Crash Course - Handling a New Competitor

As a small company, you've heeded the advice to 'find a market niche - and dominate it'. But there's a nagging worry. Sooner or later, someone will notice what a profitable little segment you've carved out. So how will you cope with a serious new competitor?

PREPARE A BATTLE PLAN. 'You should never be surprised by the arrival of competition,' says Mark Ritson, assistant professor of marketing at London Business School. 'It's not a question of responding; you should already have modelled the possible scenarios and discussed which options you will take.'

RAISE THE ENTRY BARRIERS. Building your brand is the most effective barrier to entry, says Ritson. If it's strong enough it may smother competition at birth. Your brand gives you a clear position from which to defend your market confidently, and generates customer loyalty, which will help you fend off a new rival.

GATHER MAXIMUM INTELLIGENCE. Set up a continuing programme to garner intelligence on existing and potential competitors. This will let you spot the Exocet before it arrives. Arthur Weiss of competitive intelligence specialists Aware suggests using your salesforce to this end. 'They should not just be selling, but constantly listening to customers' concerns,' he says, 'and they are often the first to pick up rumours about new competitors.' Also monitor media, trade shows, seminars and trade associations - all can provide an alert of new competitor activity.

KEEP IT LEGAL. If you resort to subterfuge, make sure you remain within the law, otherwise the long-term damage to your reputation could outweigh the gain. Impersonating somebody else to obtain confidential information could land you in trouble. Recruiting from the opposition should also be seen as a last option: if they're disloyal to their existing employer, do you want them?

UNDERSTAND WHAT THEY'RE OFFERING. Get your hands on brochures, price lists and other literature, even if no product is available. But it's not enough to know what they're doing, Weiss says; you need to know how they are doing it. 'If somebody is undercutting you, you need to understand why.'

SET AN AMBUSH. If you know the timings and details of your rival coming to market, there are classic spoiling tactics that can diminish the effect of their launch. Time your own advertising blitz to coincide; use sales promotion to get your customers to stockpile product; or launch a spoiler product of your own to confuse the market. When Robert Maxwell launched the cut-price London Daily News against the Evening Standard, Associated Newspapers brilliantly scuppered the launch with a surprise revival of the defunct Evening News at an even lower price point.

BEWARE KNOCKING COPY. It may be tempting to rubbish your new competitor via advertising or word of mouth. But such tactics are likely to backfire, says Ritson. 'It has been demonstrated that comparative advertising harms both players,' he says. 'People don't remember which is good and which is bad.'

TALK TO THE ENEMY. There are two good reasons for a direct approach. One is if you genuinely believe their strategy will damage the market and you want to seek reassurance. The other is to offer to buy them - a last-ditch way to neutralise competition. But don't try to split the market between you. An agreement to fix market share or prices contravenes the Competition Act 1998.

DO SAY: 'As the established leader in this market, we welcome competition in the confidence that it will lead us to improve the products and services we offer our customers.'

DON'T SAY: 'We created this business and now they're trying to steal our customers. It's not fair!'.