Sensitivity Analysis and Making An Enemy
In any assessment using competitive intelligence you need to find you competitors products that are making them the largest margins and offer your competing product at cost to weaken you opponent. It is an age old tactic.
It was a simple experiment. A US manufacturer of a consumer piece of furniture was making and assembling a chair item in the United States under private label for a client. Good quality and an OK price. They were selling millions of dollars of these chairs and doing very well. The US manufacturer chose to add a product line that was in direct competition with the client. In time the client because suspicious of the US manufacturer and selected other brands that all seemed to come from their contract manufacturer. The US manufacturer used their understanding of the now former client’s product to manufacturer a good and very competitive product and sold this product to their former client’s customers doing substantial economic damage to their former client.
The client was furious, but said nothing. The client studied the US Manufacturer’s products carefully and thoroughly and came up with a plan to “return the favor”. The client sourced all of the raw materials and talent need to make the key products of the US manufacturer for less than the US manufacture – some 30% less as well as to be able to make the product on demand – lowering the cost of competition and the cost of unsold inventory.
Ads were placed in furniture magazines comparing the US Companies products to this new product. The new product was sold for 15% less than the cost of the US based manufacturer – yet was still a small profit for the former client. The new chair decimated the US Manufacturer. The US manufacturer looked high and low trying to figure out who was behind the campaign. They have yet to be successful.
The end of the story has yet to be written. I expect both companies will survive. Yet the US Manufacturer has been outed for going after client’s markets and I am sure that will curtail their ability to pursue future private labeling work.
The twin points are simple, when you know a competitors price points you know how to weaken them. If you can develop a competing product – not exactly like it but sufficiently so that customers are less sticky in their buying habits – you can make an inroad.
The second lesson is that enemies are made, they are not natural. The US manufacture choose to do something that made them an implacable enemy. This is nearly always a foolish move. The US manufacturer is worse off – by far – for their choices. Their former client was very happy when working with the US Based company but when attacked responded brilliantly and is better off for being pushed.