Flying Blind

 

Imagine that you’re a seasoned pilot. You’ve filed your flight plan, then a massive snow storm hits. Visibility is zero and the winds are gusting up to 30 knots. Are you going to take off? Not unless you have a death wish, right? You know the dangers of flying blind. 

 

Yet business owners fly blind time and time again. How? Let’s say that your competitor comes out with an improvement to its offering. Your sense that the enhancement is going to give them competitive advantage so you scramble to effect a similar improvement. You just took off in a blinding snow storm.

 

First, you don’t know whether their customers, or yours, will value this enhancement. Unless your competitor is raising its prices to reflect the additional value and their customers are paying that price, you don’t know whether the enhancement has any value to the customer.

 

Second, many business owners give away these enhancements without ever asking for higher prices. Their rationale is that they’ll gain ‘competitive advantage’ and garner a ‘larger share of the market.’  

 

Think back to a time when you employed this strategy. Did you gain market share? I’m not a betting man, but I’d willingly bet that you didn’t gain any market share. There are simply too many factors that buyers consider beyond price in making their buying decisions.

 

Let’s assume that your competitor created an enhancement and decided not to raise prices in hopes of gaining market share, which didn’t happen. Your competitor drove up its cost structure without gaining any additional revenue. All the costs associated with developing and marketing the enhancement were wasted. That means its operating margins just dropped.  

 

Worse yet, you just followed them blindly. You also incurred additional costs without the benefit of additional revenues. To compound the problem, you don’t have any better idea than they do about whether or not they value the improvement because you didn’t ask them to pay for it. Ouch!

 

It’s counter-intuitive, but following a competitor’s lead in enhancing their offerings without evaluating their approach and the impact it will have on their bottom line is the equivalent of abandoning your flight plan and taking off into a blizzard. The results can be devastating.