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A coffee shop near my house has closed down. I'm not surprised. Doesn't Boise have enough coffee shops yet? But now a new business will be taking it's place: a pizza shop. Doesn't Boise have enough pizza places yet?
The yellow pages list 30 separate companies selling pizza from at least twice that many locations across the Treasure Valley. That's a lot of pizza. That's a lot of competition. For the consumer, that's great! You have lots of options. For the business-owners, however, it's a challenge not easily overcome.
Differentiation is the key. Somehow you have to make your business stick out. There are a few ways to do this:
Price - Be the cheapest. It worked for Wal-Mart. Nearly everyone talks bad about Wal-Mart, but nearly everyone shops there at least once a month. Being the cheapest, however, only works if you can actually make a profit. You have to really understand your costs before you decide to undercut your competition. You may also have to cut corners. You most likely will not be able to compete on quality at the same time.
Quality - Be the best. Some customers are looking for the best experience their money can buy. This is especially true in food. People will go far out of their way for food they consider superior. This usually requires higher costs, which must translate into higher prices. During poor economic times your product may become considered a luxury, and business may suffer.
Service - Taking good care of your customers can build loyalty. Good service isn't always free to provide, but it often pays for itself. Good service can also translate into good word-of-mouth advertising, though not as much or as quickly as bad service.
Segmentation - Find a different group of customers that is under-served. Somewhere in the distant past someone realized that there are potential customers who don't or can't go out to eat, but would still like to have restaurant food. Home delivery was born. Many pizza places provide delivery today, though not all. Those who don't are usually targeting a different market segment.
Product Line - Provide something different from your competition. Many pizza chains have started offering more than just pizza. You can often get entire meals from soup to dessert delivered from a single restaurant. It may increase your costs, but you may also attract a larger customer base who buys from you more often because of the variety offered.
As the pizza and coffee markets show, heavy competition does not mean a business cannot succeed. It just takes a clear idea of how to make your business different enough to stand out.
What other methods of differentiation have you tried?
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