WARNING:Competition Can Be Hazardous to Your Health
Copyright 2014 by Virgo Publishing.
By: Harley Rolfe
Posted on: 02/01/2000



 

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WARNING:Competition Can Be Hazardous to Your Health

By Harley Rolfe

i021ra1.jpg (22314 bytes)It's time to discuss the rules of the road for operators facing competition--especially for the first time. Three live encounters in the last couple of months drew my attention:

  • A letter from a competing self-storage organization summarizing the varying rates among the facilities in the area, suggesting that there was no reason for the disparities--and shouldn't we all get together and discuss industry problems?
  • Remarks from a Midwest acquaintance describing conversations he'd had with the owner of a new competing facility, suggesting to him that price-cutting wasn't necessary and only hurt everyone in the industry.
  • Plans for a company meeting that included inviting all the other competing facilities for a "social." The feeling was that all had the same problems and everyone would benefit from discussing them openly and together.

Pretty natural and innocent, right? We'll see.

When confronted with competition, a normal instinct on the part of commodity product competitors (like self-storage) is to try to control supply (be the only game in town) and/or control pricing--that is, get with your rivals and come to a little ... understanding. That's simpler than trying to buy them out, so why not? Because it can be dangerous.

Lighten Up

You may say, "Lighten up, Harley! We're small potatoes for this sort of thing." To which I will recite a story about a bunch of gas stations in a small Wyoming resort town where I once lived. They were subjected to an FTC trial for collusion. The usual riddle was at work: Are identical prices evidence of collusion or competition? Either could be the case. The local service stations never knew who roused the Feds, and they won the suit, but it cost each of them about $40,000. They could have lost everything. Don't feel that the ire of the FTC is reserved for the big boys (like Microsoft). Those regional offices have to earn a living, too.

Many business laws aim at protecting the public from predatory and exploitative practices by suppliers. Those in the strongest positions to do so are monopolies. And wouldn't most of us like to be just that? Our efforts to offer exclusives (such as good location, climate control, etc.) are aimed at making each of us the dominant choice in our marketplace. The trick is to do so and not fall to the temptations of the unlawful exercise of strong market-position power. It's not the monopoly that's the problem. It's the method of getting there (usually collusion) and certain practices afterward that can create difficulty.

Silent Partner

In any United States business activity, the government is always a partner, whether it's enforcing contract law, providing a stable currency, maintaining a peaceful society or, in this case, being sure that adequate competition exists to provide protection for the consuming public. Business could not proceed as we know it without the presence of the government--but it does have its drawbacks. The government purpose for business is to provide goods and services at the best price, provide employment and create a tax base. Notice that none of those addresses the welfare of any one business. We're on our own.

Government tries to protect society from exploitative business practices using regulation or competition. Competition is by far the best, because part of competitive behavior by suppliers is innovation, which is a good thing. Innovation occurs at a very slow rate without the spur of competition. Also, the adequate presence of competition in a market requires almost no involvement by the government--unlike regulation. While regulation can control pricing behavior, it cannot dictate innovation. Recently, the government has been at pains to reduce regulation, beginning with the telephone industry about 20 years ago, then trucking, airlines and, most recently, electric power. On the other hand, the government is more insistent about there being ample competition around to keep those capitalists (us) effectively caged.

Blindsided

What is a given to any marketer may be news to those not inured to the ways of serious marketing. Being ultra-cautious in contacts involving one's competitors is rule number one. Also, trade associations are a common way of providing a safe forum to discuss issues common to everyone in a particular industry. Associations are also sometimes used as a cover to participate in forbidden activities, so good administration is central to safe association operations. A common error is to have all the officers and functionaries be industry members. It's better to have a neutral outsider (such as an accountant, lawyer or paid administrator) preside over sensitive activities and avoid any suggestion of impropriety.

With many self-storage facilities being treated to increasing competitive pressures, the natural facility response can run afoul of the Feds. The relevant geographical area for self-storage is very local. Each operator knows everyone else. It is hard to engage in marketing without brushing up against anti-competitive situations. For industries used to marketing, early training for a newcomer includes a crash course on conduct relating to competitors. For an industry not accustomed to competition, a marketing culture doesn't exist. It's easy for them to be unaware of the hazards.

Anti-competitive practices are a matter of careful definition. If you suspect a problem, have a chat with your attorney. He can best serve you when you have a specific plan or situation in mind. It's better to talk with someone from whom you may need real help later. My remarks are intended as an alert.

They've Never Been There

There are those who sweetly say that competition is good for every one. It causes us all to be on our toes. They cite sports as their model, saying how silly it would be if only one team showed up--no competition, no game. They say it's almost un-American to be against competition. But those people have never been caught in the jaws of a price war. They know not the dread of watching margins shrink with all the suppliers threatened by each other. Each is unable to stop the pillage of a commodity marketplace that functions only through price-cutting.

We all have probably broken speed limits. If caught, we know the penalty. A $100 ticket stings. It slows us down for awhile. Messing with the anti-trust laws is a good way to imperil all of your efforts in a good business. Be prudent about competitive "speed limits." There are plenty of legitimate ways to meet competitive challenges. That is the usual setting for good marketing.

Harley Rolfe is a semi-retired marketing specialist whose career included executive-level marketing positions with General Electric and AT&T. He also owned lodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degree in economics from Wabash College and a master's degree in business administration from the University of Indiana. He can be reached at his home in Nampa, Idaho, at (208) 463-9039. Further information can also be found in Mr. Harley's book Hard-Nosed Marketing for Self-Storage.