Co-Opetition - Adam M. Brandenburger [46]
Perhaps you should let your rival shoot his bullet and be done. But if conceding this account will lead your competitor to become more aggressive in going after your other accounts, you should work to keep the customer, even at some cost. To decide what to do, you have to ask what the competitor will do if he doesn’t get the customer, and what he’ll do if he does.
So far we’ve looked at entering a game, and also at how to respond if someone—an unwelcome guest—enters your game. Now we turn to the strategy of bringing other players into the game.
2. Bringing in Other Players
Players in a game often want to expand the cast of players. We’ve already seen some examples of this. LIN brought in BellSouth as a second bidder, and Gainesville brought in Norfolk Southern as a second supplier. Coke and Pepsi would, no doubt, have been prepared to pay Holland Sweetener handsomely to become a second supplier.
We’ll start this section by looking at the strategy of bringing in customers. Then we’ll turn to bringing in suppliers. And we’ll go tour the rest of the Value Net. You certainly want to bring in complementors, and in some cases, even bringing in a competitor can be beneficial.17
Bringing in Customers
It’s a good idea to bring more customers into the game. One benefit is obvious: it’s a bigger pie. More customers lead to more sales, which, in turn, lead to more profits. There’s another benefit. With more customers, no one customer is as essential. Bringing in new customers lowers the added values of all the existing ones. That puts the seller in a stronger bargaining position with respect to its customers. So, for the seller, it’s a double win: the pie grows and he gets a bigger share.
Think back to the Card Game. Barry did well to lose three black cards. His bigger slice more than made up for the smaller pie. He would have done even better if, instead, he had found three extra red cards and handed them out to the students. That is, instead of playing a game with twenty-three black cards and twenty six red cards, Barry plays a game with twenty-six black cards and twenty-nine red cards. Once again, no individual student has any added value. But, in this case, the pie grows rather than shrinks. Barry ends up capturing the lion’s share of the bigger pie.
That’s all fine if you have one side of the market all to yourself, as Barry did. But what if you face competition? You bring more buyers into the game, but they don’t necessarily belong to you. It’s expensive to develop the market and drum up demand, so why do it if your competitor might be the beneficiary?
Loghandlers at Loggerheads Harnischfeger Industries is a Milwaukee-based engineering company that makes portal cranes.18 And just what are portal cranes? Forest products companies, such as Georgia-Pacific, International Paper, and Weyerhaeuser, traditionally moved logs around in their woodyards with mobile log stackers—diesel electric vehicles somewhat akin to giant forklifts. In the mid-1970s large specialized portal cranes, which have-giant grapples (like claws) and move logs around by picking them up from above, began to replace the stackers.
Portal cranes allow a woodyard to move logs around more efficiently. In theory, if Harnischfeger could have captured all the cost savings, it could have made about $5 million a crane. The catch was competition—which came in the form of entry in 1987 by Kranco, a small crane maker that was a leveraged buyout headed up by several former Harnischfeger executives. Not surprisingly, Kranco’s product and cost position closely matched Harnischfeger’s.
With buyers coming into the market in only a