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How to get ahead in business with complementors

        posted by , May 10, 2011

Complementors are a relatively new economic concept — the value of your products is enhanced by complementary products.

This potent competitive force is key to the business strategies of innovative companies such as Google and Amazon.

The 5 Competitive Forces

Conventional competitive analysis focuses on five forces that shape the competitive landscape:

1. Competitive rivalry within an industry.
Some industries are more competitive than others due to intense rivalries.
Example: Airlines that engage in frequent price wars.

2. Bargaining power of customers.
How easily can customers switch? Customers that can easily switch products will demand low prices.
Example: Customers can easily switch airlines.

3. Pricing power of suppliers.
Can a company push suppliers for deep discounts?
Example: Airlines have almost no leverage to push for cheaper jet fuel.

4. Threat of new competition entering the market.
Even if a company has few competitors — if they become too complacent they may attract competitors.
Example: An airline that has a exclusive route can't overcharge because it might attract competitors.

5. Threat of substitute products.
A company may not be able to charge higher prices for fear that customers will switch to a substitute product.
Example: Domestic airlines may not overcharge for short flights for fear customers will switch to high speed rail.

Complementors

Complementors is the sixth competitive force: products and services from different companies that add value to one another.

Complementors are nothing new: gasoline and the automobile are obvious examples. Cars would be worthless without gas and the price of gas would plunge without cars.

What is relatively new is complementors as a business strategy.

Complementors and Strategy

Complementors can increase both sales and margins. There are various strategies for encouraging the growth of complementary products:

1. Open Platforms
Build a open platform and allow third parties to directly extend your services with their own applications.

2. Marketplaces
Incentivize third parties to build complementary products by giving them to access your customer base.

3. Agreements
Explicit agreements for complementary product development.

4. Critical Mass
If your product gets popular — complementors will follow.

Examples of complementors

1. Airline alliances: aligned operations and marketing programs.

2. Mobile phone apps.

3. Intel and Microsoft are the classic example of complementors: software that complements hardware.

4. Hotels and theme parks.

5. Third party extensions of websites.

6. Casinos and loan companies.

7. Radios and radio stations.

8. Web search and web content.

9. Ice cream and ice cream cones.


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