The Road AheadCompetitive intelligence [Archives:2003/646/Business & Economy]

June 30 2003

Raidan Al-Saqqaf
“I don't meet competition, I crush it” Charles Revlon, founder of Revlon.
In the last century, competition was one of the biggest concerns for businessmen and managers, especially in the private sector where products which provide the best value for money win, or have a competitive advantage for consumers. Other products would have to put up with severe competition.
Nevertheless, when competition is excessive, this would result in costly mistakes such as bidding too high for contracts comparing to the competition or price wars in the market, benefiting only the customer at the expense of the industry and its growth.
Conversely, A less obvious but increasingly important issue lies in what is the ideal trade-off and cooperation in the competition. This means that players in the market have an understanding of what the competition is doing; their plans, strategies, strengths and weaknesses, and hence the concept of competitive intelligence has emerged.
Competitive Intelligence enables better coordination among industry players, and is an essential ingredient in the smooth functioning of today's 21 century market; because when companies compete without an understanding of the competition, the customer is the only winner. Indeed, there have been several cases where failure to understand the competition has triggered price wars, for example in the personal computers retailing business; where new entrants entered the market with the assumption that the entrenched players will not immediately match their low prices. Yet the impact of this new entrant strategy was at minimal because their sales were low comparing to the entrenched players. In addition to that, it is unusually difficult for the entrenched players to respond to these prices because the discounts impact on their sales revenue would be considerable.
And so, the entrenched players were compelled to respond to these lower prices as customers began to switch to the new entrants in large numbers. Even though the entrenched players can win any price war in the long run because their cost structures were lower than that of the new entrants, profits would be lower for the whole industry but customers will be happy.
On the other hand, companies that have taken the time to study the market and the competition have avoided such costly mistakes. Look at Sabafone and SpaceTel for example, the two GSM providers in Yemen. They have managed to have a mutual understanding that enabled better coordination, especially in the pricing strategies, because they know that the Yemeni market is highly price sensitive and any unanticipated change in their pricing strategies will lead into a price war, none of them wants. This is a good example for competitive intelligence.
Endnote: Competitive Intelligence is about keeping an eye on your competitor, and try to get into an understanding with him so that both of you can be most profitable in the long run.