The Art of Competition
11 questions to gear yourself up for war!
Nowadays, too many start-ups generate white noise. And the good ones exploit what’s called white space. White space is a realm of opportunity for any entrepreneur: it’s the gap in the market that needs to be filled.
And you can be the one to fill it. But this white space we speak of may not be so vacant after all. One way or another, you’ll always be competing.
We’ve developed a “4M Model”, a tool that drives your competitive edge. We’ll share this in a big, tasty e-book through our newsletter, so don’t forget to sign up!
First we’d like to share with you a bit of the thought process we go through when we compete. This article was written with SaaS products in mind, but the questions and resources provided in the article are definitely applicable beyond the world of SaaS.
Do you think you’re the only one?
Right off the bat: do you honestly believe you’re the only one to have come up with your idea? Or do you believe you have no competition? We’d say that either case is very unlikely. Someone will always raise the bar.
Competition is healthy, but you need to be upping the ante before anyone else. So, let’s look at your rivals.
The first step is understanding which competitors offer (very) similar value through their product (direct competitors). It’s important you understand any adjustments they may make to their product, as it may directly jeopardise the lifetime value of your own product. Also, look at your surrounding environment (loose competitors).
Regardless of how much competition you face, ask yourself these three questions:
1. Which competitors can imitate what my product/service does?
2. Which channels are they using to access prospects?
3. Do I understand their idea and vision?
The Imitation Game
Now, let’s ensure you have your defence mechanism. If you’re at a financial disadvantage and you’re targeting the same consumers as your competitors, you can bet good money that whatever innovation you make will lead to imitation.
It’s entrepreneurial instinct to iterate a product based on the success of another (the iPad Pro vs. Microsoft Surface is probably the most current example).
Firstly, you can’t necessarily stop competitors from imitating you, but you can undertake precautionary measures that help secure your own customer base.
Start thinking about ensuring fantastic customer service, writing great content, and delivering a great user experience. It’ll ensure that your conversions don’t churn out early on and end up moving to a competitor. This translates into greater customer lifetime value.
Write down four ways you can keep your customer happy.
Don’t fret, these can be simple solutions. If you’re already live with your product/service, you should identify reasons why certain customers are leaving you. Get in contact with any customer that leaves while you still can, receive feedback, and correct any issue(s) that’s been brought to your attention.
Identify what you can imitate from your competitors.
Tickle your brain with these:
- Can you integrate it into your existing product/service?
- Is this part of your competitor’s main value proposition?
- Will this add value/complement the purpose of your product/service?
Save your answers (or tuck them away nicely in your head) for later on (for the 4MM tool we’ll bring to you later on)!
Try everything from your competition
Do you understand the value of your competitor’s products? First, try each product/service of your competitor(s). It’ll broaden your consideration set when you answer these 5 questions:
- What issue does your competitor’s product/service solve?
- How does their solution overlap with yours?
- What specific benefits does their product/service have?
- What isn’t their product/service doing for their customer?
- Can I do this with my product?
As soon as you understand the value your competitor doesn't deliver to its customer base, you’ll realize there’s a unique angle to approach your competitor’s leads — provided you can deliver the unique value that your competitor did not. As such, your value proposition will supersede that of your competitors, or you’ll be complementary to their product/service. Either way, marketing and pitching your product/service will be easier.
Take Stripe and Paypal as an example. Quite frankly, they are fantastic payment provider solutions. But tracking, reporting, and analyzing recurring payments remained an unresolved issue. In swooped ChartMogul, the solution to SaaS & subscription based analytics. In August 2015 they closed a second funding round with a cool $900,000. And that’s why asking yourself what your competitors aren’t doing is so important.
Is your price right?
Getting pricing right from the get-go is difficult. It’s important you consider the following statements:
- Never underestimate the value of your product
- You don’t have to undercut your competitors
- Perceived value increases the likelihood of converting at higher price
- Justify price to translate value
- Your competitors may already have the answer
After tackling each statement individually, you’ll hopefully have a good idea on where you stand with your pricing:
Steli Efti, CEO of close.io wrote a telling article on KISSmetrics on how to price appropriately, especially if you’re in the SaaS business. One of the main takeaways we discovered was that you shouldn’t underestimate the value of your product.
Charging disproportionately low prices for your product/service results in customers questioning your legitimacy. We encountered this with our lead generation tools, where a couple of our (now happy!) customers asked us why we‘re offering four tools — in one package — for so cheap. We converted them eventually, but we had to overcome their initial scepticism through a lot of correspondence. Unfortunately, this cost us time.
If you are certain that your competitors undervalued their product/service, don’t be afraid to raise the price once you've differentiated your value proposition. Do the same if you believe you provide extra value that your competitor cannot.
Be careful if you choose to undercut your competition. While this may be the way to go for some when optimizing for conversions, it can also imply that you’re charging less because you offer less. And in many cases, this isn't true.
Secondly, be considerate of the disposable income of your target audience. If you know that they’re earning well, why sell for less than your competitor, especially if your product/service provides some unique value (perhaps you solve for convenience)?
Perceived value = higher price
In a less saturated market, customers may have less of a clue in what to expect or have no benchmark for comparison: they may struggle in determining what “quality” in your market actually constitutes. #1 Best-selling author in Consumer Behavior, Robert Cialdini has this to teach you:
“In markets in which people are not completely sure of how to assess quality, they use price as a stand-in for quality.” — Robert Cialdini (Author of Influence)
Therefore your pricing should also be considerate of your target audience’s knowledge. Your audience may already know what’s out there and what value it brings to their activities. But if there aren't many products or established competitors yet, then price may be a substitute for perceived value.
Ultimately, if you know that there aren't many competitors and you’re bringing more ”oomph” to the game than your opposition, try raise the price and then adjust accordingly if you aren't meeting KPI goals.
A word of advice: don’t play around too much with your price or you will 1) frustrate customers and 2) shift focus away from the value that your product/service brings.
Justify your price as much as you can
However, prospective customers may not directly see value in the price you set. Logically, they derive value from what it buys, i.e. the benefits your product/service brings them. On any pricing page you come across, you’ll notice two things:
- Pricing is deliberately made bold, bright and obvious
- “Trivial” benefits are spelled out for consumers.
For the second point, this is typified by the phrase “dedicated customer support” — but to some of your audience, it’s a central statement that can help them with establishing purchase intent. Make sure you mention the extra mile you’ll go for your customers.
SaaS companies realise that value is also created through artificial scarcity within their pricing model: Agile CRM’s pricing is an example. Agile CRM distinguished between pricing packages by limiting the amount of contacts available to their customer. Another example would be Intercom.io’s pricing, where they place limitations on basic users, adding value to their upgraded package.
Lastly, your competitor may already have the answer
Are you brawling against an established competitor? They may have already priced correctly, especially if their prices have remained relatively static over time. Take a look at their pricing model and understand why it was adopted. Here’s a fantastic guide you could always use to guide you through your pricing endeavors.
If you’re a new entrant to the market and can’t pitch anything revolutionary, your product either requires iteration or you’ll be forced to undercut these established competitors.
Even by undercutting, the likelihood of a customer churning out of an established competitor’s service is unlikely (for the customer, starting all over again is often not worth the extra effort). That’s why if you’re a new player in the game, it’s absolutely crucial you offer something your competitor does not. Otherwise, don’t compete for the same audience’s attention. We've stressed it quite a few times, but it’s central to one-upping your competitor.
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