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EXCLUSIVE INSIGHT: PROF. TIMOTHY CALKINS, KELLOGG SCHOOL OF MANAGEMENT
How Smart Companies Use Defensive Strategy to Deal with Competitive Attacks
How to survive, and perhaps even thrive, when competitors attack. How to push them back and protect your market share by using a systematic approach. Hereís a practical guide to the dark arts of marketing: the shadowy world of defensive strategy
 
Can you stop a new entrant trying to break into your market and steal market share? Or, how about a new competitor with a better product and lots of money to invest? These are critically important questions for business executives, across the globe. Competition today is intense; there are new companies springing up all over the world, eager to expand. Protecting an established business from these new entrants must be a top priority for every business leader. At smart companies, defensive strategy is taking center stage.

The answer to the questions above is simple: Yes. It is very possible to push back competitive attacks with a thoughtful and well crafted defense plan. Companies defend all the time. In fact, organisations like UPS, HP, Apple, Nike, Intel and Novartis have all recently faced competitive attacks and survived, even thrived.

But defensive strategy requires focus and attention; it is a distinct but rarely discussed part of business strategy.

Why Defense Matters

Defensive strategy matters for a very simple reason: If you have an attractive, profitable business you can be very confident that new entrants will attack and try to get a part of it. The better your business, the more likely you will face new entrants. It is certainly difficult to justify entering a category with low profits.

Shipping giants UPS and FedEx recently faced a major competitive threat when DHL made a bold move to enter the US shipping market. DHL completed a major acquisition and invested heavily in growth; the company made significant capital investments to establish the infrastructure to support the venture and major marketing investments to build brand awareness and drive trial. This was a huge financial issue for the established players; if DHL stole even a little market share it would result is a major financial hit to UPS and FedEx. UPS and FedEx defended and ultimately prevailed; after several years DHL gave up and sold the business to UPS.

Many companies are not so successful. Yogurt brands Dannon and Yoplait (owned by General Mills) were caught by surprise when new entrant Chobani stole significant share and captured a major part of the US yogurt business with a line of Greek yogurts. Nokia and RIMís Blackberry have both suffered as Apple and Samsung have stolen share. And many of the established airlines are having trouble slowing the growth of carriers such as Emirates.

Defense is important for two reasons. First, a defensive effort can protect an established business when a new entrant tries to break in. Faced with a strong defense, a new entrant will struggle to build awareness and trial. Without awareness and trial, the new entrant will fail.

Second, defensive strategy can make an existing company stronger. Companies facing a competitive threat have to work particularly hard to delight customers and innovate and in the long run this results in a better business.

 
A Good Offense is Not the Best Defense

Many executives will summarise defensive strategy with a simple statement: A good offense is the best defense. This statement is catchy and comforting; it suggests that you just have to keep executing well and things will be fine.

There is just one problem: It isnít true. Offensive strategy is fundamentally different from defensive strategy. The best defense is a good defense.

Playing offense is all about driving growth; finding opportunities to profitably build your business. An offensive strategy might be reaching out to a new group of customers to build penetration, or increasing prices to improve margins, or optimizing promotions to improve the return on investment.

When you are focused on offense, the question is this: Which tactics and tools will be most effective at building my profits?

Defense requires a completely different approach. When formulating a defensive effort, the question is: Which tactics and tools will be most effective at protecting my market share and slowing my competitor?

An offensive tactic is rarely a good defensive tactic. Expanding into a new city, for example, might be a good way to grow. But this move would likely be completely wrong as a defensive move; when you are under attack, you donít want to be investing in a new market. Instead, you have to invest in your existing market.

Even a simple coupon will vary based on the role it is playing. When a brand uses a coupon as a growth tool, the goal is to provide a small discount that will efficiently secure incremental sales and profits. A defensive coupon will be very different; it might be a significant discount designed to load consumer in advance of a competitive coupon, or a big discount that overwhelms the new entrantís offer.

Defensive strategy requires a distinct set of tools and techniques. A marketing plan created with growth in mind will rarely be a good defense plan.

Assembling a Defense Plan

When defending your business, the challenge is simple: Ensure the new entrant fails to create a successful venture in your space.

Every new business is based on a business proposition. People launch new products because they believe the new products will be successful and deliver profits. People donít launch new products that they think will fail and lose money. If you can ensure the new product fails to deliver profits, the new entrant will either go away or slow up investment.

Even slowing a new product is a major accomplishment. Modest initial sales mean the venture wonít throw off much cash. This means there will be less money to invest back in the business, which will in turn slow growth further.
          
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