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Sunday, November 16, 2008

Business Lesson: Know Your Enemy

There's one simple approach that isn't perfect but will tend to keep you from making mistakes. Simply stated, it is Know Your Competitors.

Now, that might sound very simplistic. Of course you have to want to know your competitor. What big company doesn't? Well, this might come as a shock but many of those troubled brands of which I've written, either didn't recognize or badly underestimated their most important enemy in the marketplace.

Consider the following:

  • General Motors never saw the German or the Japanese small cars as threats. Instead they ended up competing with their own brands. By the time they got around to the Saturn, it was too late.
  • Xerox thought IBM was their enemy, when it was Hewlett-Packard and the laser printer that did them in. Digital Equipment never saw the desktop computer as having the potential to undermine their mini-computer franchise. Once IBM's PC was established, DEC's days were numbered.
  • AT&T never saw MCI and Sprint as the legitimate competitors they became. They never exploited the technological differences.
  • Levi's never saw cheaper, me-too jeans as something that could overwhelm them in a category they invented.

I could go on, but you probably get the idea. While each case has its extenuating circumstances, the one thing that could have kept these companies out of trouble would have been a clearer perspective on the enemy. Because with this, you know what to do before you get into trouble. Here are a few more competitive guidelines to follow.


  1. Avoid a competitor's strength. Exploit their weakness.

    When a competitor is known for one thing, you have to be known for something else. Quite often, that something else is a built-in weakness that can be exploited. If McDonald's strength is that of being a little kids' place, Burger King can exploit that by being a grown-up kids place.

    IBM is known for large proprietary computer systems. Hewlett-Packard can exploit that by offering open, distributed computer systems. But remember, we're talking strength and weakness in the minds of the marketplace. Marketing is a battle of perceptions. What you're really doing is exploiting perceptions.


  2. Always be a little bit paranoid about competition.

    Remember, we're living in a world where everyone is after everyone's business. You have to realize that one of your competitors is probably in a meeting figuring out how to nail you in some way or another. You must constantly be gathering information on what your competitors are planning.
    This can come from an astute sales force or a friendly customer or from some research. Never underestimate your competitor. In fact, you're safer if you overestimate them. AT&T, DEC and Levi's are testimony to underestimating the kind of damage competitors can do even to market leaders.


  3. Competitors will usually get better, if pushed.

    Companies that figure they can exploit a sloppy competitor make big mistakes. They ridicule their product or service and say they can do things better. Then, lo and behold, their big competitor suddenly improves and that so-called advantage melts away.
    No 2 Avis did indeed try harder but Hertz quickly improved their efforts. Then one day they ran a devastating ad with the headline, "For years, Avis has been telling you they are No 2. Now we're going to tell you why." Then they went on to lay out all their improvements. Avis never quite recovered. Never build your program around your competitor's mistakes. They will be corrected in short order.


  4. Squash your smaller competitors as quickly as possible.

    In war, the generals have an important maxim about being attacked. Here's how they put it: The best place to deal with an invading force is to get them in the water where they have the least manoeuvrability. Next, attack them on the beaches where they have limited manoeuvrability. But most of all don't let them get inland where they can develop momentum.

    So it is in business, you must move against your smaller competitors as soon as possible, so as to not let them develop legitimacy and momentum. General Motors hung back when the Germans and Japanese invaded the US market with small cars. They felt they couldn't make any money on this type of car, so they quickly rationalized their position by convincing themselves that Americans wanted big comfortable cars. Wrong.

    Gillette on the other hand countered BIC's disposable razors with the twin-bladed disposable called Good News. I suspect they don't make much money on these razors (They love to get us by the blades) but today they dominate this category as well as the traditional and more profitable category of cartridge razors.


  5. If you've got a bigger competitor, avoid being squashed.

    Here's the other side of the coin. How do you avoid a big competitor that has just taken my advice? In two words, be careful.
    The best strategy is to sneak up on a bigger competitor early on and never appear to be threatening. Slowly build your business and momentum in places where you're less visible. After you've got some size and momentum, you can step up and better deal with the bigger players.

    Wal-Mart really got their start in the small C and D counties of America where their main competitors were only mom-and-pop retailers. Only after they built size and momentum did they move into the larger A and B counties, where they confronted the other big-mass merchandisers.

    Southwest Airlines pursued a similar strategy of slowly building their route structure in non-hub airports and limited routes. They started in Texas, moved to the West Coast, then spread up into the Mid-West and now are working their way around the East. By the time the big airlines took them on, Southwest had real momentum.

    And Herb Kelleher maintained some real differences from his bigger competitors that kept his costs down: no food, no reservations, no hubs and just one kind of place.


  6. If you're losing the battle, shift the battlefield.

    A company that takes a licking will not keep ticking. (Only a Timex watch does that.) Even companies with deep pockets will suffer in this very competitive world. A better approach is to shift your efforts to a place where you can better take advantage of your strengths.

    By manufacturing in the US, Levi's couldn't compete on price with the me-too jeans manufacturers. By shifting to an authentic or original strategy, they were playing to their strength while making the case of paying a little more for the jeans. And it also gave them some time to shift manufacturing offshore.

    You want to move the marketplace to a point where you can use your point of difference against your competitor instead of being hammered by your competitor's point of difference.


  7. If a bigger competitor is about to attack, you should attack first.

    Finally, you must face reality about size and force. As in war, the bigger armies generally tend to overwhelm smaller armies. More people shooting at fewer people almost always results in a victory for the side with more people.

    So if you're faced with a major attack, you must find a way to attack first if for no other reason than to keep your competitor distracted and off balance. If you don't, you will be over-run quickly and decisively.

    That was exactly what faced DEC as IBM was readying its small computer attack with the PC. An early launch of a more powerful, mini-computer based desktop machine would have dramatically slowed down IBM's penetration into the business market. It would have raised questions about whether the IBM PC was powerful and serious enough.

    Instead, by not attacking, it gave IBM time to improve the power and performance of these machines by introducing new generations (the XT and the AT). In short order, DEC's decline was set in place.


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