Big firms should not pick fights with the small fry

Sep 28, 2007 Business Daily, Strategy

“In a meeting convened to explore opportunities, I asked my client’s managers how they intended to grow faster. The sales & marketing manager confidently replied they would destroy smaller competitors. My client, the leader in their industry, held a dominant share of the market. Small regional companies had been nibbling away at their heels for several years. The leader had not lost significant share, nor had their growth rate declined. But they chafed at the constant irritation, and felt they could have grown faster but for these rats.”

V.N. Bhattacharya, What Strategy is Not

In a competitive setting, the cut and thrust of competitive moves often becomes the stuff of strategy. And, mistakenly, the goal of strategy sometimes becomes the destruction of competitors.

V. N. Bhattacharya recently addressed this point in an article for the European Business Forum, entitled What Strategy is Not (Autumn 2007). Many managers believe, he wrote, that hurting the competition is sound strategy.

That is why many market leaders introduce low-end products with very aggressive prices: to rid themselves of the myriad small firms that often make a nuisance of themselves. It’s something we have seen often in Kenya. In the 1990s flour-market leader Unga felt besieged by small regional millers and tried to come up with ‘fighter brands’ to take on low-cost producers. It never succeeded.

What is the error in this thinking? That wiping out small competitors will spur on your own growth. Bhattacharya points out that good strategy is always focused on customers, not on competitors. And there is a lot of truth in that. Focusing on competitors often leads to unnaturally aggressive behaviour and lots of ‘me-too’ initiatives. If their price is low, ours must be lower. If our distributors stock their products, they must be disciplined.

The strategy of a market leader should always be to create new and compelling value propositions for customers. Dominant firms should be creating uncontested space rather than engaging in unseemly contests with unsuitable opponents. Big players should concentrate on their own sources of competitive advantage and unique value: their brand reputation; their people management know-how; their ability to offer innovative new products. Getting involved in introducing low-quality products in order to win ugly price wars is often a loser’s game.

There is a realisation to be made here: small competitors are the product of the free market. They play a useful role in meeting the needs of customers who have limited budgets or who value a local presence. They spring up in response to market demand. There is nothing unnatural about them. But it is rare for them to get big enough to cause a dominant player a serious problem – unless the big boy has been neglecting a large group of customers for a long time. One firm cannot serve the many needs and price points of the modern market. It may be more sensible to concede this rather than engage in unsavoury bullying.

Because small players are ‘natural’, removing them from the market merely creates a vacuum, as Bhattacharya points out. New ones will rise from the ashes, and the game will start again. Kenya’s big boys would be better off deepening their understanding of their core customer segments and building better value for those customers, rather than rushing off to fight futile battles in remote market territory.