A low-pricing entry story; Game theory

There are some old sales stories I can’t share because HR will surely call me the next morning asking if i want to start a war… but i’ll share one now. I won’t mention any brand’s actual name.

Five milk brands are competing in the market. Milk A, B, C, D and E. A new milk brand, Milk F, comes in with low pricing as its core entry strategy. While it wasn’t as big as the older companies, it had just enough resources to sell cheaper, list distributors across the country, pump them with products on credit and employ really badass sales reps to drive sell-out from the distributors to retailers.

Four weeks after launching Milk F across all key locations, it was doing way more than projections. The plan was working. The sales guys were excited, the top managers were already seeing themselves as the new Kings in town.

Enters Game Theory:

Now, while game theory applies to several fields including romantic relationships, Game theory in sales is up there, only next to that of politics. In simple terms, it means; how would affected people, competitors, enemies, etc. respond to your action, your move.

It asks; are you prepared for how your competitors will fight back? And do you have your moves planned 4 levels deep? Imagine something like a decision tree with multiples "ifs"… if A does this, I will do this, then if A responds with this, i’ll do that. Now imagine planning your every move, thinking of how competition will respond, and how you will further respond. That’s hard work, that’s game theory. The lazy approach is to just believe that your strategy would work, that you’ll take over the market by just selling cheaper. And that’s what Milk F didn’t plan for.

The players in the Nigerian dairy industry are inglorious bastards. They are very bad boys and they will deal with you. The news spread fast; new Milk F in (several) town(s) taking up space, cutting from their market share, wholesalers and distributors diverting funds to pay Milk F. Now the older brands could have come together to deal with Milk F but that would be collusion which is illegal and unethical. But it wasn’t wrong to respond, and respond they did.

Milk A struck first with a price-cutting promotion; buy 10 cartons, get 1 free. With this, traders could sell at lower prices, which matched Milk F’s. The promotion was only open for two weeks so wholesalers had to jump on it quickly, buying large volumes of Milk A at the detriment of the volume they buy of other brands. These affected all brands, Milk F even more as it was still finding feet. Milk F’s sales dipped.

Milk B, premium and bourgeoisie, couldn’t fight back by lowering its prices. It would rather close shop than fight a price battle. It went with a ‘Display and win’ promotion. Wholesalers and retailers were to creatively display 20 rolls of its sachet milk and 10 layers of its tin milk for 6 weeks and win a double-door fridge. The traders jumped on it. Apart from the main prize, there were weekly prizes for best displays also. Open markets, supermarkets, and even table-top sellers all used Milk B to make creative displays trying to outdo each other.

The result of this was that there was much less shelf space to display other brands. Consumers who may have seen adverts of the new Milk F come to the market and do not see it on the shelves. These ones may return home before realizing there was a new milk they had in mind to try out.

A new brand needs direly, to always be in the face of the consumers but because the retailers were not displaying Milk F well enough, top-of-mind recall further dropped, as well as sales.

Milk C had been working on a new product. They brought the release date forward by months and launched. The new product was as cheap as Milk F, and reportedly tastier. It was a sucker punch. Milk F lost its bite.

Milk D. That was the brand I worked for at that time. They did something peculiar and strange. They incentivised the sales reps and managers to increase distribution. Each sales rep was to ensure Milk D was in minimum of 80% of all the stores selling provisions, within 4 weeks, and win a 5kVa generator. My job was to ensure sales rep compliance. It was a cheaper option for the company D, more employee-centric, improved long-term distribution and ensured our customers always had Milk D. It relied on the relationship between the sales rep and the store owner. This approach didn’t affect Milk F adversely but it protected Milk D well.

Milk E had been dealing with high cost of production before this battle began and were hardly making a profit. They not only couldn’t afford to fight, the lowered prices and promotions the competition had on, knocked them out as they couldn’t afford action. They went off for a long time.

About three months into the battle, retailers and wholesalers still had fair volume of Milk F available but they weren’t looking to replenish for several reasons; customers no longer asked for it, there wasn’t enough profit in it, they (wholesalers) had too much stock of Milk A and B, and wanted to first sell them off before making any new order for Milk.

Milk F managers lost their imaginary crown. Traders were suddenly not buying much. They had products expiring in their warehouses, with wholesalers, and in supermarkets. Whatever reputation they had built quickly melted away. They saw what was happening, how the older brands had played their moves. It was their turn to play but they were overwhelmed because they didn't plan for a battle from the get go even though they had taken the first shot.

A strategy session was underway when news broke that their head of sales and digital marketing head of Milk F would be resigning. Milk B poached the digital marketing head. Milk D offered the head of sales, a larger role heading sales in all of East Africa for it’s Yogurt brand. This move was another nail to Milk F’s coffin. They never recovered. The game was done.

Game theory for you. Perhaps an equally important lesson is not making the assumption that you can outwit the people in the game, who have been in it for decades. Have a strategy. Build multiple fall-back strategies using game theory. Strengthen your competitive advantage.

On Saturday, if i’m not out all evening closing out my sales for the year, I will talk about a certain Milk G that came, saw, and conquered; Masters of the game.

-- Aito Osemegbe Joseph.

P.S: This story, while factual may or may not be about milk brands. Names have been changed, apparently.