The Sherlock Holmes of Retail
The phrase “competitive intelligence” is tossed around among competitive retailers and pricing strategists looking to grow revenue and expand their reach. Formally defined, competitive intelligence is the act of defining, gathering, analyzing and distributing intelligence about products, customers and competitors in order to make strategic decisions.
But what this really sounds like is a socially and legally acceptable form of spying. Companies that use competitive intelligence methods are putting on their black ski masks and waiting in stakeout vans with binoculars, ready to observe and analyze their competitors every movement.
This kind of “spying” is actually one of the oldest forms of ensuring market competition and drives the system of exchange that our livelihoods depend on. A basic study of economics tells us that markets are sustained by simple supply and demand models. When the demand for new Legend of Zelda video game increases, Nintendo is smart enough to increase their prices and the quantity that they supply to legions of insatiable gamers.
Profitable choices and strategic pricing is dependent on looking at external factors and the ecosystem of markets around you. Companies who want to thrive in a competitive environment know that they have to study two major areas: their customers and their competition. The two share a magnetic-like attraction, linking them together and linking the success of the company with their push and pull.
But to simplify things even more, let’s take a look at the classic lemonade stand example. Sally spends her summer vacations selling lemonade for 2 dollars a cup and expects about 15 sympathetic parents to visit her stand and buy a daily cup. When another lemonade stand opens up across the street, Sally notices her customers waning.
Infuriated, she grabs a recording device, her binoculars and heat-resistant trench coat and hovers around her competitor’s stand only to discover that the other lemonade stand sells lemonade for 75 cents a cup.
Now armed with this information, Sally can re-re-price her lemonade at 75 cents or less and make an informed and strategic move to stay the queen of lemonade sales.
Retailers like Sally want information about the prices that their competitors are charging, so they’ll be able to assess their own prices and make adjustments accordingly. By expanding the scope of our lemonade example to include the millions of industries and retailers with a diverse range of products and services, it’s safe to say that we’re getting a little closer to the heart of competitive intelligence as it exists in the real-world marketplace today.
The (C)ompetitive (I)ntelligence spy tool kit can be broken down into a strategic four-step method:
- Plan. Companies need to crack open their laptops and begin their Google stalking. In other words, retailers need to have a plan for what information they feel will benefit them. If retailers are asking the right questions, they’re asking about their competitor’s mission and history or their competitor’s target customers. They’re asking about which products are being priced at what cost and what special feature of that product attracts customers. They’re asking about promotions and advertisements.
- Collect Data. Retailers accumulate information by utilizing competitive intelligence programs or platforms. CI tools like MissionControl address the largest questions retailers might have about how to be successfully competitive with their pricing strategies and promotions. MissionControl is just one of the many innovative technologies out there that retailers are latching onto. There are hundreds of free and private programs that help companies analyze features of their competitors such as Quantcast, Knowledge360 or CIRADAR.
- Analyze the Data. Put your smartest and brightest to work extracting information that can be beneficial to understanding your own business in relation to the other markets. Alternatively, there are companies out there like Engage3 that collect the data and help set strategy with advanced analytics and insights. For Sally, it was figuring out that 75 cents would steal the neighborhood moms away from her stand.
- Make Changes. Implementing new pricing strategies, promotional programs or re-evaluating inventory are some of the many ways retailers then act on the data they’ve acquired. Sally quickly made the change and started pricing her lemonade at 50 cents. It worked like a charm.
Using competitive intelligence is like being the Sherlock Holmes of retail, and it is amongst one of the fastest growing business strategies of the 21st century. As long as there are Sally’s in the world competing against other lemonade stands, competitive intelligence will continue to play an important role in the social and economic foundations of the retail industry.