We often see companies attempt to compete against a successful category leader through price cuts and other forms of discounting in an attempt to maintain market share. This is usually the sign of a company that is out of ideas.
A smarter strategic response is to see if you can turn the leader's strength into their vulnerability.
I was reminded of this while reading a Wall Street Journal article on how Illy has chosen to compete with Starbucks. Starbucks’ strength is its ubiquity. Illy cannot compete by building more brick and mortar. So its response is to piggyback on the ubiquity of local independent coffee shops, signing contracts with cafes that agree to serve Illy exclusively and allow Illy to exert quality control. Starbucks’ strength becomes its vulnerability – too many stores result in too much overhead and fewer opportunities to grow. Illy becomes the cool indie brand.
We see this same dynamic at work in other categories.
Amazon turned Barnes & Noble’s success in building bookstores around the country into bloated overhead that hangs around the retailer’s neck like a lead weight.
Apple reshaped Microsoft’s long time dominance in the corporate market into the image of a tweedy bureaucrat.
Enterprise built an entirely new category – temporary replacement cars for suburbanites – that Hertz and Avis cannot easily serve from their deeply entrenched airport locations.
And then there is Google, a company that uses the power of "free" as a competitive wedge to disrupt categories.
Your competitor's strength also can be its Achilles' heel. Find it and exploit it. Don't play the game by their rules. They'll win every time.