Question

Topic: Strategy

How To Counter Attack Competitors Promotions?

Posted by Anonymous on 4/11/2010 at 10:33 AM ET 250 Points
Hi i work in the FMCG sector,and the competitors are very fierce. We planned 1 consumer promotion for this year and my manager asked what if the competitor launch its promotion first? Should we conter attack or stick to our planning? what is the most effective and efficient move?

Thanks
stef
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RESPONSES

  • Posted by CarolBlaha on 4/11/2010 at 11:05 AM Accepted
    First, one promotion a year isn't going to create much momentum. Being 2nd may have its advantage. The competing company gets someone ready to think about purchasing... the 2nd calls them to action.

    In answer to your question-- it depends. If they come out first with something you can improve on-- you should do that. Plans are fluid and should change as markets change.
  • Posted by CarolBlaha on 4/11/2010 at 11:12 AM Member
    FMCG = Fast Moving Consumer Goods -- correct me if I am wrong!
  • Posted by koen.h.pauwels on 4/11/2010 at 11:14 AM Accepted
    Agreed with Carol and Phil - my publicly available research shows that competitive reaction does not matter much in FMCG's: it changes the ROI of your promotion by only about 10%. See:

    Koen Pauwels (2007) “How retailer and competitor decisions drive the long-term effectiveness of manufacturer promotions for fast moving consumer goods”, Journal of Retailing, 83(3), 297-308, Winner of the ‘09 Davidson Award.
  • Posted on 4/11/2010 at 3:11 PM Author
    Hello,
    THANKS TO ALL OF YOU!
    Your answers were pertinent! and would definitely help.


    Regards
    stef

  • Posted on 4/11/2010 at 5:39 PM Accepted
    It's been my experience that most FMCG clients are too focused on what competition is doing. It's not that you should ignore the competition. Of course, that would be foolish.

    But your first priority should be to do what's right for YOUR business. Use your competitive analysis to get ideas of what does and doesn't work in your category; then fold that learning into your own planning process.

    My response to your question is basically to echo Phil's advice: make your plans and stick to them. If you learn something useful from a competitive analysis, fold it into your plans for next year.

    You can make yourself crazy if you overthink every competitive promotion and how it might affect you. You don't have time for that. What you DO have time for is learning how consumers in your category respond to different stimuli, what they like/dislike, and what promotions seem to move the needle more than others. Let your competition pay for some of that great education.
  • Posted by simon.gloster on 4/11/2010 at 8:40 PM Accepted
    Ride off yr competitors back, one incident I know of was where one company advertised their product heavily on tv, and the competitor had people down the aisle of the shop giving out a sample of the alternative (did the same job) product.


  • Posted by CarolBlaha on 4/12/2010 at 6:35 AM Member
    Simon is right. I remember when Walmart got into organics. I was dating an organic grocer and they were elated. The more people talking about it only means exposure for the product.
  • Posted on 4/12/2010 at 12:57 PM Author
    Thanks for all our opinions and ideas about the subject. But you dont think that leaving the competitor enjoying his promotion without reacting will not bring my sales volume down? Normally it will if we dont react.
    In stores we normally organize BTL activities which can be used as plan B: tasting- pushing of product, and some ATL. ATL to remind the loyal customers their favourite product(to minimize the competitor impacts on sales). These things wont cost much compared to a consumer promo (e.g.import some items from china)
  • Posted by CarolBlaha on 4/12/2010 at 1:33 PM Member
    I was one of the posters who said wait till you see the offer and decide. Especially if history says so. This could be as in many negotiations-- whoever goes first, loses.
  • Posted by koen.h.pauwels on 4/12/2010 at 1:47 PM Member
    Hi again,

    That is indeed the $ 64 K question - how much will the competitor action bring YOUR volume down? With regard to competitive reactions, you can basically make 2 mistakes:
    a) don't react when you should ; i.e. that is what you appear to be most concerned about
    b) (over)react when you should not

    Building a few scenarios may be helpful. For instance, is a temporary decrease of 5% of your volume really worth loosing margin and spending lots of management time on a counter-promotion? And how will the competitor react to that one - and how about the other competitors? Other possible scenarios include a very large sales drop, but also steady, or even increased sales from more consumer attention to the category (all of which have been observed in the literature

    Two decades of academic research have shown that managers tend to overreact - see eg Leeflang and Wittink (1992, 1996), Don Lehmann's work and research on price wars. Especially concerning is that managers react simply for FEAR of loosing volume/share, without ever having observed it (i.e. they react to the competitive action without ever waiting to check whether it actually harms them).

    So my question is: what happened on earlier occasions when the competitor offered such promotion?
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