How to test your competitive market strategy

No business can exist in isolation. Corporate graveyards are full of once-leading companies that lost their competitive edge because they failed to stay current with their competitors. Imagine the story of Digital Equipment Corporation and its once superior technical capabilities that turned into chaos. Or the many bloated airlines with their cost structures and business models vulnerable to competition before 9/11.

The competitive landscape in today’s world is becoming more and more complex. With accelerated product cycles, instantaneous dissemination of information, rapid globalization, and a heightened pace of innovation, it is no longer easy or safe to navigate. In his famous textbook Marketing Management, Kotler states that “markets are so competitive that understanding customers is not enough.” In a McKinsey article from 2005 about the competition, the authors wrote: “Globalization, abundant, cheap labor, capital, infrastructure and information, as well as globalized capacity and infrastructure have profoundly affected industries.” The genie has escaped the bottle in terms of today’s competitive dynamics. It is impossible to go back.

In September 2003, I published an article¬†on MarketingProfs about the testing of one’s¬†strategy. I will describe that original model and extend it as a way to test your market strategy.

Testing Your Competitive Market Strategy

Sun Tzu was a famous general in the world of strategy. Sun Tzu lived for about 2,500 years in northeastern China and was a military strategist who achieved many victories in the field. Sun Tzu has been credited with many victories by successful military leaders, such as General Patton and business executives.

Sun Tzu wrote that, among other things, we can apply four areas to testing marketing strategy. These are speed, strength and weakness, alliances, and successful market capture. Each of these can be compared to your competitors.

Speed (Velocity).

Many industries, including technology, pharmaceuticals, and consumer goods, rely on the timing and speed of market releases. In fast-moving sectors such as wireless technology, telephony, and hybrid cars, it is easy to see how the market opens and closes relatively quickly. Those who are able to scan the market and spot lucrative opportunities quickly will reap economic rents.

Predictive analytics is one of the most popular areas of technology and business processes today. It helps companies determine their next moves and stay ahead of the competition.

While time-to-market is important, this does not mean that things should be done haphazardly. Many companies get caught in “analysis paralysis” and wait until it is too late to take action. Jeffrey Pfeiffer is a professor of Organizational Behavior and Business at Stanford University. He wrote in Business 2.0 that “enlightened trials and errors [often] perform better than the planning of flawless minds.” Sometimes, speed initiatives require dipping your “toe” into the market in order to determine whether or not you will get burned.

Strengths & Weaknesses

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Many companies gain new insights by completing a matrix. They also better understand their strengths and weaknesses. Sun Tzu’s main message is to attack your competitors’ weaknesses and avoid their strengths.

A SWOT matrix is a good way to begin asking hard strategic questions. Peter Drucker was a well-known management expert who used to say that the most difficult questions are usually the easiest ones to answer. Where, for example, is your business vulnerable to rivals? What is your real business? Does it make sense to strengthen a weak point? What are you able to capitalize on, enhance, or eliminate? What should you be paying more attention to?

When it comes to competitive strategies, there are no magic bullets. The benefits of SWOT models and frameworks are often found in the process of developing them rather than in the finished plan. SWOT is a great way to identify areas that require more detailed strategic analysis. The strategy that is designed should be dynamic, flexible, anticipatory, and focused.

The authors of a McKinsey article entitled “Extreme Competition” from 2005 emphasize the importance of anticipating future market landscapes. They write:

Many companies define strategy as a plan that is based on the current market, product range, and competitors, with a strong emphasis on financial forecasts. This strategy can identify the opportunities for the business to grow in the coming years, but it is unlikely to anticipate extreme competition. A good strategy will guide companies to the future direction of an industry and not just where they are today.

Alliances

In my article, I mentioned Sun Tzu’s advice to build a web of alliances in order to reduce the attractiveness or effectiveness of your competitor’s moves. I provided IBM as an example: It has partnerships/alliances with over 30 application vendors that help it effectively counter almost any direct software vendor attack, considering its broad solution set.

Many alliances begin with a narrow set of objectives. These may include developing a new product, expanding into a new market or geography, or blocking a rival. The focus on well-defined, achievable goals allows the partnership to deliver value quickly. This is often in contrast with the unrealistic expectations or targets of mergers and acquisitions. McKinsey and Co. studied 115 acquisitions made in the US between 2002 and 2003. Only 23% of acquisitions in the UK and US generated returns that exceeded the cost of capital for the acquisition.

Many companies today are trying to gain a competitive edge by offering “solutions,” i.e., being able to provide products and services from end to end. When evaluating their capabilities, many companies must make important decisions based on the three Bs: Buy, Build, or Bond. Allies and partnerships are the last “B.”

Alliances can be the best alternative to mergers in many cases. A set of alliances that complement and extend the solution you offer can give you a competitive edge in the market. For example, a mobile handset alliance between Sony and Ericsson was formed a few years ago to compete better with Nokia and Motorola.

Alliances are beneficial for both the company and the offering. A coalition with GE could be formed around financing options that would affect all of their offerings. The latter area may involve an add-in for a software program to make it more relevant to users and systems. A successful alliance strategy allows companies to reduce costs, share risks, compete better against a common competitor, gain a global presence quickly, or extend their capabilities. The following diagram shows how companies can expand and augment their footprint in multiple strategic dimensions.

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