Avoid being crushed by stronger competitors who are outflanking you.

A high-end sports club called Lifetime Fitness recently opened in La Jolla (CA) where I live.  Think high-end resort amenities located on Main Street. With an abundance of classes, machines, healthy and tasty restaurant offerings, experienced trainers, and to-die-for steam bath and sauna, this “top brand” is stealing members from other clubs and from specialty niches gyms, like the Barre, Yoga, and Pilates studios.  At $200/month, Lifetime membership is expensive.  But if you work out a lot and enjoy a range of activities and an occasional steam bath, it’s a deal.

The low-end clubs in La Jolla, like 24-hour Fitness, will do just fine. It’s the former high-end clubs that will find themselves challenged.  Not surprisingly, some here in town are now offering membership deals, hoping to beat Lifetime’s price point.  The niche spin-cycle clubs and yoga studios will also have a less-safe market position if the quality of the classes at Lifetime is high. Time will tell.

The upscaling of customer experience is happening in many markets.  In Hudson Yards, a neighborhood on the west side of Manhattan, luxury malls have opened that combine shopping with dining.  Meanwhile, older malls (the ones with Marshalls and Sears) are emptying across the country. High-priced Apple continues its dominance in the phone market, with over half the worldwide revenue for smartphones in the last quarter of 2019.  In an era of clocks in most phones, luxury watches are trending up.  The trend is positive enough that the luxury brand Channel entered the category recently.

At the same time, the low end is doing quite well.  One-fifth of US spending on housewares is for private label products according to the NPD Group.  E-commerce businesses like Wayfair and retailer Trader Joe’s are growing through own-brand offerings.  Yes, it looks like you’re buying a brand – the naming, the packaging, the copywriting.  But the owner of the brand is the company offering the sale, Wayfair or Trader Joe’s.  Business-to-business distributors in multiple markets are engaged in the same strategy of house brands.  So is Costco.

What should you do if a higher-end, broader offering competitor shows up in your market?

It’s easier for niche players when a high-end comprehensive offering enters the scene because they can focus on becoming superior in your niche.  If you have a yoga studio in LaJolla, for example, your strategy should be to outdo the high-end club’s yoga offerings with a broader range of classes (e.g., yoga for pregnant moms, gentle yoga for the elderly) and better teachers (e.g., ones published in yoga journals).  You could also design a much better space for yoga than that offered in the bigger club. I’ll never enter Lifetime and hear soft, comforting music.  I will do so at the yoga studio.  You could try to build communities of yoga practitioners, as people are hesitant to leave a tribe.  You could also offer personalized services – one-on-one yoga coaching and “yoga in your home.”

It’s harder for those stuck in the middle between the high-end and the low-end.  It can be expensive to compete by trying to replicate a high-end offering and that strategy might not work.  By the time you know you’re in trouble, consumers wanting the better offering already switched and will not return if the new place fits their needs.

Instead, you need to study the market very carefully and find segments with unique needs to which you can appeal.  Sticking with the gym market around La Jolla, you could consider whether serious weightlifters might be turned off by the frilly sports club vide and loud music of the new high-end business.  What could you offer instead that would appeal to them?  Or how about a club that best serves the needs of marathoners, competitive cyclists, and triathletes through cross-training, nutritional health, specialty massages, and group rides, runs, and swims alongside lectures and one-on-one training?

The message is always the same, leaders.  If you find yourself stuck in the middle or in a niche competing against a more substantial offering, you must redesign your business to create differentiation that really matters.  If you cannot be the lowest cost offering in your marketplace, you must offer benefits to a target market that other companies cannot match at your price point.  Macy’s missed this message and is now stuck in the middle. It just announced the closing of 20% of its stores and the loss of 2,000 corporate jobs.  My guess is it will be the next big box disappearing from the marketplace or into bankruptcy.

What are you doing to protect your market position?