‘How do we as franchisors stay competitive?’
Q: This is Part 2 of last Friday’s (July 26th) column that said (in part): We attended your presentation at the International Franchise Conference of the PFA (Philippine Franchise Association) recently. We learned a lot from you on your topic, “How to Stay Relevant and Competitive.” But you had to shorten your presentation of each of the two portions because you were given only 30 minutes to present.
There are two real concerns of ours, how as franchisors we can stay relevant and competitive.
A: Here’s what we promised for this column: to take up the second issue of how to stay competitive.
Start with your attitude toward competition. And we say: “Take on a realistic and accepting attitude.” That’s what Harvard’s Emeritus Professor of Economics, David Landes, tells us: “There is an axiom in economics … that says: ’Every situation bears the seed of its own reversal.’ This is the Law of Nemesis that says nothing good lasts indefinitely, because others will want to share in it.”
Professor Landes is saying three essential things here. The first is that competition is a market reality and everything will eventually end up in it. When something inevitable comes, do not fight. Instead, accept and prepare. The second idea posits that your very success has the seeds of its possible later failure. Why? Because the third and last message predicts that success invites imitations and the imitation barrier for most industries is zero or practically zero. One, two or three of these imitations will excel you. So it will succeed if you don’t prepare a good competitive defense, and take over your market leadership.
Those of us who believe in Landes say that we should not only accept but even celebrate competition. The British cricketer, Walter Wheeler tells us why: “The purpose of competition is not to beat someone down, but to bring out the best in every player.” Every student of marketing history has been a witness to, and has drawn inspiration from this repeated event especially in sports and other talent contests. So let’s learn the lesson.
Next question is: “Stay competitive against whom?” Who are your true competitors? Here’s an insightful case from the research of our M.E. (Master’s in Entrepreneurship) students.
We raise this issue because experience and research taught us that the answer is far from obvious. This is because there are two definitions of competition to consider. There’s first the conventional definition that we refer to as “marketer-defined competitors.” These competitors are: “All brands participating in the product category where your brand belongs.” Then there are the consumer-defined competitors. Our 2010 book, Segmenting, defined these as “all those brands and even categories identified in the consumer’s answer to the question: ’If you can’t find or use this brand and you have to, what will you buy or use in its place?’”
If the two competitor definitions give the same answers, there’s obviously no problem. But there’s a growing number of cases where the competitors from the two definitions diverge. Here’s our M.E. students research that illustrates this case.
This is a product testing case that tested SMART Padala against GCash in international remittance. The first group of research respondents was SMART Padala international remittance recipients who had tried GCash before. The second set was GCash international remittance recipients who had tried SMART Padala before. The two brands are the marketer-defined competitors.
The test results showed that respondent ratings of SMART Padala and GCash on specific international remittance attributes were practically the same. However, when asked which remittance brand they were most satisfied with, the top mentioned brands were: “door-to-door” remittance as first most satisfied with, and PNB (Philippine National Bank) as second most satisfied with. Philippe Lhuillier was a very close third.
So in this case, who are the consumer-defined competitors? Isn’t it against these competitors to ask the test respondents to rate SMART Padala and GCash? Are these not SMART’s and GCash’ true competitors?
A third and last question to raise is this: “How should you compete?” It’s instructive to benchmark for resolving this issue. Here’s a 1995 research on marketers of leading brands in the European market. The study referred to the leading brand marketers as “incumbents.” There were three Insead (European Institute of Management) professors who did the study on how incumbents responded to a competitor’s “new product entry.” The data showed that “56 percent of incumbents’ defense was via changes in their sales force or else via a mass media communication campaign;” “27 percent countered by cutting prices;” and “82 percent answered with a repositioning move or by introducing a new product.”
In the data analysis, the study concluded that responding to a competitor in the same way as the competitive offense is the most common practice. However, responding by repositioning and/or by a new product intro is the most effective competitive defense even against a price cutting and an A&P offense. Responding to a price cut by one’s own price reduction only leads eventually to a price war. Responding in kind to an ad or a promo provokes an advertising war or a promo war. Just recall what happened to Clear and Head & Shoulder, and how the length of Edsa’s islands got filled with the two shampoo brands’ posters. It is via a new product intro especially when the new product embodies an inspiring “consumer value proposition” that made for an effective competitive defense against an aggressive competitor’s new product move, price cut, and/or A&P attack.
Keep your questions coming. Send them to us at [email protected] or [email protected]. God bless!
