Beating Rivals

Is the goal of business to do the best you can or to beat others? A surprising number of people seem to think business is about beating others. The technical term is competitor orientation — when your ultimate objective is to beat your competitors.

Why is competitor orientation wrong?
If you believe your duty is to your shareholders you should maximize profits not merely try to gain more profits than a competitor. Which is better for your shareholders? A) $10 million in profit when a rival gets $12 million, or B) $8 million in profit when a rival gets $6 million? It is easy math to see $10 million profit is greater than $8 million.
Similarly if you believe that you have a duty to stakeholders then do your best for the stakeholders don’t just try to do better than a rival.

Armstrong and Collopy (1996) gave participants a choice between: A) earning less than a rival but gaining a large profit, or B) earning more than a rival but gaining a small profit. Lots of respondents choose relative success and lower earnings. What theory of business are they following?

Of course relative success — high market share — could lead to profits but it isn’t necessarily so. E.g. if you must slash prices to gain volume. My suggestion, if profits are your ultimate goal then aiming for profits seems more logical than aiming for market share which on a good day, with a following wind, if you are lucky, might eventually lead to profits.

Despite the logic of this it remains a battle to wean my students off market share objectives. Read Armstrong and Collopy’s work and see if you agree with their core advice: “Do not use market share as an objective“. (Armstrong and Collopy 1996)

Read: J. Scott Armstrong and Fred Collopy, Competitor Orientation: Effects of Objectives and Information on Managerial Decisions and Profitability, Journal of Marketing Research, 33 (2) May 1996

One Response

  1. Alina February 21, 2013