Avoid the Middle of the Road Strategy
By Mark Powell
Developing a business strategy for your dive centre may seem an intimidating prospect but in reality, it’s not as difficult as it might seem. Michael Porter is a Harvard Business School professor and one of the leading researchers into business strategy and he says there are really only three generic business strategies.
Lowest Cost, Differentiation and Niche.
A ‘Lowest Cost’ strategy involves having a lower cost of production than any of your competitors so that at any price point you are making more profit than your competitors. A ‘Differentiation’ strategy involves differentiating your product from your competitors in a way that your customers will value. Finally, a ‘Niche’ strategy involves finding a specialised area that other competitors are unwilling or unable to compete in. Each of these can be a successful strategy if implemented correctly. However, there is one approach that is unlikely to work. That is to not have a specific strategy at all, either because you have not chosen a strategy, or because you are trying to adopt a jack of all trades approach and are trying to have low prices but at the same time trying to set yourself apart from your competitors in some other way. Porter calls this a ‘middle of the road’ strategy and warns against this. After all, anyone who spends their time in the middle of the road is likely to end up being run over by traffic from both directions.
A ‘Lowest Cost’ strategy can be effective if used correctly. It involves having the lowest “cost of production”. This means that you can produce your product for less than your competitor. For example, if you have invested in your own pool but your competitor has to hire an expensive public pool, then you can run a course for less than your competitor. This means that, even if you charge the same as your competitor, you will be making more profit than them. There will even be a price point where you are still making money but they are not making anything, or even losing money. Many people mix up a ‘lowest cost’ strategy with ‘lowest price’. It is important to distinguish the cost to us of producing the product or service and the price we charge the customer for that product or service. It is very dangerous to compete on having the lowest price unless you are sure you have the lowest costs. This is because, if your competitor actually has lower costs than you, they can reduce the price even lower than yours and remove your competitive advantage. This leaves you with the choice of lowering your prices to match theirs, and potentially losing money, trying to cut your costs even further, which is likely to mean cutting the level of service you provide, or having to switch to an alternative strategy.
A ‘Differentiation’ strategy means doing something different that sets you apart from your competition. This differentiation must be based on something tangible, so for example, saying that you provide the best training will only work if you can show proof that you really do provide better training than any of your competitors. In addition, it must be something that customers will value and be willing to pay for. Trying to differentiate your business by saying that you are the only dive centre in the area that uses brand X equipment will not be effective unless the customer particularly likes and values brand X equipment. If they have no preference between brands X, Y or Z, then this is an ineffective strategy. A few of the areas in which dive centres have successfully differentiated themselves include; high quality training, excellent customer service, level of experience of the instructors, having the friendliest staff, running regular dive trips, active dive clubs as well as many others. Look at the strengths you, your staff and your centre have and see which of these a customer would value. These are the areas where you can differentiate yourself. For more advice on how to differentiate yourself, have a look at one of our previous articles.
The third strategy is a ‘Niche’ strategy. This involves finding a specific area of service or a specific product that your competitors are not offering and becoming an expert in that area. For example, some instructors focus on ice diving, photography, research diving, sidemount or a particular rebreather. Other dive centres focus on unique locations such as diving in the continental dive at Silfra in Iceland, the wreck of the Zenobia in Cyprus or the Oriskany in Florida. If you have a specific skill, opportunity or location, this can be a very successful strategy as you become the ‘go to’ centre for that location or activity.
There is no unique ‘right’ strategy. Any of these can work as long as you understand what your strategy is and how to implement it. However, while there is no ‘right’ strategy there is definitely a ‘wrong’ strategy and that is to have a confused or non-existent strategy. If you are trying to be cheaper than all your competitors but at the same time offer a high-quality service, you are going to struggle. Be careful as you are likely to be hit by traffic from both directions. Some centres focus on a ‘Lowest Cost’ strategy and undercut you, taking all the cost-conscious customers, while others are focused on a ‘Differentiation’ strategy and are building up a reputation for quality, taking all the high-quality customers.