs – customers have long contracts New products or services – Special products or services – Alliances - Size – no room for the competition If you were starting a restaurant in Nizwa, how could you compete against McDonalds?

Competitive Strategies Which of these 7 competitive strategies does Lulu Hypermarket use? Lower costs - High barriers to market entrants – high costs to start a business High switching costs – customers have long contracts New products or services – Special products or services – Alliances - Size – no room for the competition If you were starting a clothing store in Nizwa, how could you compete against Lulu?