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Applying Game Theory to Strategy Practice

MDI Gurgaon
07/07/14
We are a management consulting firm helping businesses ...
2
Develop winning strategies
1
Drive profitable growth
2
Achieve operational excellence
3
to reap long lasting
rewards in fast
growing Indian
economy.
and help clients to compete on a global canvas
3
We address top management issues of a business
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STRATEGY
Corporate strategy
Business unit strategy
Full potential growth realisation
CORPORATE
FINANCE
M & A
Valuation
Capital management
MARKETING
Marketing strategy
Pricing
Branding
Channel management
OPERATIONS
Manufacturing strategy
Supply chain management
Process improvements
Some of our current projects include
Corporate strategy for a leading solar equipment
manufacturer in India
Business plan for a fashion retailer
Market assessment for an Australian multinational in branded
flour market
Management dashboard for a home furnishing company
5
To find more about Kanvic, you can visit our website kanvic.com
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kanvic.com
Content
7
What comes in the way of applying game
theory in business?
2
How can you overcome the challenges?
3
Applying game theory to a real life case
4
Where is a space for game theory in
business?
1
Content
8
What comes in the way of applying game
theory in business?
2
How can you overcome the challenges?
3
Applying game theory to a real life case
4
Where is a space for game theory in
business?
1
The strategy triangle helps in thinking about key actors in the strategy
development process
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THE STRATEGY
TRIANGLE
CUSTOMER
COMPANY COMPETITOR
Game theory allows us to think about competition in market structures that lie
between perfect competition and monopoly
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Perfect
Competition
Monopoly
The space for game theory
Market
Entry
Pricing
Capacity
Addition
New
Product
Launch
It is applicable to business decisions in a number of critical areas
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Content
12
What comes in the way of applying game
theory in business?
2
How can you overcome the challenges?
3
Applying game theory to a real life case
4
Where is a space for game theory in
business?
1
Research has shown a lack of attention is paid to competitor behaviour and
reaction
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5
11
58
74
44
53
83
2
7
57
66
61
75
80
New product Pricing
Internal Customer Market Competitor
Past/current
competitor
behaviour
Expected future
competitor
behaviour
Expected future
competitor
reaction
Retrospective
Source: Montgomery, Moore, and Urbany: Reasoning About Competitive Reactions: Evidence from Executives
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11
33
62
47
53
73
5
2
48
55
43
61
77
Prospective
Frequency: Decision factors mentioned
However, there are many barriers when thinking about competition in strategy
development
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BARRIERS TO THINKING ABOUT COMPETITORS IN STRATEGIC DECISION MAKING
GREATER
CONFIDENCE IN
INTERNAL
COMPANY
INFORMATION
1
EASY
AVAILABILITY OF
CUSTOMER
INFORMATION
2
POOR
ORGANISATIONAL
MEMORY
3
ORGANISATION
CULTURE
4
LIMITED MOVE
COUNTER MOVE
SEQUENCES
5
DELAYS BETWEEN
ACTION AND
REACTION
6
Content
15
What comes in the way of applying game
theory in business?
2
How can you overcome the challenges?
3
Applying game theory to a real life case
4
Where is a space for game theory in
business?
1
Understanding the competition is a journey with some key stages
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PREDICT
COMPETITORS
REACTIONS

Managers predict
how competitors will
react to their firms
decisions

Requires stepping
into competitors
shoes

Requires a great deal

of cognitive effort
and information
about competitors
that is neither easily
available nor
routinely collected
4
PREDICT
COMPETITORS
ACTIONS

Managers make
predictions about
competitors
behaviour but only
about actions

Stop short of making

predictions about
competitors reactions
3
DESCRIBE THE
COMPETITION

Study competitors
to describe their
goals, strengths
and weaknesses,
assumptions,
strategy, past and
current behaviour

Stop short of
making predictions
about competitors
future actions
2
IGNORE THE
COMPETITION

Simply ignore the

competition

Assumes that
success of a strategy
depends on the
companys capability
and customers
response
1
Source: Montgomery, Moore, and Urbany, Kanvic analysis
Stages in competitor maturity model
If you have not yet started thinking about your competition, asking whether
this is the right time can be useful
17
IGNORE THE
COMPETITION

Simply ignore the

competition

Assumes that
success of a strategy
depends on the
companys capability
and customers
response
1
DESCRIBE THE
COMPETITION

Study competitors
to describe their
goals, strengths
and weaknesses,
assumptions,
strategy, past and
current behaviour

Stop short of
making predictions
about competitors
future actions
2
PREDICT
COMPETITORS
ACTIONS

Managers make
predictions about
competitors
behaviour but only
about actions

Stop short of making

predictions about
competitors reactions
3
PREDICT
COMPETITORS
REACTIONS

Managers predict
how will competitors
react to their firms
decisions

Requires stepping
into competitors
shoes

Requires a great deal

of cognitive effort
and information
about competitors
that is neither easily
available nor
routinely collected
4
SHOULD YOU THINK
ABOUT THE
COMPETITION?
Market structure
Industry/market concentration
Strategic groups
Growth forecasts
History of competitive behaviour
Once you have decided to move on the journey, start building a profile of your
competitors
18
IGNORE THE
COMPETITION

Simply ignore the

competition

Assumes that
success of a strategy
depends on the
companys capability
and customers
response
1
DESCRIBE THE
COMPETITION

Study competitors
to describe their
goals, strengths
and weaknesses,
assumptions,
strategy, past and
current behaviour

Stop short of
making predictions
about competitors
future actions
2
PREDICT
COMPETITORS
ACTIONS

Managers make
predictions about
competitors
behaviour but only
about actions

Stop short of making

predictions about
competitors reactions
3
PREDICT
COMPETITORS
REACTIONS

Managers predict
how will competitors
react to their firms
decisions

Requires stepping
into competitors
shoes

Requires a great deal

of cognitive effort
and information
about competitors
that is neither easily
available nor
routinely collected
4
Dependent on the decision at hand e. g.
pricing vs new capacity addition
Resources
Tangible - financial, physical,
technological and people
Intangible - brand, reputation and
knowledge
current market positions - access to
customers, economies of scale and scope,
and experience
Capabilities - ability to identify and exploit
opportunities
WHAT
INFORMATION DO
WE GATHER?

HOW TO GATHER
BETTER QUALITY
INFORMATION?
Start with publicly available
information
Build layers of proprietary
information through a disciplined
process
By using market intelligence and listening to weak signals, you can start
learning about your competitors moves
19
IGNORE THE
COMPETITION

Simply ignore the

competition

Assumes that
success of a strategy
depends on the
companys capability
and customers
response
1
DESCRIBE THE
COMPETITION

Study competitors
to describe their
goals, strengths
and weaknesses,
assumptions,
strategy, past and
current behaviour

Stop short of
making predictions
about competitors
future actions
2
PREDICT
COMPETITORS
ACTIONS

Managers make
predictions about
competitors
behaviour but only
about actions

Stop short of making

predictions about
competitors reactions
3
PREDICT
COMPETITORS
REACTIONS

Managers predict
how will competitors
react to their firms
decisions

Requires stepping
into competitors
shoes

Requires a great deal

of cognitive effort
and information
about competitors
that is neither easily
available nor
routinely collected
4
Market intelligence through front line
sales team
Setting up systems e. g. a common
email ID to to send all field information
at one place
Lost order analysis
Listen to the weak signals and hidden
moves - activities across the value chain
HOW TO KNOW OF
COMPETITOR
MOVES?
Finally, understanding your competitors behaviour both at organisational and
individual level can help you in predicting their behaviour
20
IGNORE THE
COMPETITION

Simply ignore the

competition

Assumes that
success of a strategy
depends on the
companys capability
and customers
response
1
DESCRIBE THE
COMPETITION

Study competitors
to describe their
goals, strengths
and weaknesses,
assumptions,
strategy, past and
current behaviour

Stop short of
making predictions
about competitors
future actions
2
PREDICT
COMPETITORS
ACTIONS

Managers make
predictions about
competitors
behaviour but only
about actions

Stop short of making

predictions about
competitors reactions
3
PREDICT
COMPETITORS
REACTIONS

Managers predict
how will competitors
react to their firms
decisions

Requires stepping
into competitors
shoes

Requires a great deal

of cognitive effort
and information
about competitors
that is neither easily
available nor
routinely collected
4
Differentiate between organisation
and the team (TMT, owners, other
stakeholders)
How much do they resemble you?
Decoding their personality
Companies they have worked and
schools they have gone to
(LinkedIn)
Reading their PR, website content
Reading their mind - listen to their
interviews
HOW TO PREDICT
COMPETITOR
BEHAVIOUR?
Content
21
What comes in the way of applying game
theory in business?
2
How can you overcome the challenges?
3
Applying game theory to a real life case
4
Where is a space for game theory in
business?
1
Today well be looking at its practical application to a real life client problem
22
Our client is Indias leading solar manufacturer, and it was looking to launch
new product in the market to take advantage of its new manufacturing
technology
23
Diversified
into PV and
glass
Modern
manufacturing
facility
Quality product
exported to Europe
High brand
recognition
20 years in the
industry
...
...
...
...
Client
Domestic Solar Water Heaters are a renewable alternative to electric geysers
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There were three types of competitor in the market with very different
characteristics
25
Market
Protectors
Price
Warriors
Opportunity
Seekers
Client
Market protectors already have
an est abl i shed brand and
distribution network to add a
n e w p r o d u c t f o r t h o s e
customers who care for the
environment
Price warriors are small players
and are posing a threat because
of their low pricing developed as
a result of a low cost base
Opportunity seekers already
have a customer relationship
and brand in existing business
and are keen to leverage that in
the field of renewable energy
For whichever strategy the client chose, the competition had 3 possible
responses
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Client
Above
current price
Same as
current price
Below
current price
Do nothing
Reduce Price
Match Warranty
Do nothing
Reduce Price
Match Warranty
Do nothing
Reduce Price
Match Warranty

Kanvic is a management consulting firm helping businesses develop winning strategies, drive profitable growth and achieve
operational excellence to reap long lasting rewards in fast growing Indian economy. We work with C-level executives to develop
innovative solutions for business challenges of 21
st
century India by bringing in leading edge management thinking informed by
in-depth research and sound analysis.

Contact
www.kanvic.com
Jaipur

Deepak Sharma

M: +91 99283 77800
E: deepak@kanvic.com
Bangalore

Ravindra Beleyur

M: +91 94481 46963
E: ravi@kanvic.com
London

Bharat Vagadia

M: +44 7711 898089
E: bharat@kanvic.com
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