Last fall, the leaders of a mid-sized company were rather worried about an unusually aggressive competitive promotion. After analyzing their competitors ‘past promotions along with the company’s own volume and discount trends, I recommended that the company should forgo matching the promotion. The company saved over $2 million within a quarter and, thankfully, pent up demand from recent lean periods came through at much better historical prices.
Another company was considering a significant price increase to protect margin from rising raw material costs but was unsure if their competitors would follow. Analysis of the competitor’s past price increase levels and timing revealed a pleasant surprise. While the analysis validated that the company’s price leader status it also revealed they were traditionally the first mover for price actions in their industry in North America. Their key competitor had always followed them. At my recommendation, the company announced a price increase and the competitors followed as expected.
The point of these two examples: Managers feel frustrated when the lack of reliable competitive information mars their ability to plan precise price actions. They try to find validation by sketching their competitors’ as irrational, opportunistic or short-sighted but that is hardly useful. Managers seeking dependable competitive intelligence should start by defining clear objectives prior to gathering competitive intelligence. The problem definition should determine requirements, where and how much competitive data to collect, how to analyze it, and how to share it within the organization.
In many companies, existing methods for gathering competitive data are flawed. Recent examples of low-ball pricing tend to influence critical price decisions leading to money being left on the table. Customers, the key source of competitive information, are likely to bluff or provide partial competitive data in expectation of concessions. Similarly, front-line employees also tend to share competitive sound bites somewhat selectively. The information gleaned from such data is understandably misleading. Even when quality data is forthcoming, the input is seldom analyzed sufficiently or relayed to the data providers hence leaving them unenthusiastic about contributing in the future. Also, competitive data collection tends to follow the problem-du-jour rather than an ongoing and consistent process. Few companies nominate a manager to coordinate and gather competitive information for addressing questions such as:
- Is the competitor a wild card across the country or can we spot consistent patterns?
- Do they price aggressively everywhere or only in specific sales regions or for certain customers or products?
- How does the competitive offering compare with our product features?
- Is the competitor irrational are just reacting to our aggressive behavior?
Intelligence gathering should be pragmatic rather than a wasteful collection of data. For instance, it is pointless to demand large amounts of detail from sales reps for tracking market share or to justify their quoted price levels. Instead, requesting concise data sets for pre-determined and well-explained needs is better suited to explain competitive behavior in a given context. As such, the objectives for competitive intelligence vary by industry and nature of problem. Retailers may use sophisticated software to track real-time prices and competitive promotions to stay in the ballpark. Industrial manufacturers typically estimate costs from competitive 10-Ks and elicit price points from sales reps, channel members or customers.
Careful review of past competitive actions can guide precise price planning for future actions. Useful competitive intelligence is mission critical but it should not drain scarce resources. The experience of the aforementioned companies exemplifies that small scale efforts for competitive analysis not only expedite planning and execution of price actions but also increase the certainty of success.