Last week, I was talking to an entrepreneur about the coming year and what he will be focussing on. There were not really that many direct competitors for the business as this (recent) vertical has pretty high barriers to entry and no long-term history of success. But still we needed to address this problem:
“What if a copycat enters the market and offers slightly lower prices?”
It’s an old problem and investors are hesitant to put money into a market share that is not defensible.
There’s many ways you can build a defensible position. You have to build stuff that’s hard or impossible to copy, increasing the barriers to entry. Some of the ways you can think about this:
Uniqueness & exclusivity: Having a monopoly to a certain good or service. This is highly likely to work within media for example. Netflix built this defensibility by starting to produce their own content that’s highly popular and exclusive for their platform. Notice how this is a very ‘high stakes, high gains’-way of approaching it. Keeping this ball rolling requires ongoing investments and a shift in market preference can be very costly.
Loyalty & increasing value: A great way to approach this is build products that have increasing value the more they are used. This can be done by incentivizing users financially for their repeat business (discounts), but can also be done by increasing exclusivity (making content available only for certain users) or improving the UX based on the data the user generates (better recommendations). These techniques all use the ‘disposition effect’ making it harder for users to give up what they have earned through using the product.
Network effects: These might be the hardest one to pull off but also the most rewarding one when done right. I’m not going to go in-depth about them here, because it would take this article to far but James Currier has written the blog on it. So you can dive into it there.
I hope this helps you think about the defensibility of your product. I know there’s a lot more ways, like for example ‘embedding’ your service into others and I’d be glad to hear your thoughts on it. So do share by hitting the reply button!