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WARNING:Competition Can Be Hazardous to Your Health

February 1, 2000

6 Min Read
WARNING:Competition Can Be Hazardous to Your Health

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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 facingcompetition--especially for the first time. Three live encounters in the last couple ofmonths 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 productcompetitors (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 bedangerous.

Lighten Up

You may say, "Lighten up, Harley! We're small potatoes for this sort ofthing." To which I will recite a story about a bunch of gas stations in a smallWyoming 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, andthey won the suit, but it cost each of them about $40,000. They could have losteverything. Don't feel that the ire of the FTC is reserved for the big boys (likeMicrosoft). Those regional offices have to earn a living, too.

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

Silent Partner

In any United States business activity, the government is always a partner, whetherit's enforcing contract law, providing a stable currency, maintaining a peaceful societyor, in this case, being sure that adequate competition exists to provide protection forthe consuming public. Business could not proceed as we know it without the presence of thegovernment--but it does have its drawbacks. The government purpose for business is toprovide 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 usingregulation or competition. Competition is by far the best, because part of competitivebehavior by suppliers is innovation, which is a good thing. Innovation occurs at a veryslow rate without the spur of competition. Also, the adequate presence of competition in amarket requires almost no involvement by the government--unlike regulation. Whileregulation can control pricing behavior, it cannot dictate innovation. Recently, thegovernment has been at pains to reduce regulation, beginning with the telephone industryabout 20 years ago, then trucking, airlines and, most recently, electric power. On theother hand, the government is more insistent about there being ample competition around tokeep those capitalists (us) effectively caged.

Blindsided

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

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

Anti-competitive practices are a matter of careful definition. If you suspect aproblem, have a chat with your attorney. He can best serve you when you have a specificplan or situation in mind. It's better to talk with someone from whom you may need realhelp 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 usall to be on our toes. They cite sports as their model, saying how silly it would be ifonly one team showed up--no competition, no game. They say it's almost un-American to beagainst 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 byeach other. Each is unable to stop the pillage of a commodity marketplace that functionsonly through price-cutting.

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

Harley Rolfe is a semi-retired marketing specialist whose career includedexecutive-level marketing positions with General Electric and AT&T. He also ownedlodging and office facilities for more than 20 years. Mr. Rolfe holds a bachelor's degreein economics from Wabash College and a master's degree in business administration from theUniversity 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 forSelf-Storage.

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