Middle-market heads of product are facing a paradox: rising competitive pressures in an uncertain economic environment. Competitive forces, market saturation and cost inefficiencies drive executives to make tactical rather than strategic decisions. Often those tactics come at the expense of planning for long-term growth. While firms are implementing measures to navigate these challenges, pervasive uncertainty continues to hinder more aggressive innovation.
Nearly two-thirds of heads of product report a substantial rise in market competition in the last year. These pressures now represent a significant source of uncertainty, trailing concerns about overall business performance and fluctuating customer demand. Even heads of product at firms with low overall uncertainty report growing competition, pointing to its impact on firms across the middle market.
These are just some of the findings detailed in this edition of the PYMNTS Intelligence 2024 Certainty Report. This edition draws on insights from a survey of 60 heads of product from middle-market companies. The survey was conducted from July 11 to July 22.
Rising Competitive Pressures in the Middle Market
Middle-market firms are grappling with increased competitive pressures. Sixty-three percent of heads of product report a tighter competitive landscape compared to last year. This experience of increasing competition is consistent across firms, regardless of revenue figures. Even among firms experiencing lower overall uncertainty, many leaders still perceive their markets as becoming much more competitive. Many middle-market firms point to larger corporates as their primary competitors.
Competitive positioning is the second-most widely cited source of uncertainty, tied with customer demand behavior. Roughly 23% of heads of product cited competition as a key area of unpredictability. Interestingly, even heads of product who generally perceive low levels of uncertainty within their businesses report increased competition.
The financial implications of these competitive pressures are significant. The cost of uncertainty remains steady at an average of 7% of revenue across the middle market. Among businesses experiencing high levels of uncertainty, this cost rises to 17% of revenue. This is troubling since nearly one-third of heads of product classify the uncertainty surrounding their business as high. In fact, this figure has remained virtually unchanged since April. This persistently high level of uncertainty, coupled with rising competitive pressures, highlights the ongoing challenges that middle-market firms face in the current economic environment.
Competitive pressures impact all middle-market firms regardless of revenue and uncertainty levels.
Middle-market firms of all sizes feel the squeeze from increased competition. In fact, the impact varies only slightly by revenue and overall levels of operational certainty. Among firms generating $400 million or more, 64% report an increase in competition. A similar share of smaller firms, 63%, reports the same. Among firms with moderate levels of uncertainty, 67% report increased competition. This is slightly higher than those with low or high uncertainty, at 65% and 61%, respectively. These figures show that competition is intensifying across the board, regardless of firm size or perceived uncertainty.
Strategic Responses to Market Competition
Market saturation and cost pressures are middle-market firms’ primary challenges, heavily influencing their competitive strategies. Thirty-three percent of heads of product identify cost pressures as their biggest challenge. Overall, 47% view cost pressures as a concern. Among respondents who said their landscapes are becoming more competitive, 50% identified market saturation as a challenge. Of those, half cited it as their primary concern regarding competitive pressures.
These pressures are leading firms to focus on key strategies like product differentiation (43%), customer service enhancements (40%) and pricing adjustments (37%) to maintain their competitiveness. Despite these strategic efforts, firms continue to struggle with issues related to market presence and cost inefficiencies. Smaller firms see a lack of a strong market presence as their top weakness in staying competitive. In contrast, larger firms are more likely to identify cost inefficiencies as a significant hurdle. These varied challenges underscore the range of competitive pressures facing middle-market firms.
Heads of product are actively seeking strategies that address market saturation and cost pressures. However, persistent challenges related to market presence and efficiency continue to pose significant obstacles. This dynamic demands a balance between short-term tactical moves and long-term strategic planning to achieve sustainable growth.
Navigating Uncertainty as Competitive Pressures Intensify
Among firms facing increasing competitive threats, one-third identify large corporations within their industry as their biggest competitors. Overall, two in three middle-market heads of product have some level of concern about larger corporations in their industry. This trend is especially pronounced among heads of product who say competition has increased in the last year.
However, other middle-market businesses within the same industry also introduce competitive uncertainty. While just 12% of heads of product identify other middle-market firms as their biggest competitors, nearly half view them as threats. Although large corporates introduce a great deal of uncertainty, industry peers cannot be overlooked.
Smaller firms, including startups, are seen as less of a direct threat. Only 5% of heads of product view them as their biggest competitors. However, 30% of respondents overall recognize these smaller entities as players in the competitive landscape. Similarly, 32% of middle-market heads of product view private equity-backed firms in the same sector as competitors.
Innovation Challenges of Increased Competitive Pressures
Innovation remains a critical focus area for the middle market, yet uncertainty continues to hinder progress for some firms. In the past year, 32% of heads of product reported missing opportunities due to uncertainty. In particular, order fulfillment issues and decreased profit margins are rising. Many firms are turning to external solutions rather than developing in-house capabilities, reflecting a shift toward mitigating risks. The role of in-house developments has diminished significantly since April. More heads of product are now opting to revamp processes, partner with third-party organizations or hire specialized talent.
Despite these hurdles, innovation and product quality are still significant strengths against competitive pressures. Twenty-seven percent of heads of product identify these areas as their best defenses. External acquisitions and upgrades can deliver quick wins but might not match the long-term innovation of in-house efforts. Overreliance on these external solutions can limit a firm’s ability to stand out. This is especially true in competitive markets where internal innovation often matters more for product differentiation. Firms must balance the need for innovation with the pressures of uncertainty and cost management.
External versus in-house innovation efforts
Amid rising uncertainty, middle-market firms are increasingly looking outward for innovation solutions rather than developing them in-house. While 38% of heads of product reported revamping processes and workflows, 37% are partnering with third-party organizations. In contrast, just 3.3% of respondents pursue in-house software development, and 10% invest in training existing personnel. This shift toward external innovation highlights a more conservative approach to managing uncertainty. While it reduces immediate risks, it may also limit long-term differentiation and growth potential.
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Methodology
“The 2024 Certainty Report: Increased Competition is a Sure Thing for Middle-Market Heads of Product” is the latest edition of the PYMNTS Intelligence Certainty Project. We drew on insights from a survey of 60 heads of product from middle-market companies that we conducted from July 11 to July 22. Ninety-eight percent of the businesses have operated for 10 years or more, with 55% generating at least $400 million in annual revenue. This monthly project monitors trends across operational areas of companies generating $100 million to $1 billion in revenue. It rotates through CFOs, heads of payment and heads of product to capture uncertainty’s sources and costs as well as the strategies executives use to navigate complex business environments.
