About your bold strategic move … will your competitors even notice?

TakeAway: How to assess a competitor’s response to your strategic moves?  Game theory is often too complex and too assuming to fit the real world.  Intuitive-based war gaming is often skewed by personal biases and hidden agendas.

So, McKinsey proposes a practical approach to predicting competitive behavior that “stays close to the theoretical rigor and accuracy of game theory but is as easy to apply.

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Excerpted from HBR: Predicting Your Competitor’s Reaction, by Coyne and Horn, April 2009

The McKinsey approach involves distilling all possible analyses of a rival’s response to a particular strategic move into a sequential
consideration of three questions:

  1. Will the competitor react at all?
  2. What options will the competitor actively consider?
  3. Which option will the competitor most likely choose?

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.

First, most companies rely on incomplete data to assess changes in the marketplace, e.g. market research that only survey certain segments, markets, or channels.

Second, if your strategic move will affect several of your competitor’s business units, it may not register as significant to any one unit and so may be
overlooked.

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.

That is, the competitor may not consider the strategic move to be statistically significant to their in place plan.

3. Will mounting a response be a priority?
Your adversary probably already has a full agenda before you make a move. On it are product launches, marketing campaigns, reorganizations,
major acquisitions, plant openings, and cost reduction efforts—some or all of which must be curtailed in order to react to your move.

Therefore, to the degree that your adversary has already committed to plans that will fully occupy his attention, he will be reluctant to shift priorities.

4. Can your rival overcome organizational inertia?
Even if top management wants to react, the organization as a whole may resist.

First, if reacting requires the company to make major organizational changes, it is very unlikely to do so unless the threat is immediate and deadly.

Second, managers are generally reluctant to abandon their success formula, and if they decide to go ahead and make a change, they are very poor at doing so.

Third, companies have great difficulty mounting a response that requires the cooperation of third parties, which may not share their sense of urgency.

For example:

In the late 1980s, a small U.S. pizza delivery chain called Papa John’s noticed a change in consumers’ perception of the quality of Pizza Hut and Domino’s (the top two chains) and used the opportunity to create a differentiated value proposition captured in the slogan, “Better ingredients. Better pizza.”

Papa John’s expanded rapidly throughout the 1990s and became the third largest pizza chain in the country, while the two bigger rivals stagnated.

Unable to mobilize their franchises around quality until the threat became undeniable, the big chains did not respond with better pizzas of their own until 2000.

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Punch line: Competitors do not respond to their rivals’ moves at least 1/3 of the time.

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Upcoming: What if your competitor does respond ?

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One Response to “About your bold strategic move … will your competitors even notice?”

  1. satishkrishnamurthy Says:

    good post, what if competitors respond rapidly and business go down?

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