Gather Competitive Intelligence

The third step, and one central to employing an indirect strategy, is the reliability of competitive intelligence to make “many calculations.” There is no meaningful way for you to calculate what constitutes direct or indirect, as well as distinguishes the normal from the extraordinary, if you do not know the direction in which you are positioned against your competitor. This point is illustrated in the following classic example.

Heublein, the producer of Smirnoff vodka, enjoyed a leading brand position with a dominant market share for two decades. At one point, Smirnoff was attacked on price by a competing brand, Wolfschmidt, then produced by The Seagram Company Ltd.

Wolfschmidt employed a strategy of pricing its product at $1.00 a bottle less than Smirnoff and claimed the same quality. Recognizing a real danger of customers switching to Wolfschmidt, Heublein needed a creative strategy to protect its market dominance. Managers examined a number of options:

  • 1. Lower the price of Smirnoff by $1.00 or less to hold on to market share.
  • 2. Maintain the price of Smirnoff but increase advertising and promotion expenditures.
  • 3. Maintain its price and hope that current advertising and promotion would preserve the existing Smirnoff image and market share.

Although some options were attractive, they were all obvious and mainly direct approaches. Instead, Heublein decided on an indirect strategy.

First, it raised the price of Smirnoff by $1.00 and thereby positioned its flagship product to preserve the premier image, market position, and brand identity it already enjoyed.

Next, Heublein introduced a new brand, Relska, and positioned it head-to-head as a fighting brand against Wolfschmidt’s price and market segment. Using that product entry as a means of diverting the opposing manager’s attention from other actions, Heublein introduced still another brand, Popov, at $1.00 less than Wolfschmidt.

That action had the decisive effect of enveloping Wolfschmidt by using the normal and the extraordinary. The result was that during one lengthy period, Smirnoff remained number-one in cases of all imported and domestic vodkas shipped in North America, with Popov in the number-two position.

The Heublein case clearly demonstrates how maneuvering operates in the sphere of the indirect approach. It also indicates the indispensable need for competitive intelligence to provide data on the direction the opponent’s product is positioned—in this case the relationship of Smirnoff’s position to Wolfschmidt’s—and to show strategy options for an indirect strategy.

For instance, the physical act of repositioning Smirnoff upscale and then introducing Relska as a threatening fighting brand directly at Wolfschmidt, temporarily distracted the rival manager into inaction.

That move also demonstrates the psychological impact of the indirect strategy on the Wolfschmidt manager. He was sidetracked and unbalanced by the threat to the brand’s market share. By indirectly unbalancing Wolfschmidt, the strategy reduced his capability to resist. Further, the total envelopment created by the positioning of the three products caused an inner paralysis that further reduced any action by the Wolfschmidt manager.

To fight and conquer in all your battles is not supreme excellence. Supreme excellence consists in breaking the enemy’s resistance without fighting.

Sun Tzu

Not only is competitive intelligence essential to developing strategies, it also helps in identifying the relevant buying behavior of your markets and customers. As important, it reveals valuable information about the pattern of competitor’s actions under a variety of market conditions. You accomplish this, in part, through the proliferation of sophisticated data mining programs available for most industries. (More on competitive intelligence in Chapter 4.)

Surfacing in the mid-1990s, data mining evolved to become a vital component in shaping business strategies. If used properly, data can break the competitor’s “resistance without fighting.” Additional breakthroughs over the past few years have also surfaced for obtaining business intelligence. These are built around innovative behavioral-based programs, as well as vast improvements in analytical tools.

For instance, retailers can now go beyond relying on consumer surveys, which often suffer from inconsistencies about what consumers say they will do and what they actually do. Such retailers as Montblanc, T-Mobile, and Family Dollar Stores are finding new uses for old tools such as in-store security cameras to get behavioral information in real time.

The approach sorts out which variables affect a purchase. Then, armed with the data, managers move rapidly to deploy their salespeople, change color displays, or alter merchandise assortments. Other applications include monitoring shoppers’ behavior with devices that track mobile- phone signals. Such data then becomes the foundation for new product offerings that are built around evolving customer behavior.

In the everyday application of competitive intelligence, you can benefit by actively tuning in to market conditions, following buying patterns, and interpreting competitors’ moves, thereby providing meaningful options on how to maneuver resources.

To trigger your thinking and assist you in devising an indirect strategy, here are several applications of intelligence:

American Express gathers existing customer information from its call centers and uses the data to make highly targeted cross-sell and up-sell offers to customers.

Charles Schwab compiles routine requests from its investor accounts to form a comprehensive profile of its customers. The in-depth data are then reconfigured and applied to such revenue and profitability goals as customer retention, cross-selling, and up-selling. The aim is to maintain an advanced level of differentiation in an industry that has become intensely competitive.

Hilton Hotels probes for guest information from its hotels and resorts and makes it available in usable form to hotel managers over the Internet. Those managers can then develop new or improve existing services for their guests, and manage corporate loyalty programs and marketing campaigns.

Verizon leverages its data to develop profiles for each of its telecommunications customers. Then, based on each customer’s history and preferences, it offers products and services that are likely to appeal to each individual.

In all of the above applications, managers used the hard data to form a two-directional indirect strategy: First, they determined the buying patterns within their respective markets and used the information to devise products, services, and positioning strategies. Second, they incorporated intelligence acquired about their competitor’s product and service offerings to shape their own indirect strategies.

He who wishes to snatch an advantage takes a devious and distant route

and makes of it the short way.

Sun Tzu

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