Predicting Your

Competitor’s Reaction
BY:-KEVIN P. COYNE and JOHN HORN

KAPIL KATUKE
PRADEEPTA MOHANTY
RUPALI NAYAK
AMIT RAJ
Introduction

Will the competitor react at all?

What options will the competitor actively consider?

Which option will the competitor most likely choose?

Research AND Conclusion

INTRODUCTION
 Understanding competitors response is critical

 Two-thirds of strategic planners believed that

companies should incorporate expected competitors
reaction in strategic planning.

 David B. Montogomery, Marian Chapman Moore

and Joel E. Urbany also supported this statement.
GAME THEORY
 Game theory is used for understanding rival’s
behavior.

 Basic principle in game theory is assumption

which is manifestly FALSE .

 When strategist uses predictions, the analysis

about competitor becomes arbitrary
THE THREE QUESTIONS

Questions which are used for predicting rival’s

response:

 Will the competitor react at all?

 What option will the competitor actively
consider?
 Which option will the competitor most likely
choose?
TWO FACTS

Two facts makes this process simple.

 If adversary uses rudimentary analytic techniques

you can use those to predict his moves.

 Most large companies follow predictable pattern in

determining their reaction to a competitor’s move.
WHAT WE TELL
 This article mainly deals with competitors
response based on the three questions stated

 It reveals many of the norms, biases and patterns

that companies follow in studying their rivals.
 WILL THE COMPETITOR REACT AT ALL?

 Higher probability of counter action

Lower payoff

Less likely to take bold action

 DO SOME STRATEGISTS SKIP THIS STEP?

 If they actively assume no reaction:

And the competitor responds, they will look even
worse

 So they take the side of assuming response

ALWAYS ASSUME RESPONSE FROM

COMPETITORS
 4 QUESTIONS TO BE ASKED

1-> Will your rival see your action?

2-> Will the competitor feel threatened ?

3-> Will mounting a response be a priority?

4-> Can your rival overcome organizational inertia?

If the answer is “NO” , response is low.

 1. WILL YOUR RIVAL SEE YOUR ACTION?
 Your competitors may not recognize it for at least two
reasons………..
a- Incomplete data sources
b- Even if it affects, it may not be significant, so they may be
overlooked

From survey- Average 23% respond “NEW PRODUCT” before

hitting the market

12% respond “PRICE CHANGE” in time to prepare a preemptive

response
COKE VS PEPSI
 2. DO COMPETITOR FEEL THREATENED?

 If financial goals of company in the budget can

still be met, it may feel safe

 After determining competitor’s likely goals, you

can examine industry sales data to determine
whether your company will stay on track
 3. WILL RESPONSE BE A PRIORITY

 Not every time

 Your adversary already has a full agenda before

you make a move

 If units’ parent faces earning pressure , despite

feeling threatened managers might not react
 4.CAN RIVAL OVERCOME ORGANIZATIONAL INERTIA?

 Even if top management wants to react ,

organization as a whole may resist

REASONS
1-If reaction requires major organizational change,
very unlikely to change unless its immediate or deadly

2-Employees follow thousands of procedures and hard to

change
 JOHARI WINDOW

Known to Self Not Known to Self

Known to OPEN BLIND
others

Not known HIDDEN DARK

To others
 If the answer to any one of the above questions is
“ NO” then you can skip the remaining steps
WHAT OPTIONS WILL THE COMPETITOR
MOST LIKELY CONSIDER ?

Classical game theory:

Options your competitor could consider. On the
assumption that it would study all of them
before selecting one.
Assumption lowers the cos. confidence in their
ability to predict and hence leads to forgo
analysis.
OPTIONS BY COS..
 When we looked at the number of options
examined by companies searching for responses
to rival’s new-product launch or price change, we
found that overwhelming majority consider fewer
than four.
 CONT..
 Almost 75% of the respondents look at two or
three; 10% or less looked at five or more.
 Can’t say which options competitor will analyze
for both product and price.
 Counteraction for these situations, that would be
introducing a me-too product or matching a price
change.
SURVEY
 43% Of pricing managers looks at what their
business unit did the last time it faced a similar
situation, whereas only 26% in the innovation
managers do so.
 25% of innovation managers they were likely to
look at recent actions by other business units in
the company and 16% of pricing managers take
this approach.
CONT…
 30% of managers in both groups take advice from
board members and external advisers.
 20% from both the groups looks at the experience
of the business unit.
 19% consider the experience of the executives.
WHICH OPTION WILL THE COMPETITOR MOST LIKELY CHOOSE ?
REMEMBER:
 Choosing an option normally causes anxiety

 Avoiding predictions is much worse.

 Competitor analyzes sequential moves and 
counter moves by all competitors

 Competitor’s move will be within the constraints of 
his short term and long term trade-off
HOW MANY MOVES AHEAD DOES YOUR 
COMPETITOR LOOK?
Survey
Only Self
One Stage-Initial
10%
25% Mover
30%
One Stage-
35% Multiple
competitors
Multiple rounds by
competitors
TO UNDERSTAND THIS CONCEPT
REACTION FROM COMPETITOR
REACTION FROM OTHER COMPETITORS
WHAT METRICS DOES THE COMPETITOR USE?

Methods

NPV (Net Present Short term market

10% 15% Value) share
Short term earnings Long term market
21%
17% share
Long term earnings Others
20% 17%
FINAL STEP:
 Mimic adversary’s decision making process
 >Apply his metrics

 >Analytic techniques

 Rely on instincts of the decision maker

 >Pick the most obvious response

 GET A GUT FEEL FOR THEIR GUT FEEL

 >Talk to people who have worked with them
 >Look at the history and Learn about them
 RESEARCH
The survey was intended to test the validity of the framework they
have developed over the past few years and to quantify the
underlying behavioral tendencies they have observed.

Certain parts of the framework—such as estimating the likelihood of

a company’s failure to notice an adversary’s move—could not be
tested in such a survey and so are reported here on the basis of there
experiences alone.
 CONCLUSION
 For understanding competitors predictions there is
no need of involving a lot of math and talk of Nash
equilibria.

 Predict your competitors response using his past

behavior and preferences.

 This can give you an accurate idea of what your

competitor is likely to do.
THANK “U”