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Module 6: Managing Competitive Intelligence

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Underestimating the Competition

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Underestimating the Competition

Entrepreneurs commonly underestimate the impact of competition. Entrepreneurs who do underestimate the impact of competition are failing to consider the fact that potential buyers are currently managing without the entrepreneur’s product. There are three arguments for why potential buyers are managing without the entrepreneur’s product or service:

• parallel products exist in the market
• reasonable substitutes exist in the market
• parallel products and substitutes do not exist, but the public does not perceive, or is not aware, of the benefits offered by the entrepreneur’s product or service

Parallel products

Parallel products are those that are functionally interchangeable with the entrepreneur’s products, but vary just enough on the product’s perceived benefits to exist in the marketplace.

For example, many communities have areas where a number of restaurants exist in close proximity to one another. These restaurants all offer the customer a prepared meal, but may vary as to nationality or type of cuisine, complexity and originality of preparation, level of service, seating, and other dimensions for which the buying public perceives a benefit.

Substitutes

Substitutes often exist for the entrepreneur’s product. Substitutes are products that fill the same function but originate in different industries. Buyers may have a preference for a substitute due to the substitute’s greater perceived benefit.

For example, the basic construction material for houses varies greatly on a geographic basis. Wood housing tends to be favored where wood is abundant and relatively inexpensive, and a similar argument can be made for the wood substitutes such as brick and stone.

Unique product or service

In the instance where the entrepreneur has discovered or invented a unique product, s/he typically faces a daunting task. Potential buyers must be educated as to the existence and benefit of the new product.

Educating buyers and establishing a market for a new product is expensive. Unfortunately for the entrepreneur, it is often the follow-on firms that are successful. For example, in the electronics industry, the originators of the personal computer, video game console, and personal data assistant provided the infrastructure for successful follow-on firms, but were unable to capitalize on their own innovative products