7. Shallow Analysis of Competition
The third reason relates closely to the previous ones, focusing on students' significant misjudgments about competition. Notably, 63% of students were uncertain about their competitive edge, an issue with three interconnected aspects.
Misjudging the Impact of Pricing Strategies
This issue is linked to reaching an adequate audience. Over half the students (57%) believed they could find a price point, making their offer highly competitive due to its excellent price-to-value ratio. However, this was flawed, as marketing costs often negated any profits from lowered prices. It's crucial to remember that procedure costs go beyond the artist's time, including rent, supplies, transportation, marketing, and living expenses. The total operating costs often exceed income from client fees, requiring additional funding to sustain lower prices or discounts.
Underestimating Competitors' Adaptability
We mentioned earlier that students often underestimated how competitors adapt to market changes. Rather than maintaining the status quo, competitors dynamically responded to market conditions, contrary to many students' assumptions of static market conditions.
Misjudging Actual Market Prices
Students often enter the industry with an inflated perception of market prices. However, more in-depth research revealed that competitors' prices were, on average, 25-40% lower than the students had anticipated.
Hierarchical Cannibalization: A Hidden Challenge
A unique competition aspect is "hierarchical cannibalization." If a student's trainer operates in the same area (within about 120 miles or 1 to 1.5 hours' drive), they are likely competing for the same clients. Cannibalization is less likely if the trainer's price is significantly higher (over 120%) than the student's. However, it's almost inevitable if the prices are similar. This principle also applies to academy hierarchies, where artists in the same area with a higher status within the organization can cause cannibalization.