I read an interesting article in the Sept. 10 New York Times which discussed the current leader of North Korea. Who hasnt thought at some point, His policy just seems crazy? The article postulates that, in fact, his policy isnt crazy at all. Rather, its carefully crafted to keep the country in a precarious state of tension with the United States and other countries, to portray to his populace that there is a dangerous external threat and his strong leadership is needed to keep the country safe.
Of course this is a hypothesis and you may or may not agree with it, but it did seem a reasonable explanation to me. It also made me think about how easy it is to fob off certain competitor behavior as unintelligent or uninformed. The reality is that the behavior of our competitors makes perfect sense to them, and we have to work harder to understand such behavior and its implications for our own company.
Which types of competitor behavior are most likely to be misunderstood? Here are some examples from my own experience:
Unusually low pricing offered to a certain customer or on a certain product.
New product offered or current product withdrawn when rationale isnt clear.
Competitor becomes very quiet or inactive in the marketplace.
Competitor aggressively pursues a customer they havent courted in a long time.
Competitor doesnt compete for a particular customer or in a particular business segment.
Competitor builds or closes a plant.
Lets look into each of these situations and what they might mean.
When a competitor offers unusually low pricing to a certain customer, it may signal a change in strategy regarding customer segmentation and/or targeting. Perhaps the competitor is seeking to get a foot in the door, which they will then use to increase their share of that customers business in the future. Alternatively, this sort of action could signal that the competitor has reduced their costs to formulate a particular product, in which case you are likely to see that low pricing spread to other customers.
What actions should you take? That depends on the specifics of your strategy and the circumstances, but you should consider taking actions that will reinforce your commitment to the customer being targeted, including higher-level management interactions. You may also want to review your costs to formulate and deliver the targeted product in order to stave off any potential future challenges for other customers. Finally, consider that perhaps the competitor didnt understand the market, or perhaps you dont.
Introducing a replacement product into the marketplace that seemingly lacks new features and benefits could mean that there is some problem with the old product, such as a reported field issue or customer complaint. It could also suggest that there is an issue in the supply chain for the old product, such as upcoming discontinuance or a sharp increase in the cost of some component in the product. It could also mean there are issues with product registration in some of the intended geographies. Or it could mean that the new product is intended to carry some new features such as original equipment manufacturer approvals, but the testing is still in progress.
Internal issues may preoccupy a competitor and cause them to get very quiet in the marketplace. This could include such things as a major systems project, a leadership shuffle or a merger, sale or acquisition situation. This could be a good time for your company to make progress in the marketplace while the competitor is distracted. However, be alert for signals of what the underlying cause of the distraction is, as it could be something significant that you need to be strategizing about in advance.
When a competitor becomes aggressive in a particular customer segment after a long period of inactivity there, it could be a change in customer segmentation and targeting, as mentioned previously, or it could be a harbinger of change of personnel in either the competitor organization or that of the customer. New personnel are more likely to want to retest existing contracts and supply relationships.
The fact that a competitor is not vying for a particular customer or in a particular segment is useful information to think through, as it is a clue to your rivals overall strategy and/or strengths and weaknesses. Often it implies that the competitor doesnt consider the business to be profitable, which could be because they see it has a high cost to serve. It could also imply that the competitor believes they will not succeed in winning the business; perhaps they are late to market or have some flaws in their offering. Your company should be looking for the underlying rationale and seeking to take advantage of this elsewhere in the market.
Closing a plant may imply the competitor is in high-level cost control mode. I would look for other signs of cost reductions such as layoffs. It could also mean that they have excess capacity overall, and I would seek to understand what businesses they might have lost. It is useful to have an overall sense of competitor capacity and market position over time. A competitor plant closing could be an opportunity for your company to reinforce your commitment to that local market, and to explain how your company could be a better choice due to logistics costs and lead-time benefits.
On the other hand, when a competitor builds or acquires a new plant, it usually means there is a change in strategy and a desire to grow by penetrating new customers or markets. Your company will have decisions to make as to how to defend-or not-your position in the marketplace.
No, your competitor isnt crazy, and you should be working to understand their underlying motivations!
Sara Lefcourt of Lefcourt Consulting LLC specializes in helping companies to improve profits, reduce risk and step up their operations. Her experience includes many years in marketing, sales and procurement, first for Exxon and then at Infineum, where she was vice president, supply. E-mail her at saralefcourt@gmail.com or phone (908) 400-5210.