Product Managers and Marketers spend a meaningful amount of time doing competitive research and planning strategies to be successful in the competitive market. While time will often prove the merits of such strategies, one of the most interesting opportunities is when you end up merging with a competitor and can trade notes. You may both be off a bit but the comparison itself is usually enlightening. I’ll share one example to start off:

Assumptions are critical to game theory and strategy

In one situation, I was working for a start up in a young industry. There were a very limited number of direct competitors so we watched each other’s behavior very closely when we could. However, because of the small nature of the market, there was very little third party information available to corroborate any perceptions that were formed.

We observed our competitor routinely “diving for the bottom” in competitive bids. They would come in hard and low on pricing, radically undercutting our (and their) standard pricing, “giving away” extras just to win the deal.

We looked at this situation and assumed that they were nuts. While this is an often tempting assumption about “the other guys” it is rarely a good one in the cold light of day. We held our own pricing as high as possible in the interest of “preserving the market” for the future.

Our assumption was that the market was big enough for both of us and that it was important to not contaminate the pricing models to the point where we’d both be unprofitable in the long run.

We were actually reasonably successful in convincing customers that our behavior was that of a rational, long-term-viable vendor and theirs wasn’t.

The problem was that our assumptions were flawed in respect to our competition. They thought that only one of us could survive. Thus, it was perfectly rational to try to outlast us “at the bottom” because there would only be one victor anyway.

Thus, all of our well-intentioned market signaling was pointless. We just didn’t get it. After the second round of this “self-destructive” behavior in a year, we should have re-examined our assumptions and adjusted strategy accordingly.

As it turned out, their assumption about the market potential may or may not have been right. However, they were able to “drown” us at the bottom while they survived on bigger cash supplies.