Do not Take these 5 Actions when New Competitor Moves to your Neighborhood

The scenario may look familiar to many small business owners. You are doing a brisk business with loyal customer base. The sales are growing steadily. You are making decent profit. The same holds true for other competitors in the neighborhood. The existing customers in the town are divided between your and other businesses. In short, equilibrium has been established amongst existing businesses.
And then, a new competitor decides to get a piece of the action. Suddenly, everything changes. The new competitor tries to grab customers with lower price and increased marketing. The existing ones try to hold onto their customers. Employees will leave for bigger opportunities. It’s as if someone threw a stone in the calm waters causing ripples everywhere in the neighborhood.
The initial reaction for many existing business owners may be to counter the new competitor with force right away to ensure these ripples do not cause significant damage to your boat. However, this may be a mistake. The best strategy may be to watch and plan for the future before taking radical steps. In particular, it is important NOT to do the following right away.

  1. Panic – May be panic is a strong word, but many business owners will at least want to take actions to stop the new business from stealing their customers and impacting their business. This may not help much initially because no matter what you do the new business will steal some of your customers. After all, they have done their research before spending money on the new business, right?
  2. Reduce prices – The new business owner will kick off with marketing and attractive offers to get customers. It may be a mistake to fight back with pricing cuts of your own. This is because the customers will want to try new business at least initially. Reducing the price will not help you much with sales.
  3. Slack on customer service – Now is not the time to be sloppy with customer service. If anything, you want to raise it up a notch. After all, customers do have another choice now and they will not hesitate to move on if you do not take good care of them.
  4. Kick off large marketing campaign – Spending extra money on marketing to hold to existing customers may not help. As we mentioned the customers will want to give new business at least one try.
  5. Badmouth new competitor – It may be tempting to badmouth the new competitor in front of customers, but that will only make you look bad. Instead you focus on things that are in your control.

So, what actions you DO want to take? Here are some suggestions:

  • Understand strengths and weaknesses of the new competitor and assess what impact it will potentially have on your business longer term. Make plans to mitigate the impact.
  • Raise level of your quality and customer service. As long as you continue to deliver quality products with great customer care, they will return to you eventually.
  • Monitor your business closely. Watch for the impact on your sales and other key metrics that give good insight in your business performance. Study how they are getting impacted by the new business and make plans to overcome them.
  • Ensure your key employees are happy and will not leave you for the new business.
  • Ask customers about what they think of the new business. This can give you good insight into how the new business will impact you.

The fact is competition is fact of life in capitalism. As long as you take good care of customers with quality products and excellent customer service you will do well no matter how many new competitors come and go. You just have to be patient to let the storm pass and plan for the counter punch to deliver at appropriate time.

How have you responded to new competitors?

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  1. Great post, and I love your tips. When dealing with a competitor, I think the best move is to just take the high road and not make any drastic changes like the ones you mentioned above (ie. price changes, huge marketing campaigns, etc.)