One of my portfolio companies is planning on launching a service which will be in direct competition with an established player in the market that we operate in. When developing the strategy for this move, one of the key questions that I asked the team was, “How do you think the competition will respond?” Initial conversation surrounding this question usually starts with standard responses, these include marketing ramp ups or replication of the new features, or upgrades that the new entrant may introduce. This question needs deeper analysis however.
It is important to do a SWOT analysis on the competition prior to launching a competing product or service. This way you can position it in such a way that you stay away from the competitor’s strengths, and can focus on areas where they are weak, or more opportunities are open. Once you have the positioning correct the next area you should focus on is assigning a probability to whether the competitor will respond, and if they do, what mode they choose.
A. No Response: When the competitor sees the newcomer as someone who poses no real risk to them because of their entrenched stance in the market place, they usually do not engage in any sort of retaliation. A good example is how Yahoo! did not respond to Google’s initial entrance in the market place.
B. Respond: If you think the competitor will respond, it is all about how they will respond, and more importantly, what sort of time frame you give yourself before a response is triggered. If the competitor is a larger organization, we have to put into perspective that on account of their controls and bureaucracy, a response will take longer to be initiated, this is hence an ideal time to gather market share as fast as possible.
Responses could include:
1. Marketing Ramp Ups: Larger competitors will usually hold the ability to flank new competition with larger marketing ramp ups, and solidify their position in the market while stressing on the weaknesses of their opponents. Counter strategies to this response should be drafted beforehand if you believe that this tactic has a high likelihood of being implemented.
2. Feature Replication: If your business introduces new features into an existing product, will the competitor be able to duplicate them? If they can, how long do you think it will take them to do that? Do you have a road map for more feature upgrades in the pipeline? What is your roll out period looking like?
3. Launch Competing Product/Service: If the market appears to be large enough, the competitor may just spin off a brand new product/service to compete against yours. This is one of the most drastic strategies that can possibly be implemented by a competitor. It does however provide the new entrant with substantial lead time to build competitive response measures to deal with the upcoming product.
Newton’s third law of motion states that “For every action, there is an equal and opposite reaction”. Being ready more comprehensively in response to your competitor and planning several moves ahead, will initiate the reaction of giving you a strategic advantage, with counter responses.