SandHill
SandHill.com: When the Best Defense is Growth
September 26, 2008
by Mike Mace
If your business is targeted by a larger competitor, the natural response is to want to play defense - to squeeze pricing, take special care of the channel, maybe do some promotions and guerrilla marketing. We’d never advise you to take your eye off a competitor, but the defensive reaction isn’t always the best way to fight. A larger competitor will expect you to do these things, and will usually be well prepared for siege warfare. They’ll be ready to match your pricing and outspend you in the channel in order to drive you out of the market.
Sometimes the best defense isn’t defending at all, it’s finding ways to grow the market. If your customers are still early in the adoption curve, and especially if there are new segments you can open up, it’s usually more cost-effective for you to bring in new users than it is to defend every inch of the turf you hold today.
This stands normal industry wisdom on its head; it’s supposed to always be cheaper to keep an existing customer than to get a new one. But think about it - if your market isn’t already flooded by competitors, a new entrant can usually get 10% share just by showing up and being different. You should always defend the core of your market, but that 10% at the fringe can be very expensive to keep. If you made the same investment in a new part of the market where there’s no competition, you might be able to grow in the new area faster than you lose people in the current segment.
The original publication can be found at this link.