Tweet

How Win-Win Strategies Can Reduce Risk by Lowering Chances of Competitive Retaliation

Guest post by: Kalen Smith

Article Overview: Traditional models of competition may be dead. Sometimes we need to focus on creating systems where our competitors will benefit as well. Research by Brandenburger shows a number of industries such as automobile manufacturers who have not only prevented competitor retaliation but even got competitors to stand by them.

How Win-Win Strategies Can Reduce Risk by Lowering Chances of Competitive Retaliation

Competition is the fuel that makes capitalism work. It leads to better products for consumers and tends to help create more jobs than it costs. However, sometimes companies find that their competitors are just too strong and challenge everything they do. This obviously hurts the companies' profits or worse. This can be changed by thinking outside the box a little and changing the rules of engagement.

In their research on game theory, Bradenburger and Nalebuff discuss how creative companies have begun using strategies that allow both themselves and their competitors to benefit. There are several advantages to these strategies. Most importantly, they allow strategists to profit in a way that their competitors are not going to be as eager to counter. In many situations, competitors are actually willing to embrace the strategy since they are going to increase their own profits in return.

A famous example of a win-win strategy is the incentive program that was created by General Motors. At the time, the automobile industry was facing significant expenses due to the incentives that were being offered through retailers. General Motors decided to issue a new credit card which would allow them to apply a portion of their charges to a GM car. Shortly after, they also made it possible for customers to also apply a smaller portion of their charges towards purchasing a Ford car. This significantly lowered expenses for both GM and Ford.

An interesting way for companies within an industry to collaborate with each other is to work together to introduce new suppliers or try to create new customer groups. Coke and Pepsi once worked together to introduce a new supplier for their companies and in doing so managed to break the monopoly of Monsanto, their previous supplier, and force more favorable contracts.

But as Bradenburger and Nalebuff state, win-win strategies are not always ideal. Some strategies can force a strong company to forego potential opportunities to a weaker company that would not otherwise have the capability to capture those opportunities. Also, while companies can introduce strategies win-win strategies with or without the cooperation of their competitors, they must be careful that they do not give the appearance that they are colluding with each other. In the eyes of the FTC, honest creativity can be mistaken for price fixing or another antitrust violation.

It is important for companies to realize that while win-win strategies can be tempting because they may seem to lower risk and make strategizing easier, they also can also lower long-term profitability by sharing their success with competitors. Inevitably, managers must realize that while win-win strategies may be viable alternatives to the traditional competitive structure, they have not completely replaced it. Most of the time they are going to have to stand in the line of fire and be willing to take their competitors on directly.

Related Articles
  Retaliation Is Now #1
  Expansion of Employee Retaliation Protection
  How to Develop Your Small Business: 3 Overlooked Strategies
  Slashing Your Insurance Prices
  California Labor Law Challenges and Solutions
  Whistleblowing in 2012
  Helping SMEs meet the requirements of formal financing - Increasing SME Access to Finance: A Four Pronged Approach
  SME's - a link between funding and a compliance model
  Advantages of ISO 14001 and OHSAS 18001 Integrated Management System
  Guaranteed Used Car Loans Approval for People with No Credit
  How to manage risk (but don’t stifle innovation)
  Risk: Making the leap
  Why Is Healthcare Insurance So Expensive
  Importance of Search Engine Keyword Value
  8 Vehicle Features to Help You Save On Car Insurance
  Your business plan should indicate your risk appetite
  Competing With Price-Smart Strategy or Business Suicide?
  Ways To Find Low Cost Auto Insurance Options
  How directors can prevent themselves being liable for their company’s debts
  Risk Assessment & Analysis Techniques

Article Tags: business, collaboration, competition, theories of business



Related Forum Posts
How to valuate a business - Hi Garth - here is how we did it at Northern Crown Capital when I was helping them raise venture capital for Toronto-based entrepreneurs. Assume the start date is 2003 so 2008 projections are 5 years out: How Northern Crown Capital Valuates a Business 2008 Financial Projections Earnings Before Tax $5,865,000 Tax Rate 42% Taxes $2,463,300 Net Earnings $3,401,700 Amount Seeking to Raise Today $3,500,000 Discounted Value of Future Opportunity, 5 Years Out 2008 P/E Ratio 15 Value of Company in 2008 $51,025,500 Discount Rate Applied 30% Year 2008 $51,025,500 Year 2007 $35,717,850 Year 2006 $25,002,495 Year 2005 $17,501,747 Year 2004 $12,251,223 Value of Company at Investment in 2003 $12,251,223 Less: Investment Amount $3,500,000 Present Value $8,751,223 Discount for Risk & Private Company 40% Less: Discount for Risk & Private Company $3,500,489 Private Company Value $5,250,734 Present Value (What the Owner Keeps) $5,250,734 60.00% Financing (What the Investor Gets) $3,500,000 40.00% Total $8,750,734 100.00% I hope this helps!
Re: FREE Toronto Referral Workshop - Kevin, I'll try to get a copy of the slides and summarize the 14 Strategies. Stay tuned!
Show the Benefits - Offer a free test drive of the Product or Service with a Money Back Guarantee - Take the Risk out. This will help them make the decision but you have to work with them to realize it by explicitly state the benefits they are receiving.
SES Toronto Day 2 - Well I’m off to Day 2 of Search Engine Strategies 2008. Here is what I have planned to attend today: 10:30am-11:45am - Search User Behavior How do searchers interact with search engines? New research is constantly revealing how searchers act. This session explores the latest studies and findings to provide tips and tactics for search marketers to consider. 12:45pm-2:00pm - SEM Toolkit: Marketers Share Competitive intelligence, keyword research, customer profiling, exotic analytics, and visual mouse tracking are just some of the tricks of the trade of search marketers. Guerrilla marketers on the panel show you the favorite tools in their kits. Many are low cost or free. 2:30pm-3:45pm - Web 2.0 & Search Engines An overused and amorphous term, “Web 2.0? nonetheless encompasses an evolutionary shift from the typical web user experience of a decade ago. Some aspects of the “new” web environment are great for improving your search traffic. Other developments may lead you to make serious SEO errors. Among other things, Web 2.0 is about new user interface designs that speed up user actions with techniques such as AJAX (Asynchronous Javascript and XML), which allow users to perform operations nimbly without loading a new HTML page. This session will cover AJAX, CSS, user-generated content, and other new trends in web design and user experiences that may require a re-think of your SEO strategy. 4:00pm-5:15pm - Site Clinic This interactive session takes volunteers from the audience and examines their websites live to provide general feedback about improving them to gain more traffic from search engines. As usual I’ll report my findings after the day is through!
Poor qualities = no franchise! - Most franchises screen their potential franchisees very well (and if they don't, then they aren't a good franchise). Chances are if anyone held even some of the qualities you outlined here, they would not be granted a franchise. Just because someone has the cash to purchase one, doesn't mean they will get one. And Nana- you are so right, no one should be in any type of business if they hold those qualities!


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

Fighting the Saw-Tooth Affect

E Mail Marketing Campaigns

How To Improve Your CTA (Call To Action)

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.