What do we do about the trend toward hypercompetition?
Q: We liked your two-column series on trend spotting the last Fridays. May we now ask you to leave trend spotting and shift to actual marketing trends that may impact us adversely? We’re into canned meat and canned fish, which are FMCG (fast moving consumer goods) product categories. We’re also manufacturers and marketers of construction materials like tiles, insulation materials and roofing items.
We were told that you have explained to participants in your Red Ocean Competitive Strategy seminar that “hypercompetition” is the most key marketing trend to threaten our efforts to sustain our market share leadership. If this trend is highly unpredictable, may we know how we should prepare for the consequences of this trend after it occurs. As you suggested last Friday, preparing is what we ought to do for a highly unpredictable future trend.
A: You’re probably right about “hypercompetition” as the most key marketing trend you have to cope with and to prepare for. But it’s not a highly unpredictable trend. It’s a clear one and for a good number of product categories like where you are, namely, processed canned food and construction materials, it’s a very clear trend, a near 20-20 visibility trend. So study its likely consequences and still prepare for what to do to minimize or even overcome its adverse consequences.
But first, let’s understand what are the distinguishing characteristics of hypercompetition. What sort of competitive environment is hypercompetition?
According to Dartmouth Professor of Strategy, Richard D’Aveni who coined hypercompetition, you are in a hypercompetitive marketplace if you find yourself challenged by innovative but aggressive or even predatory competitors. If the barriers to market entry are low or minimal, these competitors can easily and quickly move into your market. Their entry just as quickly erodes or even negates whatever competitive advantage you may have created for your brand or brands.
In his 1994 best-selling book, Hypercompetition: Managing the Dynamics of Strategic Maneuvering, Professor D’Aveni explained that erosion comes about if the predatory competitor is able to match in consumer value your competitive advantage but it comes in with an offer that’s at a substantially discounted price. If the predatory competitor’s offer has superior value and priced very low, then negation of your competitive advantage results.
What does Professor D’Aveni recommend you do in a hypercompetitive market setting? If a predatory competitor entry erodes your competitive advantage, then take a preemptive move. This means eroding your own competitive advantage even before those aggressive competitors do the eroding. Professor D’Aveni refers to that kind of move as “disrupting” your own advantage. But if predatory competition has already felt its presence, then “disrupt” that hypercompetitor’s advantage.
We’ve encountered in some previous Marketing Rx column this “disrupting strategy.” It was the Harvard business professorClayton Christensen who insighted into the concept of “disruptive innovation.” In his 1997 best-selling book, The Innovator’s Dilemma, Professor Christensen says that innovating disruptively is essentially creating a new product or a new process that’s just good (not the best) in quality and at the same time, low (not lowest) in price and therefore cost. Professor Christensen’s book documented enough successful disruptive innovating brands that he used to justify his claim that disruptive innovating is the norm and standard for effectively establishing a competitive advantage.
Some 12 years back, Professor Michael Porter also from the Harvard Business School made a radically different and almost opposite claim. In his 1985 best-selling book, Competitive Advantage: Creating and Sustaining Superior Performance, he persuasively presented the case that to gain a sustainable competitive advantage, your innovation must have, either the best quality or else has the lowest cost. Today, most companies have sided with the Christensen model.
If you take a Christensen-based countermove in a hypercompetitive environment, this is in effect counting only on one marketing mix variable, namely, product innovation.
What about responding according to the other marketing mix elements, or their combination, or along the entire mix? This was the counter competitive strategy that the 2004 book, Wharton on Dynamic Competitive Strategy, recommended.
The Wharton Business School has two basic strategic insights. The first of these says that hypercompetitive strategy is not a one-time search and formulating of your competitive advantage. It must be a continuous process of scanning the dynamically changing competitive environment and consumer behavior trends. Formulating an effective hypercompetitive strategy is also an anticipatory process. There’s a “one-step-ahead” technique to help you anticipate future hypercompetitor moves and then craft the necessary counter moves. The book has four parts. It is in Part 2 where the one-step-ahead technique is explained and elaborated. As you would expect, Part 2 is titled “Anticipating Competitors’ Actions.” Then what to do after is dazzlingly spelled out and illustrated in Part 3, “Formulating Dynamic Competitive Strategies,” and in Part 4, “Choosing among Alternative Strategies.”
We hope that from the foregoing sources, you give yourself the opportunity to learn how to analyze hypercompetition, how to anticipate hypercompetitor moves, and how to craft your appropriate counter competitive defense and even offense actions.
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