A competitive threat is a potential source of competition that has not yet materialized, but has the potential to do so in the future. It is a risk of competition that can be evaluated based on its probability and potential impact. Like any other risk, a competitive threat can be managed or mitigated through various strategies and tactics.
Some common ways to address competitive threats include keeping a close eye on the market and staying informed about potential new entrants or emerging technologies that could disrupt the industry, continuously improving and innovating to maintain a competitive edge, and building strong relationships with customers to foster loyalty and reduce the likelihood of them switching to a competitor.
In summary, a competitive threat is a potential source of competition that has not yet materialized, but has the potential to do so in the future. It can be managed and mitigated through various strategies and tactics, such as staying informed about market developments, continuously improving and innovating, and building strong relationships with customers. The following are the basic types of competitive threat.
The potential for new firms to compete for your customers. This includes startups and established firms that may expand into your market.
Improvements to the products and services of competitors. For example, a high speed train company that launches a safer, faster, easier to operate and more efficient model may suddenly gain significant market share.
New Business Models
A new way of capturing value that competes with your business model. For example, streaming media services that can be accessed over an internet connection as opposed to being tied to the content available from your local telecom company.
The ability of competition in different markets to attract your customers. For example, restaurants may take business from supermarkets if they can convince customers to eat out every night.
The potential for a price war. For example, an airline that is charging $800 for a flight suddenly drops the price to $500 sparking reduced prices from competitors until the route is unprofitable for everyone.
Improvements to customer experience. For example, the four major airlines in a nation all have reasonably low customer satisfaction. One gets a new CEO and suddenly their customer satisfaction is improving every quarter. The other three airlines start having to discount more tickets to sell seats as customers begin to prefer the better customer experience of the improving airline.
There are two nightclubs in a college town with both spending $500 a week on promotion. Suddenly, one starts spending $5000 a week on promotion to become the more popular spot. This results in an escalating competitive battle that damages both businesses.
The potential for the competition to recruit your most valuable employees.
The potential for the competition to develop superior intellectual property such as trade secrets and patents that allow them to outperform you.