Kim Warren on Strategy
Strategy insights and living business models
Strategy Dynamics Briefing 34: Truly competitive strategy
Strategy very often includes a need to beat competitors as well as running our own business well, and we have long understood how competitive forces affect industry profitability. Those forces include not just existing direct competitors, but customers’ buying power, suppliers’ control of key inputs, and pressure from substitute products and new competitors. Firms can and do try to manipulate those forces to support stronger profits, for example by getting their customers locked-in to buying from them in some way.But you can go further!
You can work to actually alter those competitive conditions. Two particular objectives can be helpful:
Keeping the Vandals out of Rome!
You also need to think about what it might be worth to deter new entrants. In one restaurant market, some twenty would-be competitors had announced development plans that in total would have tripled the number of restaurants in the market over a five year period. These plans were encouraged by the market’s growth, and by the winning company’s own very public success. Had that number of units actually been opened, virtually all of those competitors would have lost money and failed, but inflicted considerable damage to the eventual victor in the meantime. Too many firms thought that running restaurant chains was easy, not understanding the complexity of product development, staff training, operating procedures, sourcing and logistics, and real-estate development. The strategically wise competitor used open communications, such as industry magazines and conferences, to clarify the difficulty of building a successful business and demonstrate just how powerful was its system of resources. The implicit message was “Sure, we are successful, but do not for a minute imagine you can match us — and be sure that we will destroy you if you try!” On reflection, many of the would-be entrants decided that the challenge looked just too difficult, and abandoned their plans. Less than half of the announced new units were ever opened.
This briefing summarises material from chapter 5 of Strategic Management Dynamics, pages 233-303.
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- encouraging current competitors to leave the industry
- deterring possible new entrants from starting up in the industry.
- Taking on everyone at once can be very costly. Any effort that is spread across the entire market has to be of a commensurate scale, so trying to under-price, out-market, outsell and out-service all competitors will inevitably be very costly.
- Efforts dissipated across the whole industry will likely have less impact than efforts focused on specific parts of the market or against particular competitors.
- Such industry-wide competitive efforts will attract retaliation from many competitors, risking great damage to our own business.
- Our efforts will be very visible, exacerbating the very competitive conditions that make it difficult to sustain profitability, for example by triggering price wars, escalating advertizing commitments or starting a war for talent.

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