Predicting Your Competitor’s Reaction

Considering launching a new product? Making a price change? Implementing some other strategic move? If so, you need to know how your toughest competitors might respond. But most competitive analysis tools (such as game theory) become unwieldy in the real world with its multiple players—each of whom might react differently.

Coyne and Horn recommend a new approach that’s simple yet rigorous. To make the best possible prediction of how a rival might respond to your next strategic move, ask three questions:

• Will your rivals react at all? Often, companies don’t respond to rivals’ moves.

• Which options will your rivals actively consider? Most firms review just a few obvious countermoves.

• Which option will your rivals most likely choose? Their past responses to competitors’ moves may provide clues.

The Idea in Practice

A closer look at Coyne and Horn’s approach:

Will Your Competitors React at All?

At least one-third of the time, companies don’t respond to their rivals’ actions. Asking whether your adversary will even react to your move streamlines your analysis. If you can answer “no” to any of the following questions, the chances of a response are low:

• Will your rivals see your move? Even if an action seems obvious to you, your competitors may not recognize it. For instance, if your new product will affect several of your rivals’ business units, it may not register as significant to any one unit. So it may be overlooked.

• Will your rival feel threatened? If your competitor can still meet its financial goals despite your planned move, it may not feel threatened. A rival might not think that mounting a response is worth the expense and distraction.

• Will mounting a response be a priority? Your adversary has a full agenda that would have to be curtailed to react to your move. If your rival is already committed to plans that will occupy all its attention, it may be reluctant to shift priorities.

• Can your rival overcome organizational inertia? Many within a rival company might resist if reacting requires major organizational changes.

What Options Will a Competitor Actively Consider?

Most companies consider fewer than four responses to a competitor’s move. And the counteraction they most commonly consider is often the most obvious. For example, they weigh the possibility of introducing a me-too product if a rival comes out with a new offering. And they consider matching a competitor’s price change.

The lesson? There’s a good chance your adversary is seriously considering the most obvious response to your move.

Which Option Will a Competitor Most Likely Choose?

Of the options your rival seriously considers, it will most likely choose the one that promises to deliver the biggest payoff according to its analytic technique. Look for clues in the success metrics it uses and in prior decision-making behaviors.

To discover a rival’s metrics, ask, “What measure would have led to its recent decisions?” Most companies use net present value or short-term (2–4 years out) market share or earnings while weighing options.

Also examine the patterns the CEO or relevant executives have displayed in prior decisions. You’ll likely see a clear preference for one or two responses.