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.
By: Kalen Smith
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