That’s a great Sunday question! How to anticipate a rival’s response on a given market and in a given social, political and economic context? Is there any recipe to this? Or, this is just the art of a successful businessman? Something magical that differentiates between success and failure.
While there is some magic to understanding a complex situation, there is a method to this. There are four factors that will help you understand your competitor’s actions and therefore understand their response. First of all, understand the economic and financial incentives that drive your rival. It makes a great difference if they care or not about losing some profit over short time just to get you out of the market.
Secondly, understand the non-economic motives that drive your competitors. Are they looking for a more attractive workplace? Is this an increased market share or the pressure from outside influencing their business decisions? Are there any preferred biases that they show in their pattern of responses to a market challenge? Some, tend to throw good money over bad investments, and this will give you a hint on adapting your strategy.
The broader context also matters. A certain social and political context might prove to influence actions of some competitors. For example if this comes with a greater influence on customers that are extremely sensitive to price changes, or some markets are more difficult to exit due to a more protective legislation toward the employees.
What if you are the rival? How would you react? Would it help to know which segment of customers are more likely to defect to a new entry? For sure, yes! What signal are you sending to the potential entrants through your behavior? Do you look fit enough to react? Well, you don’t, make sure that you look like really ready to fight for your position. But this depends on the entrant’s aspirations and you should tailor your reaction to that and ideally engage in some preemptive actions if you can.
If you are the entrant and you might find rivals already established on a certain market you might want to know first if the incumbent will fight you or not or if the competitor can reduce with ease costs to get you out the market. They might be able to do this or they can have deep pockets and invest more on advertising, change or some other products and services that might put you into a difficult position, especially if they can target the fight.
So, when anticipating your rival’s reactions consider the economics, consider the people and don’t forget about the context. Research ad much as you can and put yourself into your rival’s shoes and you’ll survive the competition.