Isn’t it naïve to say we welcome competition, including price competition?
Q: We like your column’s series on price competition and the coming Asean integration 2015. We’re distributors and dealers of household appliances including PCs. Our product lines have been hit and continue to be hit by intense and intensifying price competition.
You once had a column talking about attitudes toward competition. The column took a clear stand in favor of competition. You even said that because competition brings out the best in everyone, we should celebrate it. But this can’t be true with price competition that the Asean integration 2015 will bring.
The intensification of price competition will immediately and not only eventually force prices down. That has been our repeated experience. If you want to talk about what will eventually happen, we assure you that there will also be more price competition which will further drive down everybody’s price. So what’s there to celebrate? Don’t you think it’s rather naïve to say that we should welcome and even celebrate competition including price competition?
A: When my column said we ought to welcome and even celebrate competition including price competition, I meant no disrespect to your “repeated experience” and the perceived lessons you believed they taught you about price competition. Before going to your question, it’s worth recalling what we learned last Friday regarding that sequence of events connected with price competition.
Your own sequence is a simple chain. It starts with the launching of Asean integration 2015 that leads to intense and intensifying price competition. Next, you said that the intensifying price competition “will immediately force prices down.” Based on your “repeated experience,” as prices go down, there will be “more price competition” which, in turn, will further “drive down everybody’s price.”
As we explained last Friday (July 25, 2014), you need to challenge this assumed causal chain of events. We all have our version of such oftentimes taken-for-granted causal chain when faced with a threatening future that’s sure to happen like the Asean integration. My column prescribed that you stress test your assumptions with facts about how competitors actually behave against one another with regard to price competition and decreasing prices. Do they compete by further decreasing prices or do they in fact avoid responding via pricing and instead resort to non-price moves?
We saw last Friday that marketing history shows the dominance of competing on product innovations over competing on price. So your belief and assumption that when price competition gets ferocious, competitors behave by further decreasing prices and then repeating the same suicidal actions are not factual and evidence-based. Most of the time, these connected events are “imaginary horribles” that lead us nowhere and only waste our time. Spend your time instead on an honest search for relevant facts.
As to the attitude to take toward competition, you are right in saying that I favored a benevolent attitude because “competition draws out the best in all of us.” When I said that, I was specifically referring to former virtual monopolists and what happened when competition or the prospect of competition came. To mention just two of such cases, there was PLDT and then Meralco. When still virtual monopolists, both were slow in customer responsiveness and customer centricity was not a priority. But just look what happened when competition or the prospect of competition set in. Both changed and started talking about how critical to them is customer satisfaction.
So when we say that you should be benevolent to your competitors, that does not mean you stop competing. You go on competing but this time you compete smarter and even harder. And that’s what you have to do when the 10 countries at the start of 2015 become “One Asean”—an Asean Economic Community (AEC). Surely there will be price competition. It will be your benevolent competitive attitude that will guide you toward the win-win non-price competitive moves and away from the lose-lose price war alternative.
In the setting of price competition, you know that with falling prices, the pressure on your margin will get heavier. What’s the way out? What must you do? As an income statement manager, you must raise two income statement items: first, raise your topline revenue, and second, raise your productivity.
As price competition goes into a period of increasing ferocity, raising revenue gets tougher and so revenue growth while it does not stop it will slow down. And so you must turn your priority attention to productivity. That’s the sure way “to get more from less” of your resources and people and drive costs down but up your margin.
As price competition accompanies Asean integration 2015, we will therefore see a return to our call for productivity of the 1970s. And still have an organization that’s still devoted to productivity, namely DAP, or the Development Academy of the Philippines. DAP must play its part as the country prepares for the AEC.
We will see this return if we take a benevolent competitive attitude as against the attitude of the “ruthless competitor.” The ruthless competitor says: “My competitive response rule is simple: It’s always better to over-react than to under-react or wait. My attack rule is just as simple: You don’t just hurt competition. You come in for the kill. Annihilate the enemy.”
So there’s the answer to your question. It’s not an issue of naivete but of how to compete smart.
Keep your questions coming. Send them to me at [email protected].
