The Match Game

The Perils of Paying Too Much Attention to the Competition

When faced with an imminent and dangerous threat, neuroscience tells us our inner brain attempts to protect us by triggering a fight, flight or freeze response. Interestingly, brands tend to respond to threats in much the same way.

A review of competitive product and service categories highlights the similarity. In almost all cases brands respond to perceived threats by fighting, reacting instinctively to defend themselves; by taking flight, buying space and time to analyze a threat before responding; or by freezing and doing nothing. The latter approach rarely works out well for brands, or people for that matter, and while there may be situations when the fight response might make sense, few would argue that stepping away to assess a threat before taking appropriate action is the preferred response.

Shoot First and Ask Questions Later

Unfortunately, it appears that as the number and frequency of threats grow, a brand’s ability to evaluate each one before taking responsive action becomes increasingly difficult. Faced with too many threats in too short a time, brands are reflexively opting to fight, which over time can make this instinctive defensive approach standard operating procedure. Beyond the obvious risk of a shoot-first-and-ask-questions-later approach, brands that become overly threat-sensitive often wind-up paying too much attention to their competitors and not enough to their customers, partners, and others that constitute the lifeblood of their business.

This competitive tunnel vision not only narrows a brand’s focus, leaving it exposed to threats emanating from non-competitive sources, but also cedes the initiative to the competition. This can result in a brand becoming a “follower” without realizing it, which increases the possibility of it losing its strategic bearings and being led astray. This is another in a litany of potentially cascading consequences that can result from brands becoming habituated to a reactive “fight” response.

Rarely is this type of reflexive action confined to a brand pair within a category. The emotional nature of competition can make the need to react immediately to any perceived threat infectious and difficult to control. Once it permeates a category the process can become frighteningly efficient as brands become conditioned to diligently maintaining competitive parity, consistent with Hotelling’s Law, also known as the Law of Minimum Differentiation. Hotelling’s Law postulates that it is rational for competitors in a market economy to offer products and services that are similar to each other in order to provide the broadest possible consumer appeal. Put another way, the risk associated with attempting to differentiate a product or service and missing the mark is too great, which is why brands are naturally compelled to minimize the differences between one another.

While many brands have successfully differentiated or distinguished themselves through the years, which belies Hotelling’s Law, there are far fewer of these brands today. This decline, and the corresponding increase in commoditization, points to other factors conspiring with the natural pull of Hotelling’s Law to make brand differentiation far more difficult than it once was.

The “Match Game”

Two factors appear to be having the greatest impact on the increase in commoditization. The more significant of the two is the evolution and ubiquitous use of technology, followed closely by the increasing imbalance between longer-term strategy and short-term tactics. Both are taking a toll.

Ironically, the same technology that was originally intended to build brands and enhance the customer experience is instead wedging itself between brands and their customers, in some cases dehumanizing the brands that have become overly dependent it, while also undermining the personal nature of customer relationships. At the same time, technology has facilitated near-instant access to detailed competitive information, making it difficult for many brands to overcome the urge to immediately react and respond to the actions of their competitors. When combined with more pervasive short-term thinking, often driven by the need to meet quarterly targets, the drive to negate competitive action that could affect brand performance can become overwhelming.

When a brand’s need to react overcomes its need to think, it often results in a mindset that immediate instinctive action is better than no action at all. Over time, highly competitive categories can fall into a trap I call the “Match Game,” a reflexive and often escalating back-and-forth between brands that “match” each other’s actions with little-to-no regard for the potential consequences. Often justified based on the belief that it mitigates performance risk, the Match Game actually increases it. 

Problematic on many fronts, the greatest casualty of the Match Game is innovation, as brands consumed with matching are not focused on growing and creating value. Brands overly focused on their competitors are not typically interacting with their customers to better understand, and possibly anticipate, their needs. They are not watching trends to potentially identify and exploit opportunities. At its worst, the Match Game can become so all-consuming that brands completely lose track of the totality of their actions, often with significant and far-reaching consequences, a scenario frustratingly described by former Continental Airlines CEO Gordon Bethune when he stated “You're only as good as your dumbest competitor,” when commenting on the airline industry’s penchant for instantly and reflexively matching each other’s fares.

This is what the Match Game can do to any category of once independent brands, tacitly coercing them into a herd-like behavior that can make them susceptible to being led astray. Those that exploit this brand behavior I refer to as “Pied Piper” platforms. These platforms leverage the myopic matching response of highly competitive brand categories, luring brands in with a lucrative value proposition that evolves, often not in a good way, once most have followed each other onto the platform. Once in, brands are essentially held captive by their own fear and belief that leaving the platform risks putting them at a competitive disadvantage. Textbook Catch-22.

EBATES is a good example of a Pied Piper program. A technology-driven e-commerce platform, recently acquired by Japanese juggernaut Rakuten, EBATES has become an expensive zero-sum play for participating brands. Recognizing the inability of retail brands to resist competitive matching, EBATES opened its platform to any brand willing to offer a rebate 365 days a year. An advertising campaign offering consumers “free money” for shopping on their platform followed immediately thereafter. The trap had been set.

In true Field of Dreams fashion, EBATES built it, and they came, and are still coming. Virtually every brand targeted is now on the platform. Not surprisingly, matching behavior has continued, with participating brands now matching one another’s rebates, escalating the discounts offered while eroding gross margins. EBATES is essentially now holding many of these brands captive, but in a prison of their own making, with bars forged out of fear.

Not the Ultimate Form of Flattery

While Match Game behavior is bad enough, taken to the extreme, matching can deteriorate into blind or uninformed imitation, which can be catastrophic. Blind imitation occurs when brands attempt to replicate the actions of often very different brands or categories without first understanding what they are mimicking and its potential impact. It is tantamount to marketing in the dark while playing Russian Roulette.

Loyalty programs are an excellent example of the dangers of blind imitation. What were once highly effective platforms that differentiated brands and strengthened customer relationships have become literal and figurative liabilities and platforms many brands retain out of fear, thanks in large part to blind imitation.

The phenomenal success of the earliest loyalty programs piqued the interest of virtually every major brand, leading to a flurry of new programs across the consumer space. While some developed programs optimized for their category and customer, far too many brands took shortcuts, doing whatever was required to ensure they had a program before the competition. These brands either blindly copied existing programs, often from unrelated categories, or purchased a solution hastily brought to market by uninformed entrepreneurs that did exactly the same thing. Even before the efficacy of the first wave of these new programs could be assessed, it seemed like every brand in a competitive consumer category had its own loyalty program.

As a result, 77% of new reward programs failed within the first two years. An equally bad 89% have negative social media sentiment. Many brands underestimated ongoing program costs, which resulted in changes and restrictions that frustrated the very people the programs were created to recognize and reward. A recent CodeBroker study indicated over half (54%) of members are frustrated with their loyalty program.

The Best Defense Is a Good Offense

While there is certainly a price to pay for playing The Match Game, there are times when brands must defend themselves. Addressing a new product or service introduction, or a new technology with the potential to transform a market, are examples of circumstances to which a brand must respond to defend its business and protect its customers. In these instances, it is not about if a brand responds, but how.

Often the best defense for a brand involves going on the offensive. One of the best examples is what Procter & Gamble calls a “pantry loading” or “stocking” strategy, something I learned about some time ago while working on the Bounce fabric softener brand. To defend itself against the introduction of Lever’s Snuggle fabric softener (and that darn bear for which I still have a healthy disdain), Bounce put its largest package size on sale at a phenomenal price immediately before and during the Snuggle launch. The large size, which represented a multiple month’s supply for the average household, took Bounce’s customers out of the market during the Snuggle introductory campaign when Lever spent the bulk of its launch budget. By the time Bounce customers needed to re-stock, the worst of the Snuggle storm had passed.

More recently, the A&E Network employed a similar offensive-minded strategy against Investigation Discovery, one of the Discovery Networks. Investigation Discovery was launching a new show called Body Cam, which is very similar to A&E’s PD Cam, a spinoff of their highly successful LivePD television series. A couple of weeks before Investigation Discovery’s Body Cam was set to debut, A&E announced they would air a special live episode of Live PD on the same day and time as the pilot PD Cam episode. Disappointing initial Nielsen ratings for PD Cam affirmed the efficacy of the A&E strategy, which they repeated the following week during the second episode of PD Cam.

The P&G and A&E examples underscore the advantages of a proactive approach when responding to competitive activity. Both took the initiative by going on the offensive, something reflexive matching inherently cedes to the competition. Whether in branding or boxing, then heavyweight champion Jack Dempsey had the right idea when he stated, “The best defense is a good offense,” which is why successful brands take the high road, focus on what matters most to their customers and other key constituencies, and never cede the initiative to their competition. It is no coincidence that category leaders never acknowledge their competition, much less obsess over them. For these brands, it is about knowing when and how to respond, and always doing so on their terms.

While Dempsey had the right idea, it was prolific science fiction writer Gene Wolfe who hit-the-nail-on-the-head when he suggested, “The best offense is a good defense, but a bad defense is offensive.” For brands that become overly focused on the competition, a bad defense can be a lot worse than merely offensive.