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A competitive threat is competition that hasn't occurred but has potential to occur. In other words, it is a risk of competition. As with any risk, a competitive threat has a probability and impact and may be treated. The following are the basic types of competitive threat.
New CompetitionThe potential for new firms to compete for your customers. This includes startups and established firms that may expand into your market.New ProductsImprovements 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 ModelsA 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.
SubstitutesThe 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 $1000 for a flight suddenly drops the price to $400 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 $400 a week on promotion. Suddenly, one starts spending $4000 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.
Competition
This is the complete list of articles we have written about competition.
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A list of ways to compete in a crowded market.
A list of common competitive advantages.
A definition of competitive benchmarking with examples.
A few examples of a competitive disadvantage.
The difference between competitive parity and competitive advantage.
The definition of market economy with examples.
A complete overview of competitive markets with examples.
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An overview of competitive intelligence.
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