Keeping your business afloat is a challenge on its own, more so when your business falls under a hostile market. In such cases, you are actively trying to out-do your competitors, and poor sales may cause you to go bankrupt as your competitors thrive. Business is business, however, and if your industry is either a hostile market or on the verge of becoming one, you need to prepare your business, identify your strengths and weaknesses, and avoid slipping against the competition.
Having the right information on the market and your competitors can help you grow your business despite the stiff competition. By understanding this, implementing a strong business, marketing, and advertising plan, you can continue to increase your sales despite the circumstances of your company.
Recognizing the Characteristics of a Hostile Market
Given that there are only a few businesses monopolizing an industry or market, it’s hard to determine what counts as regular business competition and what separates it from a hostile market. We can identify a hostile market by narrowing it into three identifying characteristics: low margins, severe competition, and overcapacity. While it is commonly seen in failing markets, hostile market conditions can occur when there’s growth in the industry, but not for everyone.
It’s important to remember that your price margin is your profit margin. If you sell an item at $100 but it only took you $60 to buy or make the item, your price margin is $40. It’s easy to come up with a profit margin based on your markup and costs alone, but you also need to consider how much your competitors are spending. You might sell it at $100, but your competitor can sell at $60 because they only spent $20 to produce the product. You could sell it at $60, but you wouldn’t be making a profit anymore.
And when there are too many products in the market, the overcapacity leads to severe competition. Businesses like yours will be pushing you aside to grab the attention of other customers, including those who are already patronizing your businesses. Offers such as lower prices, more for their value, and other advertising tactics will pull them away; in some cases, there may even be some low-handed, aggressive tactics that negatively reflects your business. However, these three tips can help you avoid the pressures of a hostile market.
Build a Strong Marketing Strategy
To compete with other businesses, you don’t always have to lower your prices. The technology industry is an example of a hostile marketplace where brands are competing against each other; if you’ve seen one of the many Samsung ads going against Apple, you’ll know instantly that there’s no collaborative environment going on there. Other brands that offer quality and affordability, yet Apple manages to stay on as one of the top smartphone brands despite their higher costs because they can convince its consumers that their product is worth the price.
Instead of resorting to lower prices, the best solution is to convince your market that your product has better products or services that are worth the higher costs. For this, you will need a good marketing and advertising strategy. When you look at the way Apple markets its products, it shows style, sophistication, modernity, utility: for many consumers, that’s enough for them to overlook the price.
Otherwise, you may have to find a way to lower your costs and decrease your price, resulting in a lower margin to a point where you’re not earning a very high profit anymore.
Avoid Pricing Wars
Another reason to avoid slashing prices as a solution for a hostile market: you’re losing the industry profits for what should be a lucrative sector. In 1992, US airlines tried to out-do each other in a series of reduced fare promos. While that resulted in high levels of air travel, the industry experienced huge losses that year which supposedly exceeded the combined profits of the airline industry since its inception.
No matter who wins in a pricing war, you are losing profit if you are selling yourself short. Engaging in a price war brings home the fact that there are no winners in any wars. All sides must endure severe losses, and in business, this can drive you to incur heavy losses.
Understand the Target Market
Knowing your target market helps you stay ahead of your rivals in a tough market. While it helps that you don’t have to worry about competitors cutting you off price-wise, you need to convince the customers that your product is superior. One of the best ways to do this is to forge and establish a strong relationship with them.
For starters, you need to have a clear picture of who you’re selling to and then tailor your efforts to their needs. Going back to Apple, you have phones worth almost a thousand dollars, but even people who cannot afford it end up going broke and barely making ends meet just to get their hands on the latest phone. That is because Apple isn’t marketing exclusively to the wealthy, they’re reaching out to the younger generation, the trendsetters, people who want to be seen holding an iPhone.
By knowing who they are, you can speak the language of your customers. It makes it easier to gain their trust, which is the key to getting them to buy from you.
To do this successfully, however, you’ll need access to reliable market intelligence. Although an investment, it is a key to helping you to stay ahead of the curve in a tough market. It can offer you great insights that are useful in connecting with the market and growing your sales.
It’s not easy working in a hostile market, but it is possible to thrive without sacrificing profits. With a good business plan inclusive of an effective marketing strategy, you can target consumers more likely to purchase from your business over the products and services of your competitors.