Many enterprises and businesses exist to solve a problem or find a solution for consumer’s wants and needs. As business owners discover ways to grow their organizations, they are constantly looking for areas that will give them that competitive edge over a period of time knowing new entrants will saturate their market. But when operating in a perfectly competitive or monopolistically competitive market, finding that sustainable advantage can be the difference between a 2-year business and a 10-year business. Search Engine Optimization and digital marketing in general can provide that crux for a host of reasons. But it all starts with courage, discipline, and understanding where you standard in the market structure.
Perfectly & Monopolistically Competitive Markets?
For the sake of clarity, understanding how you fit within this market structure provides great insight into your business model, competitive forces, and ultimately what marketing practices best fit your overall strategy. Perfectly competitive markets exist when the product or service is homogenous and requires minimum efficient scale, meaning the cost to start up is minimal. These are essentially free entry markets. These markets include printers, retail, The Stock Exchange, and any instance in which there are a large number of buyers and sellers. It can be very difficult to differentiate yourself for long periods of time before your competition catches on to the strategies you are implementing and employing. Finally, no asymmetries are found among firms, gross margins are low, and players have relatively low market share.
Monopolistically competitive markets are a better place to be in comparison to perfectly competitive markets. In this market structure, one can increase willingness-to-pay (product and service pricing) by differentiating his product or service line. Minimum efficient scale is still relatively low, but gross margins are typically high, and there are ways to erect high barriers to entry so you maintain and increase your share of your market.
How Market Structure Insight Gives Firms A Sustainable Advantage…Even SEO Advantage
Understanding where you stand in these two market structures gives you an instant advantage in several ways. First, you know many of your competitors are already leveraging any insight they can capture to help grow their business. But when it comes to discipline and the nuances of running businesses, many firms in both market structures do not test out new areas of growth, including search engine optimization. This is one of the core reasons that many of these firms fail and others just barely earn what they originally invested in their companies. They are not testing out new means to create that sustainable advantage.
Real Estate Brokerage As An Example
Real estate brokerages fit within the monopolistically competitive market class. Gross margins when comparing fixed and variable costs to revenues are relatively high, it does not cost much to start a brokerage firm, and there is plenty of variance amongst real estate firms, meaning they all earn different amongst and have more control over their revenue streams.
However, real estate brokerages are still hesitant to test new means to gain that competitive advantage. Usually, they wait to see the trends in the market before they begin making those marginal investments. But by that time, other firms have already jumped on board that that new practice is now a best practice other firms are leveraging, thus causing that real estate brokerage firm to continue to collect margin returns from their invested capital. The firms that are courageous, disciplined in their budgets, and test out news means to acquire more customers will have even more advantages to reinvest in areas that are producing superior returns. Of course there are cases when the budgets are too low and there just isn’t enough to branch out into new territory, but then again that becomes the story each quarter when a firm is reevaluating their strategy and budget spends.
How This Relates To Search Engine Optimization
I am always amazed when I cite this statistic because it speaks to the core of this article. Search Engine Optimization, or organic search traffic produces 85 – 90% of search engine traffic, yet business owners, CEO’s, and marketing directors only allocate 5 – 10% of their marketing budgets to it. That reasoning could be because of the lack of understanding of the benefits and opportunities available in online marketing and search engine optimization. If that’s the case, digital marketing firms like our own must continue to work hard educating enterprises of the sustainable advantages and long-term implications with search engine optimization. When you have a marketplace in which over 4 billion searches are being performed daily, not positioning yourself to capture some of that traffic can make it even more challenging to create the sustainable advantage businesses are searching for.
At Que Commerce, we think the concern of investing in new business growth practices including search engine optimization has more to do what the saying, “don’t fix what’s not broken.” If your firm has been allocating its budget a certain way for some time, why would they change it when they’re not entirely sure this will translate into more traffic and sales to their business? We get this question all the time. Our typical response is that it takes courage to try new things. Our clients had the courage to start their own business or take on leadership roles in their organizations. But they don’t want to jeopardize that growth with marketing practices they’ve yet to employ or fully understand. Firms that have maintained disciplined in allocating a portion of their marketing budgets (even budgets in general) to testing new customer acquisition practices have performed above the mean. They have positioned themselves from a perfectly competitive market to a monopolistically competitive market, and then from that market to operating in a differentiated oligopoly. That is how the Coca Colas of the world have created their own sustainable advantages.
If you want to attract superior returns, you must leverage that courage and discipline into investing in new marketing practices. Small to midsize companies that do this will already have distinct advantages in their industries because their competitors will lack enough courage to pursue these uncharted waters. As business owners and CEO’s, look for those activities within and outside your firms that could create that sustainable advantage. Whether it’s the investment in search engine optimization, paid search, or even targeting a tertiary market to sell your products and services, your courage is what will allow you to growth at returns above your market.
by “Justin Croxton”