Marketing: Competition and Market Share

Every business has competition. Every business, no matter how unique. There is always some other business that is taking away customers from you, taking your customers money from you. The majority of your competitors you don't even think of as competitors, and surprisingly it is these competitors that are taking away most of your business. As soon as you develop an idea, it already has competition. Competition isn't something to be ignored, it is something to be contended with.

Businesses compete for market share. Market share is the portion of all sales in your market area that go to you. For example, if you have a lemonade stand (interesting example, aye?), and there are four other lemonade stands (five lemonade stands total), and people buy $10 worth of lemonade at your lemonade stand, and they buy $20 worth of lemonade at all the other stands. That means there's $90 worth of lemonade bought, and $10 of that is from your business. So, $10/$90 = 11%, therefore you have 11% market share. You could also calculate it by customers, say, there are 40 customers total, and you each have 8 customers, so you have equal market share in regards to that. However, your customers are buying less than the others, so one way to improve your overall market share in this situation is to get your current customers to buy more lemonade, instead of trying to take customers away from other businesses. In this situation and in real life, it is always easier to get current customers to spend more money rather then trying to recruit new ones.

Another kind of "share" is the share of customer, also called share of billfold. Let's take the lemonade example again. Maybe you also sell cookies, but people buy only lemonade. This means you can expand your share of customer by getting them to buy cookies as well as lemonade (or, more lemonade). As you can see, you are taking more of their money, meaning you are taking more of their "bills" (hence, share of billfold). Again, this is the easiest way to increase market share.

There are three types of competitors. The first are direct competitors, which are other businesses selling exactly what you are selling, therefore directly competing with you. Then there are indirect competitors, which are businesses that are similar to yours. For example, a business that sells CDs is indirectly competing with iTunes, which also sells music, but in a different way. The final type of competitor is the toughest of the bunch, the phantom competitor. This is basically the "alternative" competitor. Back to the CD business. Someone could simply choose not to buy a CD, and that in itself is a competitor. Or, they could decide they want to buy a video game to satisfy their entertainment needs. This type of competitor is so hard to deal with because it's impossible to compete with. You can't anticipate every single alternative that a prospect will have to your business, and that's why phantom competitors are the strongest of all the competitors.

While it has been stressed that it is much more important to try to keep customers rather than focus on gathering prospects, it still is important to recruit new customers, and especially to take them from your competitors. This takes away market share from your competitor and gives it to you. The key to doing this is convincing them that you're better than they are, and it's hard to do, especially if the customers are becoming loyal. As long as you develop your product (or service) to the finest quality, and introduce it to your prospects in an efficient way, it will become all the easier to convert them.