Visa vs. Mastercard, Apple vs. Microsoft, and Woolworths vs. Coles; all duopolies relentlessly battling it out to uphold their collective market share dominance. Both key players in their respective markets spend big marketing bucks to stay on top, yet are constantly bombarded with challenges to maintain their position in an environment of ‘imperfect competition’.

Organisations that are one half of a duopoly face challenges such as the threat of newcomers and the impact of price wars, to name but a couple. Let’s illustrate these points using arguably the most obvious duopoly in the Australian retail space: Woolworths and Coles.

Threat of newcomers

Who would have thought little old Aldi, coming to play all the way from Germany in 2001, would upset the applecart? Australian grocery buyers spent $89.9 billion in the 12 months to September 20161, with Aldi owning 12.5% market share with 440+ stores Australia wide – and growing.

Woolworths holds the largest slice of the market, but this has declined from 38.5% in the 12 months to March 2015 to 36.3% in the 12 months to September 2016. Their market share has significantly dropped from a high of 40% in the 12 months to September 2014.

The picture for Coles’ is a bit rosier, with market share up to 33.2% from 31.8% a year ago. However, they have a long way to go to get back to a high of 37% in the 12 months to March 2006.

This all speaks volumes about the impact a newcomer can have on a previous well-established duopoly.

Aldi’s annual sales are rumoured to almost double over the next five years, taking a predicted $250 million to $350 million in annual sales away from the big two over the next five years. The will also spend over a billion dollars across the next three years refurbishing their east coast stores, and are adding new stores nationally at a rate of knots.

How are they doing this you ask? The answer is simple: by learning as much as they can about their customers’ needs and differentiating their offer accordingly.

Aldi continue to nail this by understanding price isn’t the only drawcard for loyal customers. They have differentiated themselves largely by only offering quality store-brands. They’ve asked, listened to and heard that their customers are open to store-brands, even preferring them over the big brands.

However, just around the corner a spanner could be swiftly thrown in Aldi’s works, with German rivals Kaufland and Lidl (both owned by the one conglomerate) setting sights on Australia. And let’s not forget Amazon, rumoured to ‘destroy’ Australia’s local retail industry in 2017.

The ideal situation for the two players in a duopoly is when no reasonable alternative sources of products in customer’s consideration set exist. Aldi is scaring the pants of the Woolies/Coles duopoly by blowing this scenario sky-high, and reaping the glorious benefits. – but for how long is anyone’s guess

Price wars: game on

Duopolies tend to benefit from market dominance over short periods. As time goes on, customers find product substitutes due to prices becoming more elastic.

Aldi offer an almost complete range of product substitutes at competitive prices. In doing so, they have forged relationships with their growing number of customers far beyond that of Woolies and Coles. People tend to shop at the big two supermarkets purely based on habit and convenience. While Aldi customers exhibit the same behaviour, they also migrate to the brand who they have somewhat of a relationship with. They’ve been listened to by Aldi and like what they are being offered as a result.

In particular circumstances, and for any number of reasons, one member of a duopoly may not be able to compete with the other’s pricing. It’s when this occurs that relationships with customers are paramount to continued survival and success, especially when interchangeable products are being traded.

Differentiating your offering lesser on unemotional aspects such as price, and more so on understanding the real needs of customers in terms of service, will set you on the path to foster long-term customer loyalty with those who feel like they’re being heard.

If you’re struggling to get ahead of the competition, or you’re having a challenging time working out how to stand out in the marketplace, please get in touch with us. We have a wealth of experience helping clients get a better understanding of their customers, finding that killer point of differentiation, and staying ahead of the curve by developing mutually beneficial customer relationships.

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