How Business Davids can overcome Goliaths
Copyright 2006 Empower Business Solutions
In the story of David and Goliath, young David challenged the
mighty Goliath. King Saul wanted David to wear his armour so
that he could fight Goliath in the traditional way. But David
chose to forgo the armour, used a weapon of his choosing, and
relied on his own speed, and was ultimately successful in
slaying the giant Goliath.
Small business owners viewing the Goliaths of their industry
slugging it out using all the marketing weaponry in their well
stocked armoury, can be daunted by the battles raging around
them. And if they choose to fight them with the same weapons,
they have much to fear. For large businesses, economies of scale
is their most potent weapon. A very powerful weapon. But like
Goliath, their strengths are also their weaknesses.
Relationships
The biggest point of vulnerability for business Goliaths is
their need for volume, and their inability to react quickly to
changes in the marketplace. For small business, this means that
relationships are the key. It is the flexibility to do the
little bit extra without having to go back to head office for
approval. It is the continuity of the relationship between a
business and its customer, and the ability to customise its
service.
Using the banks as an example, we have seen a number of smaller
banks flourish because of the relationships they have had with
their customers. The response from the big banks was to acquire
the smaller banks (and their customers). However, the
efficiencies that the large businesses gain with their economies
of scale create a negative impact on individual relationships
with their customers. While local staff do their best to nurture
their relationships, their authority is limited, and they do not
stay as long as staff do in a small business. In the end, all
their customer relationships, except with their very largest
clients, become transactional. While computer systems can help
'personalise' these relationships, it is a relationship with a
system rather than a person. When mistakes happen- and they are
inevitable in all systems created by humans, they tend to be
very difficult to rectify as any human relationship can be
spread over many individuals. And it is impossible to talk to
the boss to sort things out.
One Size Fits All
As Goliaths depend on volume, they must target as large a
segment of the market as possible. Hence the need for one size
to fit all. They are unable to survive in a niche as no niche is
large enough to pay for the overheads. For a business David,
finding the right niche and tailoring services for those
customers in a way that is impossible for Goliaths, is a way to
take their customers away from them.
Price
Small businesses in competition focus all too often on price,
which is one of the Goliaths biggest weapons, through economies
of scale. It is a mistake to fight on Goliath's turf. And you
should be aware that price is only the fifth reason people buy.
A recent survey showed the top five reasons someone buys, are:
1. Confidence that your products and services will meet their
needs
2. Quality of the product and service
3. The level of service that is provided
4. Selection or range of offers
5. Price
Just knowing this creates a massive advantage for any business.
Market Share
Market share is something that all Goliaths focus on. They study
the movements of their share, and those of their Goliath
competitors. But everyone else is in a group called 'Others'
usually totalling around 10% of the market. THEY DON'T MONITOR
MOVEMENTS IN THIS SECTOR. It is not important to them. This
becomes another big opportunity for business Davids.
If you are a small business that has 2% of the market, and
double your share to 4%, they don't notice. You could double it
again before they even are aware what you are doing. Therefore,
a small business can build up great momentum before a Goliath
notices and takes retaliatory action. Goliaths can't double
their share without coming to the attention of the competition
regulator. Such a feat would normally only be possible with a
takeover, or failure of a major competitor. Goliaths can only
make small gains in their markets- because they are so big,
although their strategy may be to grow the market with new
products and services, which is great for everybody. Or to cut
costs which may have a negative impact on quality and customer
relationships.
This creates huge advantages for business Davids. With smart
marketing initiatives, they can steal market share from all
their competitors without them being aware what is happening
until much later. The competitive response from Goliaths will be
very slow and may not occur until you get above 10%. And is
likely to be around price, which as you now know is only the
fifth most important reason people buy from you.
Marketing Goliaths rely heavily on advertising to reach their
mass market to create volume. For Davids, advertising is too
often the most expensive form of marketing. Fortunately, there
are much cheaper forms that bring you much closer to your
customers, such as a pro-active word-of-mouth strategy. Goliaths
use these as well, but as these are less effective in mass
marketing, it is not their area of focus. So business Davids
should choose the marketing weapons that give them an advantage.
Business Systems
The one thing that businesses Goliaths do very well is to
systematise their operations. This provides consistent quality
and helps control costs. This is one thing that small business
should copy from big businesses. As most small businesses have
poor business systems, it is not difficult to out-deliver your
competitors of similar size, just by having even a basic system
in place. And you certainly need that when you are up against
Goliaths.
Conclusions
Business Davids have an advantage over Goliaths in a number of
key areas. They can make their service personal, and tailored
for the individual. They can focus on a niche which has special
needs unserviced by Goliaths. They can more easily compete in
non-price areas, and can steal market share before they are
noticed. And they can choose marketing strategies that place
them at an advantage over Goliaths. But they must have systems
in place or else they will be unable to deliver as their
business grows.