Are Competitors Chipping Away at Your Edges?

In good economic times, marketers need to be constantly aware of the competitive forces that put pressure on revenue, share, prices and profits.  That only gets worse in downturns like the current one.  Sellers need to constantly monitor what competitors are doing to and prepare appropriate responses.  3Com builds, among other things, network switches.  That puts them right up against mighty Cisco.  Fortunately, 3Com’s switches are built in partnership with a Chinese firm and are cheaper than Cisco’s. 

 Since customers are under tremendous cost pressure, 3Com President, Ron Sege sees the current downturn as an opportunity to sell more of their cheaper switches.  He knows that cost conscious customers will be more willing to try 3Com’s offering.  And, once they see that the quality is good, they will keep buying them, even after the current recession turns around. 

 Here is a company that is going to benefit from having an offering positioned at the low end of a market and their timing appears to be good.  Mark Burton has spoken about these firms in his blog and in our upcoming newsletter.  The question I’d like to hit on is what should Cisco be doing about another competitor “nibbling at the edges” of their market dominance.

 

First, Cisco is aggressively innovating in areas such as video conferencing to both grow their business and expand their presence in the technology space.  This fits right with our “innovate for growth” concept.  They have and will continue to rely on both internal R & D and acquisitions to accomplish that objective.  Cisco has and continues to do this quite well.

 

Second, and of equal importance, Cisco managers need to make a conscious and strategic decision of how they want to meet 3Com’s move closer to their space.  One thing that they don’t want to do is discount higher value products since that would undermine the higher value position that they dominate.  They do need to decide if they want to ignore 3Com—that will be determined by the relative shares that each holds in the lower value segment and the risk that the higher value segments can deteriorate to lower value offerings.  At some level of share and deterioration, there is a “tipping point” that will show the need for Cisco to develop their own lower value flanking offering.

 

The important point is that successful competitors need to a) continually assess where that point is, b) determine when a segment is there and b) proactively have products and services ready to introduce when they reach it.  Having competitors “nibbling at the edge” of your business is a fact of life in both good and bad times.  The real risk is in the decision how to respond.  It is rarely a good move to respond solely will price.  It is always a good move to be constantly assessing when and how to respond to a “nibbling” competitor and it is usually with a flanking product.