Choosing where to compete, and importantly where not to compete, is a core step in building a robust strategy for your organization. Limiting your playing field feels instinctively wrong – shouldn’t you try to appeal to the broadest audience possible? – but trying to be everything to everyone by not making tough choices inevitably leads to underserving everyone.
“If you chase two rabbits, both will escape.”
Strategic planning is a series of choices that identify the right course of action, followed by the building and implementing of operating plans necessary to get there. One of the key choices is identifying your playing field. Where and how will you compete?
Certainly, the path of least resistance is to continue to compete in your current arena. But keep in mind that your current position is not immutable. In fact, as part of the planning process, you should actively challenge your current position to make sure you should stay there. The annals of business are full of success stories where companies moved to new playing fields and full of failure stories where other companies stayed in place in the face of growing challenges.
To identify where to compete, you need to answer the following questions:
- What geographic markets should you be in?
- Who is your target customer?
- What products will you sell, and how will you source them?
- What channels of distribution will you employ?
As a case study for how to address these four questions, let’s look at the launch of a live entertainment business line within an entertainment company. As part of a broad strategic planning exercise, the parent company had assessed the marketplace and concluded that a significant opportunity existed to launch a new division to move into this adjacent market.
Starting with geography, the company decided that the East Coast region was the right target. The team identified a material customer concentration there that would make marketing efficient. Additionally, the parent company headquarters was nearby, easing the logistical burden.
The target customer was anticipated to be a subset of the parent company customer base – higher income and younger than the average, but the parent company pool would allow the startup to establish a beachhead. The target market’s income would support high average ticket prices. As with geography, the company made hard choices that would shrink the size of the target market by income bracket but more than offset that by marketing efficiencies gained from focusing on a specific, smaller segment.
The product was clearly identified as a luxury entertainment experience with exceptional customer service. As a result of the high-end offering, premium pricing would be required – but as with the choices above, the benefits of focusing the product offering would offset the smaller pool of target customers.
Last, distribution for the new business was chosen to be on cruise ships. Certainly, land-based events presented much larger revenue opportunities, but the focus on exceptional customer service led to a difficult choice to launch with cruise ship offerings. The experience on a ship could be more easily controlled with a relatively manageable and captive audience of 2,000 guests. Also, the venue would allow the startup to work out operational issues and build a continuous improvement model to perfect the offering.
The testing phase for the new business went very well, and within three years, the new business was a major revenue and profit contributor to the parent company with exceptional long-term growth opportunities. Within five years, it was a top-three player in the marketplace.
Overall it was a terrific success driven by a tight focus on where to compete. By identifying key opportunities and consciously choosing not to pursue some potentially lucrative alternatives, the startup built a strong brand and quickly won market share from competitors. The new business did not choose to be everything to everyone and thus quickly built a formidable operation with solid growth potential and significant enterprise value.
By answering the four “where to compete” questions, you can put your organization in position to take market share from competitors and build a sustainable value model.
Capture Your Future is a series of articles bringing you practical insights gleaned from over 20 years of building strategic plans for divisions of big public companies, medium-size privately held companies, and nonprofit organizations. Along the way we’ll share some lessons we’ve learned from doing the right things, and sometimes the wrong things, in building good strategic plans.
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