If the market niche or niches you are considering are very small markets, you may want to retain some products and services that appeal to a wider range of customers, but have exceptional product depth in a few niche areas. For example, a local ski shop faced with competition from a national chain might decide to focus its primary effort on racing skis, while still retaining some selection for all levels of skiers.

The off-price option
It may be common wisdom that you can’t compete against national businesses on price. But it’s not a fact!

For example, many local retailers feel they can’t compete with national discounters because national discounters are selling at prices far less than they can even purchase the merchandise for. This is defeatist thinking!

You can turn the tables on nationally based competitors. For example, there is a very powerful local chain of general merchandise discount stores in the Boston area called Building #19. They don’t appear to be losing sales to Wal-Mart or the burgeoning crowd of warehouse clubs. And it’s no wonder: Building #19 typically sells goods for a little as one quarter the price that tough national competitors can buy them for! How’s that? Building #19 buys odd lots, closeouts, and damaged goods. And the beauty in this strategy is that their selection changes continually, giving shoppers more reasons to visit their stores on a regular basis.

You can adopt Building #19’s strategy for just part of your business by devoting a portion of your retail space to off-price products. Many local businesses have traveled that road with great success.

Loss leaders
A local business or service can use “loss leaders” to sell against a tough national competitor in almost any category, be it retail, wholesale, service, product, etc.

Many national business often use complex pricing strategies to powerful competitive advantage. For example, grocery stores may sell milk at a smaller markup than most other goods because they feel that consumers are particularly conscious of the price they pay for milk. Similarly, a discount department store typically sells name-brand health and beauty aids at a smaller markup than other goods. Airlines offer special prices on travel over Saturday night to lure more price-conscious nonbusiness travelers. For a time McDonald’s sold its hamburgers for a mere 15¢ while marking up sodas significantly to realize an overall profit.

If you don’t have a cost advantage over a competing larger national firm, offer very low prices on a limited quantity of heavily branded items that consumers are most likely to have noted competitor’s pricing on. Also consider running very deep discounts for short periods of time, and change at least some of the items receiving the deepest discounts.

While a small business won’t generally run into legal problems by selling goods below cost to stay in business, it is illegal to sell items below cost for the explicit purpose of driving a competitor out of business.

Creative aerial dogfights
Even when you are going to go head to head against a large national firm, you can deploy creative competitive strategies.

For example, some years ago, a relatively new airline, Southwest, decided to carve out a major market share of the Houston-to-Dallas airline route. This strategy involved competing against an entrenched national airline. Southwest struck at its competition with a dramatically lower airfare offer. The national airline quickly matched the lower fares. Southwest went lower. The national airline went still lower. Fares finally bottomed at $19, and both airlines were losing money hand over fist. Then Southwest noted that most of the travelers were corporate executives who handled their own flight arrangements but didn’t get involved in paying for them. Price wasn’t the main selling factor and therefore wasn’t the strongest point to compete on. So, Southwest changed its tactics, and jacked up its fares, but offered each adult passenger a complimentary bottle of Chivas Regal. Southwest soon dominated the market even with a higher ticket price!

Frequent customers
A powerful tool for holding onto your best customers is to give them specific rewards. One common strategy is the

frequent-buyer program used by many retailers and service businesses. Witness the popularity of the frequent-flyer programs offered by airlines, wherein you earn discounted or free travel for specified levels of air mileage achieved.

Customers get incredibly attached to the frequent-buyer programs they have enrolled in. They often continue to patronize a store or use a product or service even if the competitor’s prices are lower. People just enjoy receiving special treatment!