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COMPETITIVE INTELLIGENCE IN DOING BUSINESS
Author: Hedda Martina Šola, M.Econ.
In 500 BC, Sun Tzu, a great military strategist of the ancient China, has written a treatise entitled “The Art of War”. From today’s point of view, most of his attitudes could be seen as barbarian. However, his views, as well as positions on strategy are relevant even nowadays, both for soldiers, as well as entrepreneurs. They have only one goal: to find out how to defeat the “enemy”.
Sun Tzu’s treatise is based on the psychological premiss which states that the highest form of warfare is attacking the strategy itself, with the purpose of subjugating, or causing the opponent to be subjugated, but without entering into battle. Hence the proverb: “Know your enemy and know yourself; in a hundred battles you will never be in peril. When you are ignorant of the enemy, but know yourself, your chances of winning or losing are equal. If ignorant both of your enemy and of yourself, you are certain in every battle to be in peril.” Nowadays there are different military strategies on the market on how to defeat the enemy (in our case, the competition) that are being used in the world of business: side strategies, surrounding the enemy, siege strategies, frontal attack, even the guerrilla of the marketing tactics. However, whichever strategy you choose in order to gain competitive advantage on the market, it has to be in conformity with the law and legal provisions.
STRATEGIC MARKETING PLANNING
Although appealing, using the so called unacceptable rules of competition and hence gaining the unfair competitive advantage, these types of activities can lead you to imprisonment, damage your public image, losing the goodwill (value of a company estimated on the basis of its reputation), and losing the revenues. This is how we get to the rising need of competitive intelligence in doing business. It lies on the premise- how to make the whole organisation more competitive, in relation to its: shareholders, buyers, competitors, distributors, technology, macroeconomic situation on the market, etc. In another words, competitive intelligence is an irreplaceable tool in strategic marketing planning. Also, it is important to stress that competitive intelligence in doing business is an ethical and a completely legal tool for gathering information, unlike industrial espionage, which is an entirely illegal form of doing business. It is an operation that teaches how to gather quality information out of a large number of those available, synthesize them and turn them into useful data that will be used in our future business decisions. You might think that gathering information about the clients is equal to treasure hunt, or that you will have to go a long way in order to find only a few grains of gold, which make the task worthwhile. Sometimes while “treasure hunting”, even the best analytics will find a lot of “false glitter”, but by using the techniques described below, and the experience, the risk of failing will be diversified to a minimum. Therefore, let us start with the hunt…
At first it is necessary to determine who your competitors are:
- companies that offer the same products or services,
- companies that offer similar products or services,
- companies that could offer the same or similar products and services in the future
- companies that could reduce the demand for our products and services.
Once you realise who your competitors are, you will be able to predict their strategic moves, use their weaknesses and undermine their advantages for setting up: Competitive Intelligence in Doing Business!
Now you need to answer the following questions:
- What do we have to find out? /goals/
- What do we know? /facts/
- Why do we have to know it? /planning/
- Until when do we have to find out? /planning/
- What will we do with all the information gathered? /synthesis/
- How much will it cost us to gather all this information? /plans/
- How much will it cost us if we do not gather this information?
Nowadays the Internet offers a huge amount of information. You have to know that there is information your competitors will allow you to see, and there is information your competitors are hoping you would not see. In both cases, all the information should be analysed, starting from: press releases, information published on the company’s website, analytic reports, annual newsletters, etc. The following form will be helpful:
|Competitor A||Competitor B||Competitor C|
|What is location of the competitor? What are his annual sales? Who are the managers and the supervisory board members? Is the company a partnership or co-owned by another company?|
|What is the company’s pricing policy? What are its marketing plans? Strategic plans? Research & development plans? What are its planned acquisitions in the future?|
|What are the competitor’s strengths?|
|What are the production and technological shortcomings?|
|Has the competitor broken the intellectual property rules? Are there any law suits filed against them?|
By using systematic planning, research, gathering, analysis and dissemination of the information gained, you will be in the position to understand and get to know your competitor:
–– the way he thinks
–– what his advantages are (strengths)
–– what his weaknesses are
–– where he is vulnerable
–– where you can attack him
–– what risks you will bear if you take the position of the inferior
Naturally, it is in your competitor’s interest to hide the crucial information, which could refer to: profit, expansion of business or its liquidation. Identifying this information is crucial in order to survive on the market, especially in these turbulent times. Let’s take a look at the following example:
You are the owner of a company that is in the wholesales business of bicycle parts. Your company currently buys the parts at a purchase price of 50 €, resells them for 150 €, and the final retail price of the products is 250 €. Your company currently holds 10% of market share and earns a profit of 50 € per bike. Your competitor purchases the same parts in Mexico for 25 € and earns a profit of 75 € per bicycle. Should your company suggest a 25 € rebate for each product purchased? This would lower the profit per bicycle for 25 €, and even if you doubled the sales you would still have the same total profit. In the competitive analysis, you should make an assumption of what your competitor would do. Let’s assume that the competitor would lower his prices. In that case, your company would still hold a 10% market share and lose half of its profit, while the competitor would lose a third of his total profit. However, what would happen if your competitor offers a 50 € discount? He would still earn 50 € per bike, while your company would go out of business.
This is one of the blatant examples of how it is strategically important for each company to be familiar with the techniques and tools of the competitive intelligence. Consequently, the managers will be in the position to: a) increase the quality of products and services, b) understand how important it is for the company to do strategic planning, and c) understand the essential importance of marketing. There is a handful of most commonly used competitive intelligence tools (from benchmarking, planning scenarios, financial forensics, all the way to popular war games), but it is important to stress that its importance and expediency lies in preventing and diversifying the risks of a possible failure (whether it is a new acquisition or new product placement), as well as improving your current position on the market, compared to the competition.
Why do large companies, with high quality products and wise managers, suddenly cease to exist?
In the past, these same companies based their market domination on the economy of sales. However, today that is no longer the advantage. Changes in technology, financial markets, distribution channels, and availability of information, have led to crucial market changes. Nowadays it is no longer sufficient to be a large company and have a name (brand). Now more than ever it is important to manage changes. However, these techniques cannot predict the future of our company with a hundred percent certainty, but by evaluating the past, we can extrapolate the trends for the future of our business. True value of competitive intelligence lies in the fact that it will offer answers to the managers’ questions: what the competitor will do, rather than what he has done before!
“It is pardonable to be defeated, but never to be surprised.” – Frederick the Great
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