The recent spat between Uber and Lyft involving allegations of dirty tricks, which includes requesting thousands of spurious passenger pickups, is probably the best current example of how excessive competition can turn into a war that harms combatants and can even hurt an entire industry. But does all competition have to be destructive?
The Wrong (and Right) Way to Compete
The idea that competition can be bad is foreign to many business owners. It shouldn’t be, according to David Meltzer, CEO of Sports1Marketing, a sports and entertainment marketing company in Irvine, California. “It absolutely can and does happen,” Meltzer says. “Like anything, you can overdo and be out of balance. The competitive drive can actually defeat your purpose.”
Meltzer, whose resume includes a stint as CEO of sports agent Leigh Steinberg’s company, Steinberg Sports & Entertainment, has seen plenty of competition. His experience includes an early career misstep while working for a legal publisher. The company had one major competitor, Meltzer says, and he spent much of his time on sales calls bad-mouthing the rival firm instead of talking up his own offering.
It backfired, Meltzer says, in part because his negative marketing turned off clients. “Meanwhile, I also caused sales reps from the other company to say bad things about me,” he says. “In the end, I think we both lost business.”
Since then, Meltzer has tried to take a gentler approach. While still being energetically competitive when it comes to sales, he says it’s best to keep the focus on what you can offer customers. Generally speaking, he tries to follow three rules handed down by Steinberg: “Never negotiate to the last penny, always be fair, and don’t do business with jerks.”
Unfortunately, not every business follows rules like that. Instead, business history abounds with examples of self-destructive hyper-competition. One of the best-known is the airline price war that erupted in 1992. By the time rival carriers called it quits, according to some estimates, losses for the year exceeded combined historical profits for the entire industry since the dawn of commercial air travel.
Along with price wars, excessive competition can consist of unfairly slandering others. Businesses that do this are making a mistake, according to Peter Cohan, a veteran consultant and venture capitalist and visiting lecturer of management at Babson College. “If they spend money on social media or advertising to talk about how bad their competitor is, I think that’s a waste of effort,” Cohan says.
Focus on Customers
Rather than hyper-compete, Cohan suggests focusing on customers and what you can do for them. “If you are trying to compete against another company, you’re going to get yourself into trouble,” he says. “What you should do is try to figure out which customers you want to serve, understand their needs and do the best job you can to meet their needs better than any other competitor out there.”
The Harvard Business Review suggests businesses facing a price war seek to learn what customers value, what competitors can offer, what the company’s own strengths are and how suppliers and others might react to a war. It might be best to avoid battle altogether, at least until you can pick a battleground where you’ll have a clear advantage with customers. For instance, Cohan says tech startups often have a cost advantage over established players, which means they may be able to compete more effectively when the battle is about price.
Rise Above the Competition
Other times, it can be best to know when you’re beaten. For example, the Britannica encyclopedia company prospered for decades selling printed reference books, until online encyclopedias mounted a seemingly irresistible competitive challenge. Britannica responded by acknowledging defeat and then adopted a completely different business model. Today it gives its encyclopedia articles away for free online and generates revenues from advertising.
How the fight between the two dominant ride-sharing services will ultimately resolve is unclear. But both Meltzer and Cohan agree that it hasn’t done the industry any good, and they warn that similar competitive wars are more common today thanks to a generally hyper-competitive business environment encouraged by globalization, leveraged by the many new methods for communicating with customers. “I’d say it’s easier to do than it used to be,” Cohan says. “More bad things can come out about companies and customers can more easily become aware of it.”
Savvy competitors can still rise above the fray. The key is to concentrate on what they can do to attract customers rather than trying to undermine rivals. For instance, Cohan says the ride-sharing competitors would be better off trying to figure out how to offer faster, more reliable, cleaner, more courteous and economical services. “If they were to focus their attention on doing that,” he says, “it would be a constructive way for them to compete.”
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