The Do's and Don'ts of Interacting with Your Competitors

The Do's and Don'ts of Interacting with Your Competitors

There's a smart line of dialogue in the movie, Creed, the most recent Rocky Balboa movie, which every business owner should think about. At one point, Rocky shows the young boxer he is mentoring, the mirror.

"You see this guy here? That's the toughest opponent you are ever going to have to face. I believe that's true in the ring, and I think that's true in life."

Even if you are your toughest opponent, you still have to deal with other competitors, and if you don't know how, your business could easily wind up flat on its back, with the other guy triumphant.

How you handle competition depends on the market. You might have a business where if your competitors are doing well, you aren't. Or you may be in a field where there's plenty of business for all, and so you are competing with yourself more than anyone else – you're constantly trying to top last quarter’s performance. Regardless of where you fall, here are some do's and don'ts that every business owner should remember.

Interacting With Your Competitors

Competitive Research

Do: Keep tabs on your competitors by doing what any member of the public can legally do, such as following them on social media or attending a speech they might give at the Chamber of Commerce. You can send someone to a competitor's store to pose as a mystery shopper without going afoul of the law.

That said, there's a limit to mystery shopping a competitor. If you're taking up a lot of your competitor's time, by asking a bunch of questions, or worse, stringing a salesperson along, letting them think they're going to land a big sale, only to have you or your employee walk away, that's considered sleazy. Another no-no is getting on someone's mailing list. Being part of a mass email list is fine, but if your competitor is actually mailing marketing materials to you, he or she is spending money and time on you. In other words, take the high road.

Don't: Don't hack into their computer system, be anywhere that customers aren't allowed or rifle through their papers.

Befriending Your Competitor

Do: If you feel it's a big enough market, maybe you have a home contracting business, and it's clear there are plenty of home improvement projects to go around, and what you do isn't really going to affect another business, you and a competitor might find that when you both trade information and referrals, it ends up helping both of you.

Don't: Be wary of antitrust laws. There are laws governing competition. You can't engage in price fixing, where you and a competitor, for instance, agree to never sell your products or services below a certain rate. Prices should be dictated by supply and demand.

Another no-no; deciding that you're going to focus on a certain territory, and your competitor another. Because then, you aren't competing. There's no reason you can't be on friendly terms, and recommend a competitor call your insurance agent, who found a great health plan for your staff. But the moment you and a competitor start agreeing that your companies will never do this or you'll both only do that, you're probably traveling down the antitrust road.

Price War

In a price war competitors, continuously lower prices hoping to take market share from others. Think of gas stations with electronic street signs where price is very visible. Or a furniture store trying to sell more couches, although here it is more difficult to broadly announce the price. In a price war, the customer gains. Often the results are temporary as there is a limit to amounts a customer can buy. Sometimes, sellers have a “customer price protection plan” in which they will match a lower price shown to them by the customer; this limits the number of occurrences of selling at a lower price.

Don't: I advise my SCORE clients not to have a low price as the main reason why someone should buy a product or service. If you have the lowest price a competitor can match it and then you have started a price war. Also, customers might ask what is wrong with the product if it has the lowest price.

Do: A better branding strategy is to have a quality product and features such as store hours, delivery, return policy, friendliness of service, etc. In a price war, you are selling at lower margins and your business health might suffer.

When it comes to competition, Rocky Balboa was right. You do want to compete with yourself. If you keep improving your own business, you're going to give the other guy something to really worry about.

In your business plan, you should have an important section regarding your competitive landscape.

Key Lessons

  • Keep tabs on your competitors, but don't spy on them.
  • Be friendly with your competitors, but don't forget that you are competitors and keep antitrust laws in mind.
  • Price wars don't work out for anyone except the customers, your business and your competitors could both suffer.

Next Steps

  • Think about how you've been interacting with your competition. Make sure you follow good ethics and the laws.
  • If you find yourself thinking about your competition day and night, that may be a sign you should start focusing on what you're doing. If you never think about your competition, maybe it wouldn't hurt to check out their websites and see what they're doing on social media. Maybe you'll pick up some good ideas for your own business.

Hal SheltonHal Shelton is a seasoned executive with corporations, nonprofits, and investment organizations. He uses his knowledge and expertise to help small businesses be successful. He is a board member and mentor for the SCORE Association, a volunteer organization that provides education and training to small businesses. He helps small businesses take advantage of new business opportunities, develop business plans, and find and qualify for financing.