You can place your product on a map of the competitive landscape to visually present your positioning and play.
The x-axis shows the company, or manufacturing, view of the product. To the left is the medieval artisan or the Swiss watchmaker, toiling for hours on a single item. To the right is the conveyor belt of output, like a massive iPhone factory.
The y-axis is a scale representing the customer view of the product. At the top are highly customised products, like a bespoke suit, tailored exactly to the individual customer. On the bottom are highly standardised products, like paperclips, where you can be fairly sure a million other customers have the exact same thing as you.
The trade-off is that the more artisanal your production process- in other words, the further left on the x-axis- the higher your costs will be, and so the smaller a market you will find. These are people who require absolute standards in quality (airplanes, for example) or have a lot more money to spend. Meanwhile, as you move to a more efficient and cheap production process, you move to lower price-points as customers pay less for less personalised or lower quality goods.
Think about it in terms of value sticks. Top left is high WTP, high price, high cost, low numbers. Bottom right is low WTP, low price, low cost, high numbers.
Mass Market. The middle is often where the larger players are, and entering here requires some combination of a long-standing brand and access to large amounts of capital. Margins are low as companies compete for customers by cutting price down to near their costs, which means economies of scale are needed to compete. New entrants rarely come in here.
As a result of this, the Low Cost market may sometimes be dominated by the same mass market players, who can use their scale to rebrand a cheaper version of their main product as an option for the most cost-sensitive buyers. Specific resources might also establish a company in this region, for example local logistical access or cheaper licensing fees.
Niche. Here there are as many opportunities as there are customers with individual needs and the ability to pay for them. The question is whether you can sell enough items at enough profit to cover your fixed costs.
Ecosystem Dynamics
Determine where you fit on the map. Do your value sticks align with this position? And behind that question, does your core resource align with the value stick required for this position on the map?
Not everyone is a competitor. Consider the shared workspace office model; WeWork occupies the centre of the map, being the mass market option. There are a few cheaper options with less offered in the offices. And there are a number of niche competitors in London, like The Office Group, the Ned, 12 Hay Hill. They are fighting for different customers, and the huge growth of WeWork has actually helped the flourishing of the niche market.
Without WeWork, the sector was not well defined to customers; there was no frame of reference. WeWork’s millions spent on advertising informed customers about the niche, meaning smaller companies that did not have the financial firepower to advertise on the scale WeWork did were able to piggy-back on the new consumer knowledge.
Even within the mass market, it is possible to carve out niches by sub-sector. For example, office spaces might be more attractive to certain age groups or business sectors.
Often a new entrant will take a niche with a core resource that differentiates it, and then defend it by building a brand. Larger mass market players can then buy these niches for access to the customers, either keeping the separate brand or blending the new customers into their own. Or, other niche players may raise sufficient funds to decide to defend a corner of the market and so buy other smaller niche companies.
The Frontier Curve
The two axes can be relabelled, with the x-axis becoming “price” and the y-axis “responsiveness”. A more continuous production method has a lower price, a more customised product is more responsive to the customer. This gives us a frontier curve map.
The green line represents the limits of what is doable with current technology. For any given price there is a maximum in responsiveness achievable, and vice versa. There are three things companies can do.
An inefficient company can move from within the curve onto it, by increasing internal efficiencies to industry best practise.
A trade-off play means moving along the frontier, but to a different point, where perhaps there is an unserved customer need. Niche v mass market v low cost. Local butcher v Waitrose v Lidl.
Innovation means extending the frontier. For the same production cost that other industry players have, you can now have a more responsive product. In theory, you can sell at the same price to more customers, or for a higher price to the same number of customers- the specifics depend on your elasticity of demand, but the result either way is increased profit.
Conclusion
As always, the value to be drawn from this exercise is a clearer understanding of your own alignment and resources. Such mapping may be useful in explaining your proposition to both investors and customers, as well as in helping to set a price point.