Four Steps to Develop a Competitive Response for You and Your Channel Partner
In the ever-changing business-to-business space, successful companies are those that know how to adapt when competitors disrupt the market. When market changes occur due to competitive dynamics, it is crucial to know how to react to keep channel partners motivated and successfully selling your offer. To effectively do this, you must determine the nature of the event, the driving factors behind it, and finally, which channel partners have been affected and how.
A well-planned, proactive, competitive response will help re-align your channel strategy and adapt to, or even take advantage of, the market disruption. Once a market change is identified, a competitive response can emerge from four steps.
1.) Start With the Facts
We were recently engaged by an appliance manufacturer whose top competitor introduced a premium, commercial-grade brand into its retail channel. This change of brand caused several market share disruptions for the manufacturer and its retail channel partner. Before deciding to follow the competitor’s brand change strategy by placing a commercial grade appliance with its own retail channel partner, (which would potentially cause conflict with its wholesale channel partners) a broader picture of the market disruption needed to be established. In this case, the other factors beyond brand included a technology upgrade that competitively matched our client’s product, a temporary price drop, and unrelated dynamics such as irregular inventory management, and a significant industry regulatory change. By starting with the facts and determining all the factors in play, a clearer competitive response can be planned.
2.) Collaborate on Data
Work with your channel partner to collect data or establish a pattern of transparency to aid in sharing valuable data. Focus on collecting data sets that can show the market change’s effect on both you and your channel partner, such as macro industry data, market share information, competitive pricing data, and sales and inventory data. Often, competitive data is not always possible to retrieve, so you may be unable to detect the changes present in your competitors’ sales, pricing, or share. Regardless of the amount of data you are able to collect, thoroughly understand any gaps or shortcomings and determine how to best achieve the analysis you are looking for with the data you do have.
3.) Understand What’s Really Going On
Once the data has been collected and analyzed, ask yourself, “What components of the market change, or the event, were the primary drivers of change?” In our experience, some of the most common influential factors are:
- Price fluctuations
- Whether influenced by supply and demand, inventory adjustments, or a change in overall pricing strategy, a competitive price change may shift market share to that specific competitor. In the case of the appliance manufacturer, the competitor instituted a nationwide price drop to move out old branded product before introducing the premium brand. In the example of a competitive price reduction, it’s important to understand if it’s temporary (as it was in this case) or long-term. It’s also crucial to analyze if the price reduction is tied to the product’s value, or if it’s a major competitive move to capture more share.
- Marketplace or channel changes
- A number of events can cause a disruption to channels in the marketplace. For example, in the case of the appliance manufacturer, the competitor’s commercial-grade product led contractors to buy through retail rather than wholesale, causing a channel disruption. In our work, we have seen how inventory shortages, regulation changes, and new product introductions cause a shift in which channels end customers make purchases. Ultimately, suppliers must decide to meet the needs of the marketplace or be proactive about channel adjustments to attempt to capture a broader population or higher profit.
- Technology disruption
- Companies that have the most up-to-date technology typically enjoy market success. Yet, a disruption can occur, for example, if a competitor matches that technology, since now two companies are providing that particular product or service. That was the case when a prominent healthcare equipment supplier was first to market with a diagnostic test and enjoyed a market share increase until competitors caught up years later.
- Service additions
- If two companies are evenly matched in every sense, a superior service package can help one of them gain an edge. For a leading hardware supplier, market research indicated that their clients were leaning towards a competitor due to a more customer-centric service program and partnership. This demonstrated why a certain segment of the market was skewing towards a specific competitor.
4.) Develop a Win-win Plan
To effectively create a competitive response, you should consider how to achieve success for all of your customer chain participants. Since your channel partners are nurturing end customer relationships, it is crucial to work with them to drive sales for both of you and to keep all parties happy. In our book CoDestiny, we discuss that this should come through the ability of you and your channel partner being able to share information and quickly agree on action plans that reinforce the gains that come from best-in-class supplier-customer relationships.
For example, a competitor enters a new market segment and gains share not only in this new segment but also in the original segment. To build a competitive response and ensure a win-win plan, the supplier and its channel partner should determine if they have the key competencies to also enter this new segment or work together to strengthen their relationship and grow in the original segment. Ultimately, a win-win plan should bring success to you and your channel partner, while meeting the end customers’ needs.
Though markets can be unpredictable, remember to start with the facts to get a grasp of what is occurring. From there, work with your channel partners to collect and analyze data. Ultimately, use your analysis to uncover what’s actually going on in the market, and decide how you can best respond with a win-win plan that ensures success for you and your channel partners.