As the Caribbean telecom picture continues to take shape, the current picture brings to mind a scenario that
played out among U.S. cigarette makers roughly a decade ago.
In what has now come to be known in marketing and business circles as “Marlboro Friday” Philip Morris, makers
of the iconic cigarette brand (The Marlboro Man has even been the subject of a Hollywood movie) announced reductions
in the price of Marlboro cigarettes on the order of 20% and a concurrent increase in its domestic advertising budget.
The move, as expected, prompted immediate responses from Philip Morris’ major U.S. competitor, R.J. Reynolds, which
announced similar cuts on the prices of its premium brands, Winston and Camel chief among them, and similar boosts to
its advertising spend. The ensuing price war cost both manufacturers several millions of dollars, but Phillip Morris
was seemingly more than happy to subject its number one brand to attrition in the U.S. Why? Because it had its eye on a
much more lucrative prize.
While Reynolds was pouring cash into keeping up with its bigger rival, Philip Morris was busy dispatching the Marlboro
Man to Russia and Eastern Europe, outlaying a reported $800 million dollars into former Soviet Bloc countries. With the bulk
of its resources committed to matching Marlboro in the U.S., Reynolds was ill prepared to shift gears to meet this new
challenge. Today, more than ten years after, Philip Morris is still the leading U.S. cigarette company in Eastern Europe and Russia.
Athletic gear giant Nike followed a similar line in 2002. Recognizing that its main competitor Adidas, could ill afford to cede any
ground in the European market for football boots, or soccer shoes, as it calls them (Adidas’ home turf), Nike raised its bids on
celebrity endorsers in that part of the world. Adidas was compelled to respond, thus leaving Nike free to pursue soccer shoe customers
in markets other than Europe.
As Wharton Business School lecturer and international consultant Alex van Putten pointed out in a recent Harvard Business review
article, such tactics are becoming increasingly common among multi-national corporations, particularly those with multiple brands
in different categories. Van Putten calls the phenomenon competing under strategic interdependence, or CSI, and likens it to a three-dimensional
chess game. He points out that the moves a company makes in one arena or market are designed to achieve results in another arena that might not
be immediately apparent to its rivals.
Most business strategists, he asserts, are terrible at anticipating interdependent choices and are even worse at capitalizing on interdependency.
It’s the skill that leading race drivers use to determine what moves they use (when to overtake, when to ease up, when to pull in to the pits etc.)
and the timing. Van Putten and his associates have applied the chessboard analogy in developing a competitive mapping tool that companies can use
to The Opening, the Middle Game and the Endgame.
In each phase there are a number of steps. As the term implies, the opening entails gaining an understanding of one's own product categories
and geographic areas in which the company operates (or even intends to operate). From this information one can set up a table reflecting the company’s
total assets and geographical positions.
The next step involves gauging your standing relative to your competitors. This utilizes three principal factors: your competitor’s potential
reactiveness to increased pressure in any given category or sector, the attractiveness of that arena or sector to you and the relative clout
that each you bring to that arena. Clout measures the ability of either company to launch or defend itself from attack, while reactiveness
measures the propensity, or the will to fight back.
The middle game begins once the various abilities and propensities have been mapped out. The CSI principle recognizes six different types of
campaigns available to any multi-product or multi-market corporation.
The onslaught is a direct attack with the objective being wresting major market share and forcing the competitor to retreat. An
example of this can be the actions of major Japanese computer chip manufacturers against Intel in the 1980s, as well as the current Jamaican
telecoms wars. In the case of the former, Intel was at the time, the major supplier of dynamic random access memory (or DRAM) chips. Recognizing
the need to wrest the market away from Intel the Japanese jointly cut prices for their key customers by 10% with each succeeding order cycle. Seeing
that it was outnumbered, Intel withdrew from the arena.
The second campaign is the contest - really a narrow and more tightly focused onslaught. An example is Warner Bros. vs. Blockbuster’s
in the DVD movie market. Wishing to spur the purchase of DVDs as opposed to rentals, Warner’s slashed the price of selected new DVD titles.
The theory is that once customers get accustomed to buying rather than renting, the company will have a wider market for its extensive catalog,
which currently receives little shelf space from Blockbuster. The latter has chosen to fight back by producing its own direct-to-video feature
films, bypassing the conventional distribution patterns of the movie industry.
The guerilla campaign focuses on highly attractive arenas in which the defender has plenty of clout. The instigator, as in the case of Progressive
Insurance, focuses on the underserved portions of the arena, segments in which the defender has a lower reactiveness than in the arena as a whole.
By targeting such demographics as teenagers, drivers with accident records and traffic violations and by making the buying and the claims processes
markedly free of hassles, progressive found it could charge a higher premium. Further, by tracking its customer transaction patterns carefully,
Progressive found that there were sub-segments with lower degrees of risk within the overall target market.
The feint, which is what Philip Morris successfully employed against Reynolds, involves a diversionary move in one highly competitive arena
in order to keep the competitor's focus away from a more attractive arena. The feint is suited in situations where both opponents have equally
high reactiveness and roughly equal clout. A variation of this scenario is called the equal forbearance play. Simply this means the defender
in one arena may chose to reverse the tables by launching a diversionary strike of its own in another highly competitive sector, the goal being
to get the competitor’s focus back onto the main arena.
The fifth strike is the gambit. In a chess game, a gambit is the sacrifice of a non-essential or lesser value piece to gain advantage elsewhere
on the board. As with the feint, the instigator selects a focal arena in which the competitor is highly reactive and visibly reduces
its commitment in that arena. The withdrawal (like the sacrifice of a chess piece) creates a vacuum that is intended to draw the defender in,
thus lessening its focus on the target arena.
Razor maker Gillette used this strategy in 1984 when it abandoned the disposable lighter market. Before that time Gillette and rival Bic each had
a sizeable presence in both the disposable lighter and disposable razor markets. Bic had entered the latter market 10 years earlier (an onslaught)
and Gillette had responded, but found that the disposables were cannibalizing its premium razor business. In order to focus more effectively on
premium razors, Gillette "sacrificed" the lighter business, surrendering their market to Bic. By 1986, Gillette enjoyed 50% of the razor market
and today its share hovers around 80%, due in part to its introduction of the Sensor. The gambit achieved the dual objective of returning each
company’s focus to its core products.
The final CSI strategy is harvesting, where competing companies focus on extracting profits from arenas, which neither company finds particularly
attractive for future exploitation. This is especially common in commodities markets, like aspirin or copy paper.
The endgame is the final application of the relevant strategy -or mix of strategies - depending on the findings of the product-arena and
geographic-arena charts, and measuring the outcomes against objectives. Multi-brand, multi-sector companies may find that more than one type of
campaign is needed to deal with different types of competitors in the different sectors as well as the different stages of the product-brand cycle.
In an era of increasing interdependence among global corporations (consider the auto industry if you doubt), it’s become routine for companies
to deal with an extremely high level of complexity as they determine their next business moves. But small corporations, lacking the budgets
to hire business strategy consultants and the like, can also benefit from CSI analysis to extend their reach, whether nationally, or regionally,
as the Caribbean telecoms “snappers” are seeking to do.
Large or small, it behooves any organization to master the art of envisioning a complete competitive picture, anticipating its rivals’ moves
and manipulating those anticipated moves to its own advantage.
Editor’s note: preceding was taken from a Harvard Business Review issue; Alex van Putten is a lecturer at the Wharton School of Business and a
principal of Triad Consultants [www.triad-consultants.com] a Pennsylvania-based strategy consulting practice.
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