No company can expect to operate in a market without having competition. Companies thus face competition. A company can face four categories of competition. It should be prepared with strategies to attack immediate and potential competitors. Identifying competitors to attack is vital for a company to survive in this age of extreme competition.
4 Types of Competitors
Competitor reaction can be a major barrier to a company’s operation, and hence, a company should have ideas about its competitors’ reactions to other companies’ strategies. Competitors can react by cutting their prices, taking aggressive promotional measures, or introducing new products.
In understanding competitors’ actions or reactions, a company should have a clear comprehension of its competitors, their ways of doing business, and their cultures.
Since competitors vary in the above dimensions, a thorough knowledge of competitors is a must. The first step in this process is to have knowledge about the categories of competitors.
Let us now look at the type of competitors. There are four categories of competitors a company may come across.
- Laid-Back Competitor
- Selective Competitor.
- Tiger Competitor.
- Stochastic Competitor.
The Laid-Back Competitor
A laid-back competitor is a firm that neither aggressively nor quickly reacts to or acts against other competitors’ actions. There are reasons for such actions or reactions of laid-back competitors.
The important ones are;
- high loyalty level of customers as considered by the laid-back competitors,
- a reasonable amount of profit earned from the business by them,
- inability to notice the move of competitors quickly, or
- lack of funds to react by them.
A firm should try to understand quite clearly the reasons for the particular behavior of laid-back competitors.
The Selective Competitor
A selective competitor does not react to all moves of his competitors, and rather, he reacts only to a selective one. Competitors may take a number of moves, of which offering additional service, quantity discounts, and aggressive promotion could be mentioned.
A selective competitor does not consider all of these moves to react. Rather, he selects one or few to emphasize, such as a quantity discount offers. If a firm can identify which moves of competitors are considered for reaction by its key competitor, it can accordingly decide on an attack strategy.
The Tiger Competitor
A tiger competitor does not let any action of its competitors go unchallenged. He acts very quickly and aggressively to any move of his rivals.
Such a strategy of a tiger competitor is a potential threat to any firm trying to attack the tiger from any perspective. It is, therefore, wise for a company to assess its strengths and resources and give a second thought before deciding to attack a tiger competitor.
The Stochastic Competitor
A stochastic competitor is one whose actions or reactions are far from prediction. It relates to the concept of probability, i.e., something may happen or may not happen, as in the case of a coin toss.
It is very difficult to devise strategies to attack stochastic competitors since their behaviors are very unpredictable. A stochastic competitor reacts only when it can afford to do so and keeps silent when it finds fighting unaffordable from either a financial or physical point of view.
The competitive scenario varies from industry to industry. In some industries, firms are found to be in harmonious relations, whereas, in others, they are in a continuous battle with each other.
Bruce Henderson conducted studies on the competitive relations among firms within the industry. From his study, he noted a number of important observations.
They are mentioned below:
- When competitors are closely identical and run their operations similarly, their competitive equilibrium is unstable. The reason for such a situation is that customers cannot make any difference between competing products. As a result,, they are attracted very much by a lower price offer. This makes the competitive equilibrium very unstable.
- When a single minor factor is considered critical, the competitive equilibrium becomes unstable. In markets where buyers are very price sensitive and where cost-saving is possible through different means, a firm offering products at a lower price can create a price war. This results in the dis-equilibrium in competitive relations.
- Where a number of factors are considered critical, then each competitor can have some advantages and be differentially attractive to some customers. The number of coexistence of competitors depends on the number of factors considered critical. The more the number of critical factors, the more the number of firms exist in equilibrium. The reason is that each firm can focus on a particular factor and thus attract a particular segment ensuring its existence.
- If the number of critical factors is few, fewer competitors will be found in existence. It means that the number of coexistence of competitors depends on the number of critical variables. The relationship is positive.
- If a ratio of 2 to 1 in market share between any two competitors is considered the equilibrium point, then it is neither realistic nor advantageous for either of them to change their share – either increase or decrease. In such a situation, no firms should spend extra money on promotion or distribution.
