Competitive Strategy - To unravel from Bertrand Trap (with an actual experience)

Bertrand Paradox, also rightly called as a TRAP.

Definition:

Describes a situation in which two players (firms) reach a state of Nash equilibrium where both firms charge a price equal to marginal cost. (Which we hardly find in real market conditions because firms do make net positive profits)

Examples to give you an idea, simplified (actual model has assumptions but we will focus on beating the trap)

1. Soft Drinks - Pepsi Vs Coke – Similar product - color, taste, flavor etc (relatively) – a situation where vertical differentiation is not a possibility. Meaning, both are of equal quality and more importantly both are priced equally, where the market cannot be segmented in terms of willingness to pay or in terms of quality expectation by the buyer.
2. Banking sector – tangible offers(Interest rates for saving, FD etc) are almost similar but the market share varies at high degree.

THAT’S A TRAP, but Bertrand trap hardly appears in real market because even though not differentiated in the mentioned grounds – it would be differentiated in Brand Image/customer loyalty/ perception etc.

Key take offs being, it’s very rare and when found, can be hard to beat but not impossible.

MUCH HARDER – When?

Much harder to beat when such traps are found in certain industries, given the nature of industry (Structural rather than strategic). For instance - where perceptions are formed not out of advertising/brand, but out of experiences (Ownership) and peer perception pressure (crowd behavior). Where consumers indulge in Selective exposure – selective attention, eventually leading to a biased perception. Meaning such perceptions once formed are very hard to change, especially for a negative connotation.

So crazy sometimes (rarely), that all you can do is – wait for the competitor to mess it up, because with no incentive to switch and infinitesimal product differentiation, YOU PRAY. Absurdly enough, be assured the competitor would also be hoping for the same in some cases.

HOW CAN WE BEAT THE TRAP?

DIFFERENTIATION – one among many ways, but it is THE WAY.

Even though broadly classified as Vertical and Horizontal, it’s a magical tool because it is multidimensional - potentially limitless. There will be always a way around, simply one should know how and where to look.

Example - In India its cricket – so it’s Pepsi, whereas in rest of the world its coke. Try asking your friends (In India) – Which one do you prefer? I heard more Pepsi and ask why? You will get very convincing answers, its tastes better, feels more refreshing than coke etc etc J selective exposure and selective attention leading to biased perception.  (Never debate on it though, trust me.)

A REAL TRAP (From experience and how we approached it)

You are not the MD but a business head and you have to do, what you could.

To exemplify giving you a practical real time example, let’s take a standard construction equipment say “X”

For the equipment “X” when attempted to differentiate, we found the following (Assuming “similar” in places, where the gap is negligible)

• Specifications – Similar
• Technology – Similar
• OEM’s – Similar
• Brand Image Strength – Similar
• Country of origin – Similar
• Price – Similar
• Market share – Similar

Yes, it was an endless list of similarities,

A TRAP

So in such scenarios, the mantra for beating the trap is

DIFFERENTIATE – Yes, we all know that – But how? Especially when the technology or the product design is not under your control, you are not the MD but a business head and you have to do, what you could.

This multidimensional tool can be exploited,

Follows A STRATEGY to unravel from the trap,

1. FOCUS ON THE TAKE OFF RATHER THAN THE OBJECTIVE
   Increased Communication – Its very important, to convey what you do. Mostly, organization does a lot of beneficial activities, but they fail to communicate, this is as bad as not doing anything.

To illustrate on how to decide the OBJECTIVE, bottom up approach

1. Step 1 – What you intend to do (OBJECTIVE - Plan)
2. Step 2 – What you do (EXECUTION)
3. Step 3 – What is perceived by your action (TAKEOFFS) [FOCUS HERE] and based on this anticipated perception, one must align the objective and plan and execute accordingly.

[TAKE OFF – will be our focus, we are making sure that we are doing what we intend to do]

1. CUSTOMER CENTRICITY (Forward Looking)– through TRAINING (safety, equipment operation, maintenance etc)– Very effective way to affirm the organizations interest/care in the buyers business – an invisible PORTER’S WAND, I would call it in my experience and understanding, could be for an existing customer or competitor’s customer. Typically saying, a sales representatives performance metrics, should not be rated on business he brought in rather on the future value he has created for the organization like strengthening relationships, figuring out future valuable customers and do things for them to make the customer realize that we have their best interest in mind (Training, a trail pack - for instance) – Product centric Strategy to Customer Centric Strategy. (We could talk a lot about customer centricity like acquisition, retention– fabulous approach, in fact we could have a whole strategy developed just out of CUSTOMER CENTRICITY to beat the trap, we will revisit at a later time).
2. INCREASE MARKET PRESENCE – could be as simple as increasing the number of visits to the equipment or to the customer. iGift – Information gift, about the market, business, projects or anything that the customer would be glad to listen to, will incentivize the customers willingness to spend time with the sales rep.
3. PROCESS – Touch points, the customer experiences whenever he deals with the organization, if these touch points are prepared and equipped to give a pleasant experience to the customer, we gain a competitive advantage and secondly go to the customer, do not wait for the customer to ask or come to you.
4. MARKET BUZZ – Make noise – Eg. Events – Could be marketing events, campaigns, promotional activities, conferences, service camps, safety drives, demonstration etc.
5. FOCUS – Geographical (Specific area) – Timeline (Duration) - Float a team with specific POA, implement, review, reposition and implement. It’s also necessary that such focus teams should be shut down formally once the plan has been executed, ensuring maximum energy transformation during the planned period.

To conclude - A firm can do a lot of things, but not one thing, which if firms indulge - will vanish. A grave strategy called Price Cutting (can be used to deter a new entrant, that too after a lot of other factors being accounted). 

Thanks,

Wishing you all abundance.