IDEA IN
PRACTICE
ing and force the group to continue the
move-countermove exercise.
The first step in analyzing competitor reaction, therefore, is to address the
likelihood of no reaction. To determine
this, you must ask four subquestions.
If the answer to any of them is no, the
chances of a response are low.
1. Will your rival see your actions?
Even if an action appears obvious to you,
your competitor may not recognize it,
for at least two reasons. First, most companies rely on incomplete data to assess
changes in the marketplace. For example, most large consumer goods companies in China gather data on competitor
volumes in only 30 large cities, which
account for about half of the market. As
a result, they simply do not detect new
products targeting smaller cities. In the
United States, a major consumer products company recently missed significant inroads by a competitor because
the market-tracking service it (and most
similar companies) used did not survey
dollar stores, which accounted for 20%
of the market for this type of good. Second, if your new product will affect several of your competitor’s business units,
it may not register as significant to any
one unit and so may be overlooked. On average, only 23% of
the participants in our survey learned about a competitor’s
innovation early enough to respond before it hit the market
(although we asked respondents broadly about product or
service innovations, we will use the term “new product” to describe these particular responses). When it came to competitors’ pricing moves, only 12% of the respondents learned about
a price change in time to prepare a preemptive response. (In
our research, we asked one group about responses to an innovation and another group about responses to pricing moves.)
»
Will your competitor react
at all to a new-product launch
or price change?
The authors’ research suggests that
your strategic move may go undetected: Of the senior executives
they surveyed, only 23% learned
about a competitor’s new-product
launch early enough to respond
before it hit the market, and only
12% learned about a price change
in time. Even if they detect the
move, rivals may not feel threatened enough by it to interrupt their
existing plans. There’s probably a
30% chance that no competitors
will react to your move unless it is
very disruptive (and even if they do
respond, you’ll probably have the
market to yourself for a while).
»
What options will your
competitor consider?
Few companies analyze more than
three options. Almost everyone
considers the most obvious
ones: matching a price change or
introducing a me-too product. For
guidance, some examine what their
business unit did the last time or
what has happened elsewhere in
their company. It’s very likely that
your rivals will also seek advice
from board members and external
advisers.
»
Which option will your
competitor choose?
Look at this question through a
competitor’s lens, not your own.
Most companies use simple, short-term measures. Only about 15%
track NPV. Seventeen percent use
short-term market share, while another 17% use short-term earnings.
Twenty percent look at long-term
market share, and 21% look at
long-term earnings. Do not take
the phrase “long-term” too literally:
Only 15% look more than four years
ahead, and the time horizon varies
across industries and locations.
Remember also that you can improve your odds of escaping
detection even more by exploiting your competitors’ blind
spots, some of which will become obvious as you consider the
next three subquestions.
2. Will the competitor feel threatened? Even if your competitor sees your actions, he may not feel threatened – and,
accordingly, will not think that mounting a response is worth
the expense and distraction. Most organizations assess performance strictly against their annual budgets. If the financial goals in the budget can still be met despite your planned
23%
Only 23% of the executives we
surveyed learned about a competitor’s
new offering early enough to respond
before it hit the market.
