Case 3: Our client is a midsize training company that serves New England and the Atlantic Seaboard regions. It offers a variety of computer training and consulting services. Eastern just found out that IBM is going to enter its segment of the market. What does it do?
Eastern Training Network just found out that IBM is entering its segment of the market and wants to know what to do. I’m assuming that the objectives are either to keep IBM out of our market or to maintain as much market share as we can. Is that a fair set of assumptions?
– Yes.
Are there any other objectives I should be aware of?
– No.
Are there other firms in our area that we currently compete with?
– Yes. Including us, there are three major players that do what we do and maybe three smaller firms that serve one or two clients exclusively.
Do we know what Eastern’s market share is?
– Eastern’s market share within the region is 24 percent.
Do we know what our two other competitors are doing to keep IBM out?
– No. Good question, but not relevant.
Because one of my major objectives is to maintain market share, I’d break my strategy down into three prongs. First, I’d try to keep IBM out. Second, I’d try to protect what’s mine. And third, I’d go after new customers.
– Explain.
I would try to figure out what I could do to raise the barriers of entry and keep IBM out. Because IBM has almost unlimited resources and because this is an unregulated industry, I think the chances of that are pretty much nil.
Second, I’d try to protect what’s mine. It is much cheaper to keep your current
customers than it is to go out and find new ones. So I’d do three things. I’d raise switching costs, so it wouldn’t make sense to leave us for IBM.
– Give me an example.
Because I don’t know the industry that well, I’d like to give another example. AOL makes it hard for customers to leave because they have what are called “sticky”
features. Customers have their email address with AOL; they have their address book with AOL; and the customers have access to certain web information and additional benefits. So to switch over to another internet provider becomes a hassle.
– Point taken. What’s next?
I’d protect what’s mine. I’d visit with my customers and find out what is important to them. Maybe increase my promotional efforts. Maybe come up with customer loyalty programs. Make them feel wanted and special. Everyone likes to feel appreciated. And second, I would do everything I could to establish long-term contracts to lock customers in. To go along with that, I’d build in incentives or give commissions to our sales staff to re-sign a client.
– Third?
Bring in new customers. I’d increase my marketing efforts, place ads, go to conventions, lobby for state contracts. I’d try to steal sales staff and customers away from my competition. And finally, I would grow through acquisition. You mentioned that there were a number of smaller players that had one or two big accounts. I’d see if they would like to sell their businesses.
– Don’t you think that’s risky? To lay out capital to buy up small firms when IBM is coming to town? What’s to guarantee that the small firm’s clients won’t jump to IBM?
There are no guarantees. However, being IBM is a double-edged sword. On the one hand, IBM is big, has an incredible amount of resources and the potential to do great things. On the other hand, it’s because IBM is so big that things might very well fall through the cracks. Am I wrong in thinking that the training we offer is similar to what IBM offers? I think the things that will differentiate us are our people and our customer service. We’re going to fight and do everything we can to hold onto our customer base while we prospect for new business. Being the biggest isn’t always an advantage.
– What if IBM comes in and offers the same services you do, but offers a steep discount for clients to sign up? Do you lower your prices?
No. I wouldn’t engage in a price war with IBM. There is no way to win. I believe
that Eastern offers great products at competitive prices. If customers like us, they’re not going to go to IBM just to save a little money. This is not like shopping around for the best deal on a new refrigerator. We’re in the services business; it’s all about the service. That doesn’t mean I wouldn’t be flexible in cutting existing customers a favorable deal to sign a long-term contract.
– I think I almost believe you. Summarize for me.
My strategy would be three-pronged. One, keep IBM out by raising the barriers to entry. Two, do whatever it takes to keep our current customers. We talked about raising switching costs, increasing promotional efforts – things like customer loyalty programs and establishing long-term contracts. And, finally, grow through acquisition and a major marketing effort.
– That was good.