Competitors as Stakeholders: Look at the Airline Industry

In my long-running series discussing the fact that competitors are stakeholders, this post looks at what happens to the airline industry when competitors make major changes.

The four largest carriers in the U.S. airline industry (an oligopoly because of the relatively few carriers who compete) are the target of a Department of Justice probe over "capacity discipline." Translation: Are American, Delta, Southwest, and United working together -- illegally -- to constrain expansion, which has the effect of increasing the pricing power of the airlines and therefore keeping up healthy profits? 

In the airline industry, "adding capacity" can lead to profit-sapping price wars as airline carriers seek to fill more seats by slashing prices to attract passengers (who in some cases might otherwise fly a different airline). During the Great Recession that followed the financial turmoil of 2008, most airlines found themselves with excess capacity as business and vacation travelers alike reduced their travel budgets. So for economic reasons, the carriers restricted capacity individually and, in that way, kept costs like fuel and payroll under control.

Clearly, if and when Southwest or American Airlines or another major airline adds flights, its competitors need to pay close attention. In fact, American's CEO recently said that although lower fuel costs are improving profit margins and can support more capacity, his airline won't aggressively add capacity in the near future. So America is maintaining capacity discipline on its own.

Yet Southwest Airlines CEO Gary Kelly said during an interview  that he's sticking to his plans to increase capacity: "Our competitors are always complaining about Southwest, and we're just going to continue to focus on running a great airline…" Not maintaining capacity discipline, in other words, which will inevitably affect the marketing strategies of other major competitors.


Meanwhile, airlines are looking at ways to increase productivity by increasing the number of seats crammed into every aircraft. This would boost per-flight profitability, but would be likely to decrease passenger satisfaction.

What Obligations Do Businesses Owe Competitors as Stakeholders?

The controversy over whether competitors should be considered stakeholders has been discussed many times. Ivey Business Journal, in tackling this issue, says in a 2004 article about stakeholder theory:

Competitors can certainly affect an organization and should therefore be considered legitimate stakeholders, but the organization and its managers have no moral obligation to attend to their well-being.

I agree with the first half of the statement, but not completely with the second half. Businesses definitely have legal and ethical obligations to competitors, based on accepted principles of fairness and honesty.

As one example, the tire company Pirelli codifies this obligation on its page on stakeholder relations, updated just a few months ago. Pirelli recognizes that fair competition is the backbone of corporate citizenship worldwide. Here's an excerpt from that page, with emphasis added to highlight the section on competitors:

Pirelli’s role in the economic and social context is inseparably tied to its capacity to create value with a multi-stakeholder approach, which means it pursues sustainable and lasting growth based as far as possible on the fair reconciliation of the interests and expectations of all those who interact with the Company with an awareness of its own global responsibilities as a Corporate Global Citizen, and in particular:

• shareholders, investors and the financial community;
• customers, since the Pirelli way of doing business is based on customer satisfaction;
• employees, who are the repository of Group know-how and drive its development;
• suppliers, with which it shares a responsible approach to business;
• the environment, since it’s the only source of livelihood for all human activities in the present and future time;
• competitors, because improved customer service and market position depend on fair competition;
• institutions, governmental and non-governmental bodies, and the communities around the world where the Group operates.

My view: Although no company is obligated to help a rival compete, it is required to make decisions and take actions that are ethical and legal. Gaining market share by, for example, using predatory or unfair pricing, distorted product claims, or corporate espionage does not live up to the ethical and legal obligations a business owes its competitors or, in the long run, the obligations owed to shareholders and customers, among other stakeholders.

Strong competitors compel a company to do more in striving for excellence, to compete even more effectively. Strong competitors give customers real choices. Strong competitors encourage entrepreneurs and suppliers to innovate and profit by serving a strong industry. Acting ethically meets these obligations and benefits all stakeholders.

What do "Are Competitors Stakeholders?" and "Target Canada" have in common?

Audience research: What do readers want to know about when they arrive on my blog? The three all-time most popular search terms that land people here are:

1. Are competitors stakeholders (see my blog entries on this topic, listed below)
2. Target Canada (mentioned in 2011, 2012, 2013, 2014, January 2015)
3. Competitors as stakeholders (see below)

I've addressed the question of competitors of stakeholders several times over the years, including these posts--and the answer is always yes:

• Are competitors stakeholders? Yes (posted March 2009)
• Are your competitors actually company stakeholders? Yes (posted December 2009)
• Revisiting competitors as stakeholders (and the answer is still yes) (posted September 2011)
• Competitors ARE stakeholders--the view in 2015 (posted January 2015)

Competitors ARE Stakeholders: The View in 2015

Competitors ARE stakeholders. Here's just one example: Imagine you're a retailer in Canada--and you suddenly find that Target, a feared competitor, is leaving the market. How does that affect your customers and your marketing strategy?

Remember that the definition of stakeholders is: "people and groups that can directly or indirectly affect a company's performance OR that are directly or indirectly affected by a company's performance."

I'm not saying a company should make marketing decisions that would benefit its competitors OR coordinate its decisions with any competitor. No, I'm saying a business must consider what competitors are doing or plan to do, as they prepare their marketing plans and set goals and objectives. Especially big competitors can make a big difference in how consumers act and the health of the overall industry, which in turn affects any one firm's performance,

Target's decision to withdraw from Canada must be a big relief to retailers of all sizes in the area. It stumbled badly in Canada (from a merchandising and a pricing perspective) and is cutting its losses because profitability is too far in the future. Of course, Target's not the only US store to run into difficulties in Canada: Sears is another biggie, among others.

With Target out of Canada, other retailers won't have to worry about its pricing power, its online presence and social media power, its weekly sale flyers, or its diverse, shabby chic product assortment. So if a marketing plan was designed to blunt the effect of Target's shopper attraction, the retailer can go back to the drawing board and revisit tactics and investments. And take Target off the list of groups that can directly its performance.

Yet competitors that are aggressive and savvy--which Target usually is--can bring out the best in what other businesses do to compete. Its withdrawal may result in some stores becoming complacent because they don't see any immediate threat as compelling as Target. And that's a mistake.

Interestingly, Sony will be shuttering its stores in Canada. This move will save money. But it will also mean Sony must depend even more heavily on its retail network to sell in Canada. Sony is a stakeholder for those retailers, and although no brand stores means less image-building for the brand, it could lead to more sales transactions for other retailers.

My earlier posts on competitors as stakeholders are here. Another way to look at competitors as stakeholders is a post I wrote for my UK blog here.

Do You Know Your SWOT?

SWOT analysis is one of the most basic--and useful--evaluations you can undertake in preparing and implementing a marketing plan. The basic SWOT grid looks like this:

Strengths and weaknesses generally vary from company to company. For instance, Ford's improved financial situation proved to be a strength during the recent recession, when many competitors were weakened and some needed bailouts. Today, the U.S. car companies are using their strengths to address opportunities such as improving fuel efficiency and selling into global markets.

As another example, Apple's expertise in product design and innovation is a definite strength in the tech world, where me-too products are all too common. Now Samsung, long known for its efficiencies and quality, is looking to make product innovation into a competitive strength.

What about opportunities and threats, both current and projected? Analyze opportunities in terms of how you can apply your strengths and exploit rivals' weaknesses to achieve goals such as growth or market share. And defend against threats by addressing your weaknesses, using your strengths, and building on your rivals' weaknesses.

Another important point: strengths and weaknesses are dynamic, not static--so you must update your analysis of your own capabilities and those of your competitors. Same with opportunities and threats, which may emerge and evolve at any time.

One of my 2013 posts identifies four ways you can learn from your competitors:

1. Understanding what makes your rivals so successful.
2. Identifying their weaknesses and their strengths.
3. Finding out how and why their resources and strategies give them momentum.
4. Adapt or fine-tune your strategies and tactics based on a deeper understanding of your competitors.

To see a brief SWOT analysis in context, take a look at the sample marketing plan from my latest Marketing Plan Handbook, available online here.

Businesses That View Competitors as Stakeholders

Are competitors also stakeholders? In my previous posts, I've answered yes, because competitors both influence and are influenced by the organization's actions and decisions.

Now, here's why four big global businesses view competitors as stakeholders--in their own words.

Pirelli's stakeholders and dimensions of value

• Petrobras, a major Brazilian-based energy company, definitely counts competitors among its stakeholders. Its reasoning: "Competitors are considered stakeholders because of the mutual influences among the parties, a flow that is critical to business, to the economy, and to society. In a few scenarios, competitors can even be business partners." 
• Pirelli, the tire company, also views competitors as stakeholders, "because improved customer service and market position depend on fair competition." In other words, consumers interact with Pirelli in the context of other industry players. Above is Pirelli's graphic depiction of the dimensions of value, including the influence of competitors.
• Walmart, Earth's biggest retailer, sees competitors as stakeholders, at least as far as sustainability initiatives are concerned: "We actively support industry efforts to drive sustainability in consumer goods supply chains. These efforts, like The Sustainability Consortium, Retail Industry Leaders Association and Consumer Goods Forum, allow us to collaborate with and engage our suppliers and competitors in industry-wide sustainability initiatives."
• Telecom Italia has an entire web page devoted to explaining its relations with competitors. The corporation's business entities "promote and participate in initiatives and projects with competitors, as well as in technical round tables and activities organized by trade associations," in the interest of fair business dealings, consumers, and everyone involved.

Staples Thinks Ahead to September--and Beyond

The first official day of summer was Friday, June 21st--the day school let out for the season in my home state.

Screen shot dated June 24, 2013

The very next day, local Staples stores began putting up back-to-school displays. If you visit Staples during July, you can get a jump on the new school season by stocking up on pens, markers, binders, paper, or--hopefully--a new tablet or laptop computer. Staples wants you to think of it first when you think of school supplies.

It's all part of the comprehensive marketing plan set out by Staples. The chain has been slimming down by shuttering low-performing units, chosen on a store-by-store basis. "If we feel like the store’s profitability is good enough and even with risk for the next few years, it’s fine. We renew on a very short-term basis and we’ve been successful in doing so," says the president of the US chain.

Also, Staples is testing multichannel options to accommodate customers' changing buying behavior. Its new omnichannel units are smaller than the typical Staples and feature in-store kiosks (like the unit above) that deliver an "endless aisles shopping experience," meaning every product is available online at the click of a mouse. In 2013, Staples will open 45 such stores, optimized for on-site, online, and mobile shopping. "It’s very clear to us that mobile is the future," observes the head of global e-commerce. In tandem with this multichannel approach, free overnight delivery helps Staples compete with its online rivals and makes shopping more convenient.

Now that Office Max and Office Depot plan to merge, Staples will face stronger competition on the retail level. At the same time, online goods and services are starting to eat into the company's product lines. To be where the social action is, Staples is active on Facebook (726,000 likes), Twitter (255,000 followers), YouTube, and LinkedIn. Of course it has its own iPhone and Android apps, as well.

Why Competitors ARE Stakeholders

Over the years, the blog posts that have drawn the most readers have been about the idea of competitors as stakeholders. Stakeholders are groups that can have an effect on or that are affected by an organization's performance in some way. Traditional lists of stakeholders include customers, regulators, suppliers, distributors, the media, and so on.

I encourage marketers to include competitors as an external stakeholder group to be considered in any situation analysis. To recap my previous posts on this topic:

• Smart competitors try to anticipate what rivals will do and how customers will react, so never underestimate your competitors - and be aware that a strong industry is in the interests of all competitors.
• Competitors often target your customers or your market share, meaning what they do is likely to affect what you do, either directly or indirectly.
• When a large competitor goes bankrupt, its absence immediately changes the marketing situation for the remaining industry players. In fact, intense competition (sometimes from unexpected sources) is often the reason for one company's inability to compete and its bankruptcy.

Pirelli, the tire manufacturer, explicitly acknowledges that competitors are stakeholders in its 2012 explanation of stakeholders and strategy: "More than ever, Pirelli is absolutely convinced that its business is inextricably linked to its capacity to create value while satisfying the expectations of all its stakeholders."

The company lists these categories of stakeholders: Shareholders, customers, employees, communities, public administrations (meaning business infrastructure and government obligations), institutions and NGOs, suppliers, competitors, and the environment. As the graphic below shows, Pirelli believes that "fair competition generates improved customer services as well as market qualification."

Lessons from Struggling Competitors

What can you learn from a competitor that's struggling or has outright failed? Plenty.

CompuUSA and Circuit City were two casualties in the consumer electronics retailing field that illustrate some of the pitfalls to avoid in that part of the industry. On the other hand, H H Gregg is growing--because one of its strengths is customer service, not always available at big-box electronics stores.

Whether you're part of the same industry, serve the same customers, or operate in the same markets, here are some questions to ask about struggling competitors as you prepare your own marketing strategy.

• What warning signs did this struggling competitor ignore or misinterpret? For Best Buy, multichannel marketing wasn't on the radar early enough. Best Buy correctly recognized that showrooming was a big problem--meaning customers were coming into its stores, examining merchandise, and then buying from an online competitor (Amazon in many cases). In response, the retailer decided to match the prices of selected local and online competitors during the holiday buying season just ended--but not every competitor. Customers must read the fine print to understand its policy, which opens the door to complaints and dissatisfaction. Will that be sufficient in a multichannel world?
• What are this competitor's strengths and weaknesses? In the past, Best Buy sometimes had difficulty competing with the vast product selection and low prices of its online competitor Amazon. But during this most recent holiday shopping season, Best Buy's online sales improved in states where sales tax is collected on Internet purchases--meaning Best Buy can compete more effectively with Amazon when both have to charge tax. That's a point in Best Buy's favor, showing that its strategy has possibilities.
• What are this competitor's resources and strategies? Best Buy's cavernous stores were a distinct strength in the past; now, with online assortments just a few clicks away, the company has been slow to rethink its big-box store strategy. The company's most recent sales reports showed little overall change, and its stores aren't gaining ground either. The good news is that certain categories are doing well: mobile phones, tablet computers, e-book readers, and appliances. Focusing on those--along with a smaller store footprint--might be a way forward.
• What should YOU avoid, based on what you've learned from this competitor's experience? If you're a retailer, you now know that bigger isn't necessarily better. Retailers are "curators" of merchandise, not to mention experiences. You also know that for shoppers, price matters, so don't avoid tackling that issue. And, as H H Gregg shows, service can make all the difference when you're trying to attract customers. Self-service keeps costs down but good in-store service may actually pay for itself in the form of more shoppers and more loyal customers.
  

Learn from Your Competitors!

What can you learn from your successful competitors? A lot! When you're planning marketing strategy, you should analyze your competitive situation in detail, examining the companies you compete with today and the possible competitors of tomorrow.

When analyzing successful current competitors, ask yourself:

• What makes them so successful? Apple's expertise in user-friendly design is not just a strength, it's a core competence (built into the firm's DNA and not easily replicable). Now Nokia is trying to take a page from Apple's success story by putting design at the top of its marketing priority list (see its phone at right).
• What are their strengths and weaknesses? Samsung sees Apple's unified ecosystem as a strength, especially in cloud-based services such as iCloud, and is looking at this from a competitive perspective. On the other hand, as the highly public problems with Apple Maps indicate, sometimes companies overestimate their abilities--which can be a weakness. 

• What resources and strategies give them momentum? Apple has LOTS of cash on hand. It's been buying back its shares and paying dividends, but still has the formidable financial strength to bankroll any new product and marketing campaign. The Apple Maps debacle is another example of Apple's willingness to yank things from the marketplace after listening to what customers say and watching what they do. It axed Ping, among other offerings, when they failed to catch on. That's a good thing.
  
• What can you adapt to compete more effectively? First, think about whether a successful competitor's strength or competence or strategy makes sense for you. Nokia is trying to adapt slick design as a way to compete with Apple; Samsung is looking at Apple's cloud services ecosystem. They're not exactly copying Apple, but taking cues from what Apple does that makes it so successful. Maybe Samsung and Nokia will do well simply because they're trying something new instead of sticking to what made them successful in years past? But this means matching the experiments with opportunities that can be exploited. Apple has proven that customers value good design enough to pay more for it. That's an opportunity for a competitor willing to boldly innovate on the road to earning a reputation as a design leader. Remember, niche competitors are already trying to get a toe-hold in your market, often by building on some idea sparked by a runaway success story in your industry.

My next post will be about analyzing and learning from struggling competitors--and competitors that haven't even become competitors yet.

Revisiting Competitors as Stakeholders

By far, the most popular posts on this blog are the two I wrote about whether a company, as it develops a marketing plan, should consider its competitors to be stakeholders.

In one post, I wrote:

The usual suspects listed as stakeholders are: customers, employees/managers, owners/shareholders, government (regulators etc), members of the media, securities analysts, suppliers, special interest groups, and labor groups.

The idea is that when you make a company decision, you should consider how that decision will influence or be influenced by your stakeholders. Makes sense, especially in this age of increasing transparency and with stakeholders finding new ways to make sure their voices are heard online and off-line.

Now consider whether your list should include competitors. Every company's performance is affected by what its competitors do...and every company affects, however indirectly, the performance of its competitors.

In a second post, I wrote:

Of course, competitors are legally forbidden to discuss and coordinate pricing plans and activities (at least in the U.S. and Europe). But that doesn't mean a company can't target a rival's customers or set a goal of dethroning the market leader. . . Both situations would certainly have an effect on the performance of the company and its rivals. In both situations, competitors would be stakeholders of each other.

Consider what happened this week, when Amazon introduced its new Kindle Fire e-reader/tablet computer. Jeff Bezos told the media conference: "We are building premium products and offering them at non-premium prices." Clearly, he's talking about how Amazon differentiates itself from Apple. The Kindle Fire is no iPad, but it will very likely affect Apple's performance this holiday season, just as Amazon's pricing of its streaming movies and TV shows will affect Netflix's performance  this holiday season. Then there's Research in Motion, which is struggling to sell its PlayBook tablet.

No marketer should focus on competitors as its main stakeholder group. Other stakeholders--especially customers--are much more important. Yet competitors have the ability to affect the performance of a single company and its entire industry, just as that company's actions can affect the performance of all its competitors and the overall indusry.

That's why Amazon, Apple, RIM, and Netflix have to keep an eye on each other as stakeholders. They target many of the same customer segments; their strengths add to a healthy marketplace for customers and for competition; their weaknesses open the door to new opportunities for each other.

Are Your Competitors Actually Company Stakeholders?

First, a quick definition: Stakeholders are people and groups that can directly or indirectly affect a company's performance OR that are directly or indirectly affected by a company's performance.

The usual suspects listed as stakeholders are: customers, employees/managers, owners/shareholders, government (regulators etc), members of the media, securities analysts, suppliers, special interest groups, and labor groups.

The idea is that when you make a company decision, you should consider how that decision will influence or be influenced by your stakeholders. Makes sense, especially in this age of increasing transparency and with stakeholders finding new ways to make sure their voices are heard online and off-line.

Now consider whether your list should include competitors. Every company's performance is affected by what its competitors do...and every company affects, however indirectly, the performance of its competitors.

Of course it's illegal to cooperate and collaborate with competitors in the case of decisions such as pricing, and I'm definitely not advocating such actions.

Yet smart marketers do think about probable competitive responses to actions such as introducing a new product, changing prices, changing channel relationships, changing suppliers, and so on. Clearly, the point is not to satisfy the needs of competitors but to understand how competitors act and react to your company's moves. Remember, the best competitors are thinking about how your firm will react to its new products and channel moves--ideally, looking ahead two or three moves to achieve goals such as growing sales and share to overtake the market leader.

For a 2015 update on this topic, read about Target's withdrawal in Canada here.

IMHO, it makes sense to consider competitors to be stakeholders of your company, for these reasons:

1. A healthy industry is in the best interest of all stakeholders--including customers and suppliers. As a customer, I once doubted the wisdom of this concept. But in recent years, with so many companies bleeding red ink and other big, established firms gone forever, I've come to realize that an ailing industry actually reduces my choices as a buyer. That's not a good thing. Also, desperate industries do desperate things, like cutting corners on quality and service, ultimately hurting customers.
   
2. A little respect goes a long way. Viewing competitors as stakeholders is a way of acknowledging their ability to affect your performance--making it more likely that you won't underestimate them. That little upstart start-up firm you might brush off as a flash-in-the-pan could grow up to be the next Zappos or Netflix. That lumbering corp giant seemingly ready for the scrapheap might pull off a stunning turnaround and eat your lunch tomorrow. Accord competitors the respect of stakeholders, and you won't be tempted to dismiss them.

What do you think? Should competitors be considered stakeholders? Read my UPDATE to this post here.

Are Competitors Stakeholders?

Traditionally, the definition of a company's stakeholder is something like: "Individuals, groups, or organizations that are affected by or can affect the company's performance." The usual suspects are customers, special interest groups, regulators, the media, suppliers, bankers, distributors.

I like to add competitors to that list, because they can be directly affected by a company's performance and, in turn, directly affect their competitors' performance. For example, Nortel's competitors are specifically targeting its customers while the company is in Chapter 11 bankruptcy reorganization, according to BusinessWeek. Doesn't that make Nortel's competitors its stakeholders?

Another example: Volkswagen is a key stakeholder of its auto rivals, and the reverse is also true. Quoting from MotorAuthority: "VW hasn't been shy about proclaiming its intentions - in 2007 it said that Toyota was its only real competitor on the world stage, and later that year set a goal of catching Toyota in terms of overall sales and financial success within a decade."

One last point: The traditional definition assumes that a company should consider how its decisions and actions will affect stakeholders. Of course, competitors are legally forbidden to discuss and coordinate pricing plans and activities (at least in the U.S. and Europe). But that doesn't mean a company can't target a rival's customers or set a goal of dethroning the market leader. Both situations would certainly have an effect on the performance of the company and its rivals. In both situations, competitors would be stakeholders of each other.

Do you agree? See my update on this topic here.