Evaluating the Competition for a Product

When you’re considering offering a new product, you obviously need to take a look at the competition. If you have a really superior running shoe, but your competitors are Nike and Adidas, you need to think again. Or if there are already 302 sellers of tuna-shaped cat mint cat toys, you need to pick another product.

New FBA sellers sometimes ask, “How many competitors are too many?” Because even if you are brand registered with a unique brand positioning, you’re very rarely going to have the market entirely to yourself.

The fact is that there is no single number that you can use, like “ten is okay, but if there are eleven, that’s too many”. It’s not just the number of competitors that counts; it’s their quality, too, the prices they are charging, and the way they compete.

For instance, take a look at the price competitiveness of your rivals. Is everyone chasing the lowest price? Or are a lot of competitors maintaining prices significantly higher than the cheapest seller? In some more technical markets, you’ll find quite a few listings at high prices, as specifications are more important. These are often big-ticket items, so sellers aren’t chasing volume sales.

You might think about two quite different markets in regard to price. The first is the housing market. In a falling market, most sellers will still retain a high asking price because they don’t want to lose money, and they can carry on living in the house while they wait for the right buyer. If you needed to sell urgently and you set an attractive asking price, you’d do just fine even though there are thousands of other sellers.

On the other hand, if you’ve been in a food market at the close of business, everyone is pulling prices down so they don’t waste stock that will have to be binned. True, some things can go back in the cold store, but things like ripe strawberries and baby salad leaves aren’t going to last. Here, prices will go down even to loss-making levels as sellers try to get rid of excess stock.

Sales velocity is also very important. A fast-selling, high-volume market can sustain many more competitors than a product with slower sales. Make sure you know how many sales a month, week, or day a given product has in aggregate, and whether sales are growing.

Check out whether all your competitors are serious. For instance, if there is one rival that has a lot of negative reviews, you can discount them to some extent; customers will tend to avoid them unless they are by far the cheapest. Importantly, Amazon’s search engine will also push them down the rankings for poor quality. If few competitors have more than a few reviews, that suggests the market may be a fairly new one, and no one has got themselves firmly established yet.

You’ll also want to check how the market is divided among competitors. Some markets are highly fragmented, while others have two or three competitors with a big market share. Try to avoid concentrated markets where you’re going to have to work hard to dislodge one of the top sellers.

Some major competitors have big war chests, which means they will bid high for the top keywords. It’s worth checking Google’s keyword planner to see how competitive keywords are and the estimated price. Don’t pick a product where a big competitor pushes up your advertising cost.

Finally, a product that’s highly profitable can sustain more competition than a low-margin product. You’ll need to have done a little work on sourcing to find out whether you can make money at the current level of pricing, but if margins are good, it’s worth joining the scrum. On the other hand, if you can only make a small margin, it just takes one competitor to move their price down 10 percent, and you could find yourself selling at a loss.

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