Sometime in 2012, a small company in Tamil Nadu (India) developed manure containing natural plant growth hormones, from seaweed. The gel had to be diluted with appropriate quantity of water before being applied to the soil. Quite quickly the company established a niche with a volume of approximately 10 MT per month.
Lure of profits
Soon, two new players sensing an opportunity entered the same market. They introduced slightly inferior but cheaper products. Suddenly threatened, the first player mulled over several choices before the company, as below:
• Reduce prices and match the competition.
• Hire more sales people and appoint dealers in new regions.
• Increase dealer margin, advertise and run promotions.
• Reposition the product and charge a premium.
• Sue competitors on grounds of IPR infringement.
• Sit tight, do nothing, and hope for the best.
After much deliberation, the company decided to do nothing. It merely asked sales people to emphasise to dealers the superior quality and performance of their product. Surprisingly, sales quadrupled within a year.
The inertia paradox
Pleasant surprise? Was the loss of market share to new entrants, who were growing themselves, worth it? It is clear the incumbent could not have grown the market on its own and sell four times more per month as quickly as it did. Considering it did nothing the outcome was certainly a pleasant one. But what explains this paradox?
Competition expands markets
Entry of competition expanded the market. Suddenly there were three players promoting a relatively new concept and product category. They expanded the distribution network, and encouraged farmers to try the product. The market was evolving faster than when there was a single producer. And it was segmenting on the back of price and performance. The pioneer could not have achieved any of it alone.
There are several lessons here for strategists.
First, competition is valuable. They help expand markets and catalyse growth. We should be able to discern when they help and when they do not.
Second, competition helps markets evolve and segment more quickly than in the hands of a monopoly operator. It offers incumbents the opportunity to fine tune offerings and position themselves.
Three, doing nothing can also be a good strategy.
Finally, bringing in players can be good for the health of a business especially in a nascent market. In this case it happened serendipitously. But astute strategists can proactively instigate the entry of new players – competitors, suppliers, and customers – for long-term gains.