What will your rivals do? Play out their reply before you move

A competitor-response game puts a small team in each main rival's seat, working from that rival's costs, capacity and customers. The teams play a few rounds of move and reply before the real move is made. The business case is then rerun with the most likely reply in it.

Why the case needs the rival in it

A business case that assumes competitors stand still is a best case. A rival that loses its biggest account to your move will answer. The question is how, and how soon.

Many strategies show competitors only as a market-share chart. The chart says how big each rival is. It says nothing about what each one will do next. Of the strategies from our own work that we scored against the Strategy Health Check, none set out how a rival would respond.

Work backwards from the rival's side

• We decide how much capacity to build
  • Large plant
    • Rival enters1, -1
    • Rival stays out5, 0
  • Small plant
    • Rival enters2, 1
    • Rival stays out4, 0
  • No plant
    • Rival enters0, 4

Our payoff first, the rival's second, in made-up units. Start from the rival's replies. For each of our moves, take the reply that is best for the rival, then pick our best move.

Read the tree from the rival's replies back to our move. Each branch ends in two payoffs, ours first and the rival's second, in made-up units. For each of our moves, take the reply that is best for the rival. Then pick the move that is best for us once that reply is in.

Here a large plant keeps the rival out, because entering would lose it money. A small plant lets it in. With no plant, the rival takes the market. Worked back, the large plant pays us most.

The logic is standard game theory. The work goes into the payoffs.

Running one

• Pick the move. One real decision, such as a price rise, a new plant or entry to a segment. Write down what it takes from each rival.
• Brief each team from its rival's economics. Give it the rival's costs against yours, its spare capacity, and how much of its profit sits where you are moving.
• Play three rounds. Each team makes its move, sees the others' moves, then replies. In the last round, each decides whether to hold or change course.
• Rerun the case. Put the most likely reply into volume, price and profit. Ask whether the move is still worth making.

A half-day session covers one move. Read each rival's position from what customers, tenders and published lists show. Never discuss prices or plans with a competitor.

What the game changes

The same move can be right against one rival and wrong against another. A price rise can hold against a rival whose plant is full, because it cannot serve the customers the rise sends it. Against a rival with spare capacity, the same rise hands it volume. The game shows that difference while the move can still change.

Where to go next

• The move guide on naming the advantage, where the game is step 4.
• The war game worksheet, free, with the rounds and the rerun case.
• The Strategy Health Check, about ten minutes.