Executive Forum: Sleeping with the Enemy

‘Co-opetition’ — cooperating with the competition — is the new way of doing business

Wake up, catalogers! The cold war is over, and so are the old views of competition. Those you once thought of as your foes have now become your allies — whether you like it or not.

Get rid of the outdated idea that market share is a pie and that the bigger a slice one company gets, the less that remains for others. Indeed, your success does not require others to fail; there can be multiple winners.

Ray Noorda, founder of networking software company Novell, calls it “co-opetition,” or cooperating with your competitors, and it’s quickly becoming the new way of doing business as we move toward increased competition with mass globalization and multichannel marketing. The bottom line is that as more catalogers become manufacturers and retailers, and vice versa, you need to form partnerships to survive.

If you can relate to any of the following dilemmas, you may be ripe for a co-opetition opportunity:

  • Your key supplier is acquired by the competition. Let’s say apparel Catalog A decides to buy a textile plant to start manufacturing its own clothes — the same plant from which Catalog B buys apparel. Catalog A could decide to restrict selling product to Catalog B and lose out on the wholesale business. Catalog B could live in fear of Catalog A, or it could work with Catalog A to ensure that it receives the products it needs to stay in business.

  • You want to sell products internationally. What if you don’t have the strong relationships your competitor does? Do you try to build those relationships from scratch, or do you find a way to work with your competition in sharing the international marketplace? Let’s say Catalog A has already made the jump overseas, developed an infrastructure, and started building a customer list. Catalog B has strong relationships with an overseas supplier, but it hasn’t yet made the leap to sell internationally. Together, the companies may be able to work out a deal in which Catalog A gets a price break on products from the supplier based on Catalog B’s relationship, and Catalog B gets use of Catalog A’s customer list or infrastructure.

  • You want to expand your channels of distribution. What happens when you start manufacturing your own products and begin to look for alternate channels of distribution, including retail and other catalogs? At one point, these companies were considered competitors. Are they now potential customers?

If you’re still not convinced that a partnership is the way to go, consider this: Sometimes your “competitors” simply do things better than you. For example, Chrysler, one of the largest automobile manufacturers in the world, had a reliability problem with its motor and wanted to provide a better motor — quickly — for its cars. Instead of waiting to fix the problem, the company entered into a partnership with competitor Mitsubishi (which had a superior motor) to supply the motors for Chrysler cars. Simultaneously, Chrysler began developing its own motor, so eventually, the partnership dissolved — but not before both companies reaped the rewards.

And a few years ago, the proliferation of the Internet made disintermediation — manufacturers using the Web to sell directly to the customer, thereby eliminating the reseller — a real threat to many catalogers. But no sooner had manufacturers deemed catalogers “the competition” than they realized that catalogers had strong relationships with customers and were far better at servicing them on the back end. Many manufacturers said, Why not leave the customer service to the cataloger and do what we do best — make products? The manufacturers therefore went full circle, viewing distributors as partners again.

It works for us

Although iGo started as a catalog reseller of other manufacturer’s products, we are now a multichannel marketer that designs, distributes, and manufactures accessories for mobile technology products, such as laptops and wireless devices. This evolvement has brought us more competition, in the form of manufacturers selling direct.

For example, we could consider laptop manufacturers IBM, NEC, and Acer threats to our accessories business. These manufacturers produce their own lines of accessories and can sell them directly to their laptop buyers.

But through a series of negotiations, and in the true spirit of co-opetition, we now view these manufacturers as “partners.” They refer their customers to iGo to service and fulfill accessories that they’ve since discontinued; occasionally they’ll even refer buyers to us to service current models. These “official” referrals enable iGo to reach a much broader audience with less advertising expense. In turn, IBM, NEC, and Acer can provide a higher degree of service and ultimately retain more customers: When an IBM customer contemplates a future purchase, he’ll be confident that he’ll be able to get the accessories he needs, even if the item is discontinued.

Now that we manufacture our own line of branded products, we sell through alternative distribution channels, including stores and other catalogs. This has forced us to look at our traditional competitors as partners. Newport Beach, CA-based Xtend Micro Products was a well-respected competitor. It sells a similar, but in some cases superior, product line — power products and accessories such as inflight/auto adapters, batteries, and chargers for laptops. It had established strong, exclusive relationships for its inflight adapter with major airlines and had offered its products in computer catalogs.

We were suddenly faced with the question: Do we spend the next six months developing our own line of similar products to compete with Xtend, or do we acquire Xtend? We decided to acquire Xtend Micro products in a stock transaction in August 2000, essentially making Xtend a part-owner, or “partner,” with a stake in iGo.

Three keys to successful partnerships

Of course, you will face challenges when considering a partnership with your competition. To make the most out of a partnership, consider these three points:

  • Define the goals of partnership. Do you want to reach a new audience? Cut marketing costs? Introduce a new product line? What’s in it for each of you? You must ensure that it’s a win-win deal for all parties.

  • Establish an open relationship and dialogue. Both parties must delineate areas in which they plan to compete vs. partner up front. For example, Company A may say that a particular account is “off limits” but the rest are open and in exchange will promise not to go after Company B’s top five accounts. Clarify from the get-go that certain proprietary or competitive information is private and will remain so.

  • Establish checkpoints along the way. External conditions, such as the emergence of new competitors in the market, or internal conditions, such as management, often change. These factors could change the direction of the company or the ownership of certain customers, and therefore affect the purpose of the partnership, so you should continually re-evaluate the relationship.

Partnering with the competition, if done properly, allows each company to focus on its core strengths, reap added sales, and still make money, all while keeping customers happy by offering the best quality and assortment of goods and services.

Ken Hawk is the founder/chief energizing officer of Reno, NV-based iGo, a multichannel marketer of mobile and wireless technology accessories.

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