Marketing Basics 5: Understanding the Competition

A master of strategy does only that which is necessary, but in order to understand what must be done, you must have information and know how to use it.

[May 1, 2006]

This series of articles is being written by the graduate students of Prof. Guy Decatrel in his class, MKT602: Marketing Management, at National University's Fresno campus. The students are: Jessica Bueno, Daniel Champion, Sara Chism, Lupe Garcia, Gill Gurshakti, Robert Kosanouvong, Arman Kyurinyan, Pa Lee, LaKishia McCreary, Victor Ramayrat. Additional ISP-specific information is supplied by telecom consultant Peter Radizeski.

An ISP can use market intelligence for several pressing decisions regarding product / service packaging, promotions, advertising, and/or pricing. It can use the data set to inform decisions concerning long term service development, offer bundles, market positioning, and/or decide about what segments it can profitably serve.

This writing focuses on providing a framework to help ISPs gain the ability to see outside themselves. It offers reasons for relying on real-world data as opposed to a wide range of subjective, non-quantifiable conjectures or rumors. Accurate information allows an ISP to innovate and to design an effective marketing strategy.

Strategy has traditionally been defined as actions that lead to a sustainable competitive advantage. As one commentator notes, while many authors on strategy write about deploying the maximum possible force, the oldest known writer of all Sun Tzu, focuses on how to deploy the minimum necessary force.

To shape and drive a company's actions, a manager requires clear insight into its objectives and its strengths and weaknesses in light of the opportunities and threats in its competitive environment.

Information is paramount
Market intelligence is not just data gathered about your competitive environment. It is the combination of data gathering and analysis that generates information and insight relevant to decision making and competitive strategy. Below, the authors examine several methods for data gathering and understanding the competition.

1) You may obtain competitive intelligence from a rumor, i.e., you heard that a competitor is developing a new service. When faced with such uncertainty, many tend to leap to extremes. An ISP manager needs to be proactive, to gather competitive intelligence quickly and act upon it.

2) Competitive activity can come from a new competitor. What is their value proposition? How does it compare to yours? What services are they offering, and at what price? You need as much factual information as possible.

3) Some companies are great at front line execution. They consistently outperform competitors in the execution of day-to-day tasks. Operational effectiveness and efficiency may be another area where a competitor has an edge:

• Is there a relation between operational effectiveness and efficiency and costs?
• How is the competitor structured to deliver its services?
• How have they created tested, validated, and repeatable processes that enhance the work process and reduce down time, redundancy, and error?

4) Operational effectiveness can often be confused with core competency. A core competency is a capabilities that is critical to a business in achieving a competitive advantage. Not many recognize that competition is as much a battle for competence mastery as it is for market power and position. An ISP may develop areas of expertise that are distinctive to it and vital to its long term stability and growth. ISPs, if they are well run, devote the greatest effort to profit centers, areas where the most value is added. An ISP may need to determine:

• What is it that delivers such an advantage to a competitor?
• What is it about such a competitor that is difficult to imitate, that seems to be so competitively unique?
• What gives them such good access to markets?
• Why are their customers willing to pay more for their services?

The combination of operational effectiveness and core competencies can result in an incomparable competitive advantage for an ISP.

5) Why does a competitor have such a strong position in the market? Positioning refers to the way an ISP wants its brand perceived among competing brands in the market so that it will appear to have saleable benefits.

• What has it done to create the perception of value in its prospects and customers' minds?
• What unique benefit does has the competitor created that seems to sell better?
• How has the competitor created customer perceptions that help its brand sell better against yours?
• What distinct capabilities has it built to make it a preferred choice?
• How are its distinct capabilities a competitive advantage?
• Do the competitor's customers have tendency to act as advocates for the competitor, i.e., to sing its praises to friends?

The first step is to determine how customers perceive the competitive brand—and your brand. The goal is to understand how the competing brand compares on the same benefits, such as great uptime, superior tech support, good filtering, value for the money, etc., and to determine how your brand should be adjusted to be better positioned against the competing brand. Customers rank the importance of each benefit they perceive when making a buying decision. You can position or reposition yourself to win. A positioning analysis may determine the right offers and experiences for your target market. But this alone is insufficient.

Once the analysis is complete, focus your entire company on delivering the new value propositions, emphasizing cross-functional collaboration. Emphasize that everyone works for the customer. Our paychecks come from customers. Some ISPs may have to develop new capabilities to continually satisfy customers, which may require retraining staff, enhancing work processes, and/or establishing more accountability in technical support, customer service, and other customer touch points.

6) How strong is the competitor's personnel management process? Do they have the right people on the bus and in the right seats? Does the competitor have an edge through a culture of service and continuous improvement, staff quality, staff's ability to contribute to process improvement? Does the competitor do well because its departments have strength or have strong interdepartmental relationships?

7) Price is a common form of competitive strategy in the ISP industry. A co-author of this paper previously noted that if you think price is a competitive strategy, it's only because your competitor has not lowered his or hers yet. But if a competitor consistently underprices you, perhaps your company is not as efficient as it could be. You need to know whether or not the competitor enjoys a cost advantage.

• Are price changes related to the competitor's current financial well being?
• What market forces might be causing a price change?
• Are your costs higher?
• What can be done to lower them?
• Might the competitor's price moves be to gain market share (volume)?
• Has the competitor lowered price to enter a new market segment?
• Is the competitor using a differentiation strategy to create perceived value?
• What is the value that a customer receives from a competitor's offering?
• How is the competitor's value offering perceived to improve online productivity?
• Can the competitor persuade customer to pay premium prices?
• Is the competitor's strategy a loss leader approach in which prices are cut in order to gain cusotmers?
• What makes the competitor's cost structure lower than the average industry cost that it can still generate profits while selling at low market price?

8) An ISP may attempt a shaping strategy to change its competitive environment. If you face a competitor with a shaping strategy, it is essential to know what new partnerships or alliances the competitor may have, what new business or competencies it may have acquired, and the scope of its value proposition, service offerings, and price.

Conclusion
This paper began by posing several questions about why an ISP might consider gathering and analyzing market intelligence. It provided a framework to help ISPs see actual and potential competitive activities in their markets outside themselves. The above foundation for gathering and analyzing market intelligence rests on intelligence concerning products and services, understanding the target market, understanding customer wants and needs, and understanding the competitor.

Prices range from low (with low or possibly no profits but high demand) to high price (with low, or possibly no demand). Competitors are all over this continuum, with a tendency to crowd the lower end. Every actor in a marketplace considers what competitors charge for similar services and those who compete will always respond to what others charge for similar services. Competition, especially in dialup, is not getting easier.

Some competitors have no differentiation, others have an advantage. Each ISP must understand its relative position to competitors in a market. An ISP can understand its competition by analyzing market segments and wants and needs in the segment, analyzing existing services, services that could be offered, and analyzing the actions of competitors. Competitive intelligence gathering occurs everywhere. It occurs at industry events like ISPCON, it occurs when you talk to your tech support team, and it occurs when you talk to your customers and suppliers. The word gets around in this business. Listen, observe, and stay informed. Above all, be proactive, not passive.

—End