Few companies are so lucky as to have only one competitor, so we need to extend the principles in recent Briefings to handle multiple rivals. It is relatively easy to adapt the three standard rivalry structures to capture several competitors – figure 1 shows the structure for three coffee stores—ours plus two competitors—seeking to win potential customers in the market from Briefing 50.
Figure 1: Dealing with multiple competitors. (Click image to view larger)
In the original scenario, two stores started up, each charging $2.95. Then in month 6, we cut the price to $2.80, and our rival raised its price to $3.15. Here, a third store opens at the start, and follows our pricing strategy. It captures a fraction of new consumers who would otherwise have come to our store and to the first competitor. However, it also speeds the capture of new customers, so that the total market grows faster and to a higher level than with just the two rivals.
An important observation, common in real-world cases, is that having more or fewer competitors does not just ‘divide the cake‘ into smaller or larger pieces – it changes the size of the cake too. Many low-fare airlines, for example, started up in Europe between 2002 and 2005, and because many started routes that the previous airlines could not have coped with, more potential customers were reached, and the market was developed faster than if they had not entered. When many of these failed during 2005-06, some routes were no longer served, but others were picked up by the survivors. The industry in 2007, then, was quite different in size and structure because of those entries and exits than would have been the case if those entries and exits had never happened.
Type-2 and type-3 rivalry structures can be captured with similar modifications to the structures in Briefings 51 and 53.
Until next time…
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Simplifying multi-competitor cases
With lots of competitors, e.g. in car manufacture, it would be tough for any one producer to capture all the gains and losses of customers to and from every competitor. Luckily, it is not necessary!
- Focus on key competitors only. BMW checking on gains and losses vs. Mercedes, Audi and Lexus, for example, and all others being captured in an ‘other‘ category.
- Treat competitors in groups. BMW might check gains and losses vs. ‘other premium producers‘, European mass-producers, Japanese mass-producers, and so on. How to decide on these groups? – by sampling actual customer movements to see where similar flow patterns are happening.
To get real traction with this approach, you should go further, as Coca-Cola and other big brand companies do, and check the flows to and from competing brands and by different segments of customers. It takes effort and cost, but the prize can be big, big, big!
This briefing summarises material from chapter 7 of Strategic Management Dynamics, pages 484.
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