Shortly after the birth of humanity, there were two factions of humans, Neanderthals and Sapiens. The Neanderthal was smarter, stronger, quicker, and tougher than their weaker and less intelligent cousins. Surprisingly, Neanderthals all but died out, and Sapiens began to dominate most of the continent. How could this have happened? Sapiens were incentivized to improve in order to keep up with Neanderthals, who had no incentive to change. Over time, the sapiens were so adapted to change that they found themselves more equipped to deal with problems as they arose. This scenario greatly reflects how businesses can prosper when facing competition.
Competition seems to come off as a bad thing, especially for small businesses. At first, business owners might see competition as an entity that threatens to ruin their livelihood. However, the opposite is true, as competition incentivizes a business to improve and come up with more creative ways to fend off the competition. A small business that cannot adapt to the competition will surely die out. When faced with competition, there are several things one must keep in mind.
Competition makes product and services better
In order to win over customers, competitors are encouraged to make improvements that show why their product is best. Likewise, if one business has a superior feature, others will try to copy or improve on it. This constant back and forth ultimately leaves companies with better products or services than before. In a monopoly, a business might make a product with a specific function, but they would have little drive to improve on this product since they make them exclusively. Through constant reassessment, one might find design flaws hidden into their product much quicker. This could also spawn ideas for new products or services.
|NOTE: One of the biggest mistakes which small businesses make is mismanagement of their accounts receivable or not having a systematic plan to handle them. If the recovery on your past-due accounts is not made on time, those bad debts would be forcefully written off as 100% loss in your accounting books.|
Competition benefits your customers
When a company is constantly trying to improve their product more than a competitor, the customer reaps the reward. Competition often leads to prioritizing customer needs, leaving them with a better product or service than what they would have gotten from a business that had no incentive to improve. Prioritizing the customer can include having better customer service, product insurance, lower prices, or anything that leaves the customer feeling more satisfied with their purchase. Increasing customer satisfaction has many benefits, including brand loyalty, repeat business, increased word-of-mouth traffic, and increased employee morale.
Competition incentivizes a business to be more creative
Competition forces the business to think out of the box in order to stay ahead. In regards to a widget, a business might try to sell theirs’s at a lower price or tack on special bonuses. Alternatively, one might try to improve the speed and efficiency of there widget to make it operate better. A business with a marketing mindset might make the package of widget look more appealing, ultimately building a better brand. In most cases the answers for how to improve are not so clear. In turn, this leads to businesses investing more in Research and Development and to encourage more creative thinking in the workplace. Competitors are more likely to take creative risks in order rise above. The rewards often outweigh the risk. Competitors will also learn of success through failure, where one can learn from what they have done and adapt from it.
Creativity is valued most in the quest for innovation. Competitors will continuously try to find ways of outperforming each other. By practicing innovative business techniques and pursuing the next best thing, you are slowly increasing efficiency and productivity. A firm might choose to innovate the product, the process of making the product, or even the process of advertising the product. Regardless of how it is done, innovation and creative thinking can greatly benefit any organization.
Competition increases productivity
When faced with competition, a company must constantly reevaluate what they offer. This will encourage managers to focus on what sells and to decrease the focus on products or services that do not perform as well. This will make said company more productive. A 2015 study by the Competition and Markets Authority, Productivity and Competition: A Summary of evidence, claims that there are three reasons as to why strong competition leads to higher productivity. Firstly, “competition acts as a disciplinary device, placing pressure on the managers of firms to become more efficient.” When production is more efficient the employees will benefit. This can also have the inverse effect. Secondly, competition “ensures that higher productivity firms increase their market share at the expense of the less productive.” This is incentive enough for most to increase their output. If your business does not step up its production, then some other business will gladly take your place. Lastly, as was touched on briefly, competition encourages firms to innovate and push the docket of what is commonplace.
Competition Boosts Morale
It’s no surprise that giving teams a common goal to work towards increases morale. Employees need a clear goal to work towards less they become stressed and unsatisfied with their work. Business rivalries give employees a sense of pride in the establishment they work for. On a related note, competition in the workplace has been known to motivate employees and help them achieve more with what they are given.
Competition Helps Public Relations
Businesses in stiff competition would benefit from showing that their organization is not just a faceless corporation. By improving the efficiency of your organization, you can cut down on excessive resource use, ultimately helping the environment. This will make your business look better in the public eye. One business might try to take advantage of an environmental hazard by sponsoring a relief effort. Dawn Dish Soap gained a great deal of good PR during their “Wildlife Campaign” where they sponsored the cleaning of animals affected by the BP oil spill. At the time, the dish soap market was so over-saturated that there was little preference amongst brands. This PR move set Dawn apart from its competition in the eyes of consumers. This increased their revenue and public image greatly.
Competition, nothing new about it
Whatever service you provide or the product you sell or manufacture must have displaced the previous generation of product or technology. Competition is not new, it has always been there. Competition just forces you to come out of your comfort zone and take a step forward.
In conclusion, competition keeps businesses healthy by forcing them to adapt. A business that remains stagnant will be unsuited for unexpected change. Those who embrace competition usually benefit the most. It is through competition that businesses reach their highest potential.