MARKETING MATERIAL

7159 BAM 97 - Warriors, Collaborators and Cartels

David Mercer, Open University Business School

ABSTRACT

The research examines the position organisations adopt in respect of their competitor. The results show significantly less aggressive competition reported than much of theory would have predict. In response, the paper develops some new elements of competitive practice; where the very damaging effects of negative competition are positively counteracted by three paired codes of collaboration - which are derived from the true position most organisations aspire to, as revealed by the research.

Senior Lecturer

Open University Business School

Walton Hall

Milton Keynes

MK7 6AA

Telephone:        44 (0) 1908 656878     Home: 44 (0) 1908 232165

Fax:                  44 (0) 1908 655898

E-mail:              d.s.mercer@open.ac.uk

WARRIORS, COLLABORATORS AND CARTELS

INTRODUCTION

From the 1980s onwards, much of the academic debate about optimal strategies - led by Michael Porter (1980) - has revolved around competitive positioning. This research was therefore intended to examine the actual position organisations adopted in respect of their competitors.

RESEARCH METHODOLOGY

In order that respondents had a basic understanding of the principles involved, they were drawn from a population made up of those OUBS students who had already completed at least one marketing course with the School. These students are typically mature middle managers or professionals - from larger organisations - and, as part of their course-work, are regularly required to critically examine their organisation’s workings. The questions were developed from comments recorded during four separate group discussions with a total of 35 students, and the questionnaire was piloted with 50 students randomly selected from the population.

The final questionnaire was mailed to 1,000 OUBS students, chosen at random from the population. Completed questionnaires were received from 566 students (57% response). The size of the sample was such that the results had an accuracy (for this population) of better than ±4% (at the 95% confidence level).The size of the sample was intended to allow investigation of a number of sub-groups, with an accuracy of better than ±20% (at the 95% confidence level) for those with 50 or more respondents. The most important of these are shown below.

RESULTS

One of the most basic factors was the number of main competitors each organisation faced; and there was a relatively wide spread of results here (Table 1). Just about half (47%) fell into the (expected) group of one to five competitors. A relatively high proportion (13%) were monopolies, and two fifths saw their main competitors as being more than six in number.

Addressing the most crucial issue being investigated (table 2), despite the widely accepted theories of competitive advantage propounded from the 1980s onwards, nearly half of the respondents saw relations with their competitors - as set by their senior management -  being non-combative in one way or another (31% as stable or collaborative and 16% as regulated).

On the other hand, as can be seen from the above table, respondents views of the actual situation differed marginally from that formally stated by their senior managers. Overall, though, a third (34%) disagreed with the view as taken by their senior management (though, again as can be seen from the results above, much of this ‘disagreement’ cancelled out in the overall results).

It should be noted that this quantified result is at odds, however, with one of less expected outcomes of two of the focus groups. In general the members of these groups had followed the pattern reported here; of about half and half combative versus collaborative. When, however, in each of the two groups, a member admitted that his organisation informally participated in a cartel, a majority of the group then (reluctantly) switched their position to admit that this was also the case for their own organisation! It might be argued, as a result, that cultural pressures play a significant part in persuading respondents to report (expected) combative positioning; and. hence, the level of reporting of collaborative strategies would be under-reported.

When the pattern is examined in terms of the number of competitors, it is not unexpected to find that combative approaches increase as the number of competitors grows (peaking at around 60% when there are five competitors and lowest, at 17%, for monopolies). Neither is it surprising to find that regulation is important where there are few competitors. What is perhaps surprising is the degree to which those with just one competitor see relations as being governed by regulation (table 3) - fear of monopoly is perhaps greater than the reality!

If the position is examined by industry (table 4), unsurprisingly the consumer and industrial goods sectors record the highest level of combative relations - following, less predictably, industrial services - with consumer and financial services more subject to regulation (as is the government sector)

DISCUSSION

Clearly, it is a foolish manager who ignores competitive moves. To this extent, at least, Michael Porter, together with the others who have contributed to the debate, has made a very useful contribution by raising awareness of the need for competitive strategies. On the other hand, it may be just as foolish to concentrate on competitive advantage to the detriment of the market position of the brand. Thus, the over-emphasis on competition in recent years may have been counter-productive - for those organisations which have followed the theory too closely. In reality, as the results show, that there is significantly less aggressive competition than much of the theory would predict.

The new battle lines being drawn up seem to be between European approaches, most notably fostered by the European Commission, which favour co-operation and the American ones, enshrined by their multinationals, which still stress the virtues of market competition. The so-called market philosophies of the latter, and of the 1980s, seem to us to focus on just one - price - aspect of the market; where, it has to be remembered, the basic rationale for the market itself was to allow co-operation between various parts of society, which can in this way specialise in the fields where they are most productive.

Even in terms of the most vigorous proponents of competition, the multinationals say, it would seem - from our research - that their managers have adopted a quite pragmatic attitude to the theories being propounded. We would argue that, at least in this respect, their perspective is probably sound; and in line with the greater part of society as a whole.

PRACTICAL COMPETITIVE STRATEGIES

We take these results as the starting point, therefore, for building a much more pragmatic approach to competitive strategy. As we observed in the introduction, it seems to be a requirement of modern managers that they swear an oath of 'death to the enemy'; few will publicly admit to anything less. We have christened this approach the ‘Warrior’.

In any case, according to the research, the opposite would appear to be true in business practice. Indeed, in the group discussions - when the participants realised that the majority of those present collaborated - they admitted that they did the same. We eventually had a majority (in these small groups) who even said that the organisations in their industry operated almost as an informal cartel!

Accordingly, we illustrate the range of alternatives as the ‘Siege Ramp’:

WARRIORS - these brave individuals, with their militaristic approach, win the war - though not the necessarily peace - and all too often pay a high price for their achievements; the industry has been destroyed in the course of their battles.

COLLABORATORS - on the other hand, work together to stabilise their industry; in Michael Porter's terms they are the 'good' competitors. They do not engage in destructive rivalry, and avoid price battles.

CARTELS - these go one step further, to work positively work together to develop the future of the industry; with mechanisms for collaborating on joint industry projects.

RULES OF COLLABORATION

Needless to say, the underlying message of this diagram - which reflects the reality observed in the research results - is that it pays to collaborate with your competitors. More specifically, we suggest a set of rules which will help competitors in an industry to optimise their overall performance in the shared market:

Positively outperform your competitors, by as large a margin on as many fronts as possible. Collaboration does not in any way mean that you stop competing - collaboration is not the same as surrender, and competitors respect the organisation which is simply better than the rest.

Never indulge in negative attacks, on any front. Do not, even temporarily, pursue campaigns which they might see as destructive (price wars, dirty advertising or whatever).

Uunderstand your competitors - I have previously recommended, in my various books, that you understand your competitors to beat them, here I suggest that you understand them in order to recognise why they take the actions they do - and hence not to read into those actions hostile intent where there is none

Be straightforward and trustworthy - in turn, if your competitors understand you, and trust you, they will even tolerate actions they don't like. When trust breaks down, however, beware; some of the most destructive industry wars have come about because of misunderstandings.

Talk industry not organisation - the one thing you have in common with your competitors, and the thing you both want to promote, is the industry you share. Always emphasise your commitment to maintaining and developing that industry.

Jaw-jaw not war-war - above all, talk to your competitors whenever you can. When you meet them, at industry conferences or socially, say , go out of your way to be positively friendly towards them; and to positively discuss the future of your shared industry.

CODES FOR CARTELS

More controversially, perhaps, we would suggest that the greatest improvement in performance (in profit at least) can come from going even further - and the rules for this are:

Join, or set up, an industry forum, so that you have positive ground on which to discuss your shared objectives; and, if necessary, to debate those which divide you.

Run industry campaigns, which may be good for the industry in themselves, but most importantly force all the collaborators to think positively.

Think collectively, so that you can - within the constraints imposed by law - jointly act in the common interest of the industry; even while competing strenuously within it.

ENFORCING THESE RULES

These positive approaches are the most productive of all, if your competitors will support them; and the indications are that, in the great majority of cases, they will. They are so clearly in everyone's best interests that only a fool would think otherwise. Unfortunately there are still some fools around! If they are merely foolish, and not dangerously insane, one of the best strategies for teaching them the lessons of good (competitor) manners is (Axelrod’s) 'tit for tat'

TIT FOR TAT

This is a very simple approach to competitor's actions. If your competitor makes an aggressive move you respond with one, but as soon as the other's aggressive moves cease so should yours.

This has the virtue that the competitor is not rewarded for 'bad' behaviour (since you immediately undermine any gain that might have been made); and is rewarded for 'good' behaviour (by your immediate removal of your matching action).

Most important of all, it very clearly shows what are your rules of engagement; you are a 'good' competitor - but will not tolerate bad behaviour.

CONCLUSIONS

These concepts, along with others covering the range of marketing practice,  are explained in more detail in the paper-back ‘New Marketing Practice’ (Mercer, 1997) published by Penguin.

Here, the very damaging effects of negative competition are positively counteracted by the proposed rule of collaboration - which are derived from the true position most organisations aspire to, as revealed by the research.

REFERENCES

Mercer, D, (1997), New Marketing Practice, Penguin

Porter, M. E, (1980), Competitive Strategy, The Free Press

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