Hypercompetition

Jouma! of Marketing Management, 1997, 13, 4 2 1 ^ 3 0 Evert Gummesson Stockholm University, School of Business, Stockholm, Sudden In Search of Marketing Equilibrium: Relationship Marketing Versus Hypercompetition This paper is a discussion on work in progress conceming tke development qf relationship marketing (RM). It is particularly focused on the concept of marketing equilibrium which is a marketing management correspondence to market equilibrium, the traditional concept of neoclassical economic;. The paper starts with a brief introduction to the author's approach to RJ4.It proceeds with a summary of the concept of marketing equilibrium. The next section is a discourse on hypercompetition, a partiailarly intense type of competition that has been observed by several authors. RM offers a marketing theory based on collaboration with various stakeholders through long-term relationships, customer retention and loyalty. In contrast, hypercompetitiett claims that customers uHU switch bet ween suppUers at an inaeasingly faster rate and that competitors will become increasingly hostile to one another.Two basic questions are raised: do RM and hypercompetition represent two conflicting but coexisting trends that arc both growing in intensity? and How can this coexistence or conflict be conceptually handled? Tlie aim qf this paper is not to be complete and provide an answer, only to draw the reader's attention to hypercompetition as an opposite trend to RMand to offer a platform for further analysis and constructive and reflective scholarly dialogue. The 30R Approach to R M The 30R approach to RM is the outcome of an ongoing research project on â€Å"the new markedng† (Gummesson 1994, 1995). 0R refers to thirty reladonships that were found to exist in marketing. During the research process, three core variables stood out: relatiorahips, networks and interacdon. A consequent definidon of RM then became â€Å"RM is marketing seen as reladonships, networks and inter acdon†. The 3ORs wiU not be listed here, but their basic structure wiU be given. A distinction is made between market reladonships (reladonships between actors in the market such as suppUers, customers, compedtors and intermedieiries), nd two types of non-market reladonships which exercise an influence on market reladonships, but are not part of the market propier. These are mega reladonships (reladonships in society, above the market reladonships, such as reladonships to governments) and nano reladonships (reladonships inside organizadons, such as intemal customer reladonships). Services markedng and ttie network approach to industrial marketing have provided the primary theoredcal impietus for the author to explore the shortcomings 0267-257X/97/050421 + 10 $12. 00/0  ©1997'nte Dryden Press 422Evert Gummesson of traditional marketing management theory. ^ Both theories were bom in the 1970s and have continued to giow in importance. The author's idea to merge the two goes bac k to 1982 and has since been pursued and broadened (Gummesson 1983, 1987, 1995). The term RM, however, was not used in a general sense until about 1990 (see e. g. Christopher et al. 1991; Groru-oos 1994; Gummesson 1994; Hunt and Morgan 1994; Sheth 1994). Instead, terms Uke long-term interactive relationships, interactive marketing, network approach and a new concept of marketing were used.My resejtrch approach is theory generating and based on comparative, qualitative analysis and syniiieses between data from inductive, real-world studies^ received theories and new theories in the process of development. Marketing Equilibrium This section is an introduction to the general concept of marketing equilibrium and a discussion on certain aspects of the equilibrium. Marketing equilibrium is a serendipitous outcome of the author's research on RM. The concept is further elaborated in Gummesson (1995, 19%). The three forces of marketing equilibrium are competition, collaboration and regulatio ns/institutions.Although Western economies are repeatedly referred to as market economies with free competition as their ethos, in reality they are mixed economies in which competition coexists with collaboration and regulations/ institutions. Marketing equilibrium contends that a sound market is the outcome of an optimal combination of the three forces of competition, collaboration and regulatiorw/institutions. As all kinds of equilibria in dynanuc envirorunents are unstable, it is a matter of heading toward a moving target, orJy rarely reaching it and only rarely staying there for any longer period of time.Whereas traditional marketing management literature primarily deals with competition, RM highlights collaboration. Collaboration implies that aU parties actively assume responsibility to make relationships functional. The author's conclusion is that: The focus on collaboration is the most important contribution from RM, with an impact on both marketing management and economics, and that collaboration in a market economy needs to be treated with the same attention and resped as competition. Although the third force, regulations/institutions, is not the theme of this paper, a few words will be said about it.Regulations indude both formal regulations through legislation, and informal codes of conduct through culture; institutiorts are both formal authorities whose task is to ascertain that regulations are enforced, and phenomena such as the family or religion that enforce a certain behaviour. In marketing rhetoric, regulations/institutions—and to a large extent also collaboration— are treated with suspidon and as inhibiting competition and the dynamics ^Inputs to the 30R concept also came from traditional marketing management, sales management, quality management, orgaruzation theory, and other areas. The term real world data is iised here instead of empirical data. Thereasonis that too often researchers in business subject mistake empirical for qiiantitative, while in the geiieral language of sdence empirical refers to all types of data, whrther they come as qualitative, quantitative, or in any other format. In Search of Marketing Equilibrium: Rdationship Marketing vs Hypercompetition 423 of an economy. In narketing practice, however, they are ubiquitous. Douglass North, Nobel Prize laureate in the economic sdences in 1993, has shown that regulations/institutions are dynamic and necessary elements of a narket economy (North 1993).Marketing equiUbrium attempts to see the role of marketing management in the context of sodety and on an industry and economics level. It should not be confused with the market equiUbrium of neoclassical theory of economics (also referred to as microeconomics or simply price theory). ^ In neoclassical economics, the core variables are supply and demand balanced by the invisible hand of price in a market of free competition. The market is assumed to be striving in the direction of a longterm equiU brium in which aU prices are equal and all products are standardized. Customers and suppliers are anonymous masses.Companies and industries are not managing their production and sales, they are orUy adjusting to exogenous market influences. All deviations from this idealized model axe referred to as unwanted imperfections. Although marketing management is offen described as an adaptation of neodassical economics, it is blatantly obvious from even a simple real-world study of markets, industries and individual companies, that a different foundation for a marketing management theory is imperative. For example, services which constitute anything from 60 to 90% of today's economies (depending on definition) are not considered.The assumptions of neoclassical economics are simply not vaUd. There are signs that the interest in coUaboration is gaining ground not only in real business life but also in marketing theory; the most obvious being the upsurge of literature on RM and related subjec ts such as customer loyalty and alUances. Brandenbui^er and Nalebuff (1996) introduce the term â€Å"co-opetition†, which is a combination of co-operation and competition. They show that game theory is one possible way of exploring this combination (â€Å"the prisoners' dilemma†).Gray (1989) points to coUaboration as a solution to multi-party problem and says (p. 54): â€Å"Despite powerful incentives to collaborate, our capacity to do so is underdeveloped†. In the same spirit Senge (1990), in his treatise on learning organizations and the need for dialogue says (p. 10): â€Å"Interestingly, the practice of dialogue has been preserved in many â€Å"primitive† cultures†¦ but it has been almost completely lose to modem sodety. Today, the prindples and practices of dialogue are being redbcovered and put into a contemporary context†.EMalogue UteraUy means â€Å"tlunking together† There is ein extensive literature on competition both in mark eting and economics. Particularly the books by Porter (1979, 1985) have received the attention of marketers. No effort wiU be made here to review the various aspeds of competition; the treatment of competition will be directed to its role in the marketing equilibrium and to the properties of hypercompetition. In market economies, competition is hailed as the driver of economic evolution and a necessary condition for wealth. The customer is given a choice, and a supplier can never be sure to have the customer in its pocket.ITiis is a traditional view advocated by the business community, and to an extent also by the pubUc sector in many countries where deregiilation and privatization have become foreeful strategies. The countries of the Westem world—the capitalist sodeties—are not genuine ^See Hunt and Morgan (1995) for further analysis of the shortcomings of neoclassical theory. 424 Evert Gummesson market economies. They are mixed economies in which market forces and re gulations have entered into wedlock. In totally unregulated markets only few can obtain the necessities of life.For example, free markets give large corporations the freedom to offset competition, and those who cannot compete on the labour market are left to charity or misery. The opposite—total regulation — leads to rigidity. There is no general formula that tells us in what projx)rtions individual discretion and collective regulation should be mixed. Every market and period have to find their own specific solution. Competition is a driver of certain types of change. Even if RM puts emphasis on collaboration, I would like to see RM as a synthesis of competition, collaboration and regulations/institutions.The issue is which combination of these will create the balance—the marketing equilibrium — in each sptedfic situation. If either of the three forces becomes unduly powerful, the economy will suffer; regulations/institutions is the sole force of a planne d economy. To some extent there is a naive belief in competition to set everything right. The global wave of privatization and deregulation is a reaction in markets that have become stified. It is an effort to find a marketing equilibrium. Bureaucratic and legal values have often led to a misguided interference by politidans and an unreal belief in centralized control of sodety.Although the term deregulation implies that regulations are abandoned, it is a search for more adequate laws and institutions which can become supportive to constructive forces of sodety and hold back destructive forces: Deregulation is reregulation! Some of the more conspicuous results from deregulation are found in the split up of Bell in the US and national telecom operators in many countries have lost their monopoly; the privatization of British government bodies such as the British Rail and the Airport Authority; and the most dramatic of all, the breakdown of the communist planned economies.However, nobo dy so far has been able to overview the long-term effects of deregulation and privatization. There are necessary elements of the market economy that competifion and the free market forces do not master. They can be expressed in two paradoxes. The first paradox says: regulations are needed to secure that free competition will not be curbed. In spite of adl sweet talk about competition, every individual company or industry prefers to be spared the hazards of competitions (but they consider it essential for other comparues and industries). The second paradox says: The purpose of competition is to get rid of competition.Competition attempts to reduce the infiuence of other suppliers by lower costs and prices, differentiated and difficult-tocopy offerings, or dominance of selected market niches. Hypercompetition The ideas on a new type of competition will be assembled under the umbrella concept of hjfpercompetition. They are taken from many sources, among them D'Aveni (1994), Hamel and P rahalad (1994), Moore (1996), and Verbeke and Peelen (1996). The term hypercompetition was first found in D'Aveni and the ensuing discussion on hypercompefition is mainly based on his concepts, but the comparison with RM strategies and the conclusions are my own.In marketing management and strategy, the recommendation is usually advanced that companies should build a sustainable competitive advantage, thus limiting In Search of Marketing Equilibrium: Relationship Marketing vs Hypercompetition 425 price competition or even creating a monopoly-Uke situation. Hypercompefition is the opposite: a company should actively disrupt status quo and the current competitive advantages, both its own and those of competitors, in an environment of hypercompetition, advantages are rapidly created and eroded.Hypercompefition trends are identified in four arenas of traditional competition (D'Aveni 1994, pp. 13-17): /. Cos/ and quality arena For example, upstarts Uke Southwest Airlines attack estabUshe d carriers by slashing costs or enhancing quaUty, thus lowering the bottom of the market and raising the top of it. This behaviour counteracts the RM strategy of frequent flyers' programmes. 2. Timing and know-hot/' arena The first mover in the nnarket may create an advantage and sets up impediments to imitation. Followers quickly try to overcome these, fordng the first mover to change its tactics.The know-how exploited by one company is imitated by another and imitation becomes faster and faster; eventually the innovator cannot recapture its R&D investment. 3. Strongholds arena Companies create entry barriers to keep the competition out Entrants circumvent the barriers, giving rise to a series of attacks and counterattacks. This is currently happening in inten:ontinental air services between major American carriers and national European carriers. The current war for mastery over the Intemet, with Microsoff and Netscape as the combatants, is another example. 4.Deep pockets arena Thi s means having more money than the competition. The finandally stronger and usuaUy bigger companies can endure price competition from smaUer companies. The latter, however, can caU upon govemment regulations and form aUiances with others, thus balancing out the financJal advantage. In marketing equilibrium, regulations is one of the balancing forces, and alliances is a collaborative RM strategy. For example, Microsoff's financial advantage has been counteracted by the aUiance between IBM and Apple. Information technology is a driver of hypercompetition.By using databases it is possible, and wiU be more so in the future, to quickly survey prices and other conditions, and select the best combination at each point of time. Purchasing then becomes close to the system of exchanges. But even if comparisons of suppUers are made easier for customers, so many conditions are not comparable, for example, to 426 Evert Gummesson what extent can you trust the supplier. Trust and security are basi c condidons for collaboradon and trust has proven to be a driver of business in all types of sodedes (Fukuyama 1995).D'Aveni concludes that the battle for comp>eddve advantage is eventuaUy driving the market back into a price-compieddve market. The outcome is the neodassical long-term equilibrium, although the road to this equiUbrium goes via marketing equilibrium and not just via price adjustments. He refers to the old compedfive equilibrium as looking stable because it moved so slowly that it appeared stable. Hypiercomp>eddon is a coristant state of disequiUbritim. D'Aveni deploys a revised 7Ss framework to propose hypiercompeddve strategies.The original 7Ss — designed by the McKinsey consulting company—comprise seven factors for success: structure, strategy, systems, style, skills, staff, and shared values. Successful hypiercomp;eddve firms need a new set of Ss in order to create disrupdon (p. 31ff). The first new S is stakeholder satisfacdon, referring to new ways of creating satisfied customers and a modvated eind empowered work force. The second is strategic soothsajdng â€Å"a process of seeking out new knowledge necessary for predicting or even creating new temporary windows of opportunity that compiedtors wiU eventuaUy enter but are not now served by anyone else† (p. 2). The comparafive advantage of these two factors is â€Å"†¦ the abiUty to win each dynamic strategic acdon with compiedtors† (p. 32). The third and fourth Ss are spieed and surprise, both capabiUdes for disrupdon. The hypercompeddve company both reacts more quickly and is proacdve, thus taking the market with surprise. The final three are tacdcs for disrupdon. Shifting the rules includes new ways of sadsfying the customers and playing the marketing game with a new set of rules. Signals refer to announcements of strategic intent with the purpose of stalling acdons and misleading compiedtors.For example, a preannouncement of a coining product may make cus tomers wait to see the new version and postpone planned purchases of competing products. Simultaneous and sequendal strategic thrusts â€Å"†¦ are used by hypercompieddve firms to harass, paralyze, induce errors, or block compiedtors† (p. 34). Several acdons are taken at the same dme in combinadons that make it difficult to understand what a compiedtor is actuaUy up to. In summary, whereas RM strives for stabiUty through long-term reladonships, hypercompieddon strives for continuous disrupdon at an increasingly faster rate.In RM, security is found in stabiUty; in hypercompeddon it is fotind in the ability to continuously counteract instabiUty. The RM concept is by many authors broadened to comprise more than the suppUer—customer dyad,'* for example, reladonships through alUances which is a way of counteracting hyp>ercompieddon. The imaginary organizadon^ is a network-based company which transcends the tradidonal organizadonal boundaries. It can more freely acquire Jind drop resources through outsourcing (or rather: resourcing) instead of investing in tradidonal growth (intemal or through acquisidon); the advantage of the deep pocket is thus offset. †¢See Christopher et al. (1991), Kotler (1992), and Hunt and Morgan (1994), who have approached marketing as relationships with a series of stakeholders. This is in line with the 30R approach, but flie 3ORs go further and also establish relationships based on other than the stakeholder dimension. ‘See Hedberg et al. (1994). Other terms representing the same phenomenon are virtual organizations, boundarykss organizations, and rwtwork organizations. In Search of Marketing Equilibrium: Relationship Marketing vs Hypercmnpetition 427D'Aveni (1994) discusses the role of co-operation and collusion and says that they should only be used for hypercompetitive purposes. They are not long-term relationships, they are merely temporary strategies. He lists a number of generic instances of hypercompet itive use of collaboration (pp. 338-339): to gang up against others groups; to limit the domain of competition; to biuld resojirces; to buy time; to gain access; and to leam. Hunt and Morgan (1995) suggest a comparative advantage theory of competition within a marketing management paradigm, and they present a devastating critique of neoclassical economics.D'Aveni's conclusions are contrary to Hunt and Morgan's; he rewrites neoclassical theory, using marketing management theory as a lever. Interpreted in my terms, we depart from the original and simple form of neoclassical market equilibrium, go through a phase of marketing equilibrium, and arrive at a more sophisticated level of market equilibrium. Hjrpercompietition goes beyond the neoclassical theory of perfect connpetition and restores it on a new level. Through a series of disruptive moves, where competitive advantage is surpassed, an escalation toward perfect competition develops.This means that we are back in transaction marke ting, the very evil to which RM is held to be the antidote. Conclusions for Discussion This paper has dealt with certain aspects of marketing equilibrium, one of several RM issues that preoccupy the author's nund during the ongoing research joumey into the world of RM. ‘The paper is limited to the two trends of collaboration, advanced by the RM concept, and hypercompetition, advanced by authors on strategy and competition. A paradox is seemingly a contradiction; it is not in actual fact a contradiction. An oxymoron is a combination of two phenomena that cannot be combined.So the first question in the beginning of the paper could be rephrased: are RM and hypercompetition forming a paradox or an oxymoron? When I read up on the current literatxire on competition, I found that the â€Å"new† competition was described as more fierce and faster than ever before. It had affinity with marketing warfare which was in vogue in the 19S0s. It certainly seemed contradictory to the RM idea of long-term relationships and collaboration. In my present state of ignorance the answer is: within the concept of the marketing equilibrium, both competition and collaboration coexist. They can do so and will do so.Our attention has to be directed to both of them. When competition becomes hypercompetition, collaboration may become hypercollaboration. Could it be that hypercompetition is the current driver of the upsuiging interest in RM and that RM tries to neutralize the effects of hypercompetition? To be Continued As this is work in progress, the issues that have been presented are not complete and the views are tentative and wiil be further studied. Among other issues concerning marketing equilibrium that are also being studied are the following: Tlie marketing equilibrium which has so far been described could be seen as 28 Evert Gumntesson partial marketing equiUbrium. The RM researdi project is suggesting an extention into complete marketing equilibrium. It consists of a synthesis of RM and the theory of imaginary organizations where not only the market but also the organizations (suppUers, customers, competitors and others) and sodety are included in a network of interactive relationships (Hedberg et al. 1994; Gummesson 1996). In traditional marketing management and economics, the market is outside the company and n «rketing activities are directed toward extemal customers.But there are also markets inside the company and marketing activities take place between intemal customers. This is laid bare in the treatment of the nano relationships of the 30R approach. Both intemal and extemal customers interact in networks of relationships. The boundaries between the â€Å"inside† and the â€Å"outside† have dissolved and both can be seen as parts of the same networks. Another area is the black economy with tax evasion, bribery, fraud, and organized crime as additional and disrupting forces of competition. One of the relationships in the 30R approach is named The Criminal Network.For example, Blumberg (1989) has pointed out that the strength of the market economy — competition and the profit incentive—encourages fraud. It pays to cheat! He calls this the paradox of the market economy. Everybody is familiar with it from jobs and private consumption, but it is swept under the carpet in marketing theory and textbooks. The Literature prefers the idealized image: competition as the driver to create customer satisfaction and customer perceived quality; to give customers everything they want and are willing to pay for; and to offer numerous options for consumers.Customers are asked about satisfaction and quality, but their knowledge is limited and the ignorance of the customer is exploited. Neither market economies through competition, nor command economies through regulations, have proven themselves capable of handling environmental and ecological issues. What has been achieved is primarily the outcome of vo luntary pressure group activity and law enforcement. Competitive forces have clearly not provided enough incentive for the market to innovate and reinnovate in the field.One of the relationship in the 30R approach is The Green Relationships, adding a relationship angle to environmental issues. Probably most of the achievements for a long time will only come through legislation (regulations), tight control and litigation (institutions). Can the marketing equilibrium conceptually include environmental and ecological issues? After the Paper Presentation: An Addendum In the discussion following its presentation, the paper was criticized on two points in peirticular: (1) The choice of the term â€Å"marketing equiUbrium†.The critics said — and some were dearly provoked by the term — that it gives the wrong connotation and that the term is so heavily committed to neoclassical economic theory that people will not be able to see my point. Suggested substitutes were â₠¬Å"dynamic balance† or â€Å"optimal combination†. EquiUbrium, it was claimed, conveys the idea that such a state exists and it is just a matter of time {long-term, though) before it is reached. In defence of the term {but I intend to give it more thought) I would like to claim that equilibrium can be perceived as dynamic and unattainable, but still have a value n Search of Marketing Equilibrium: Relationship Marketing vs Hypercompetition 429 in providing direction, although the journey is a never-ending journey. Perhaps the provocation as such is o( value. When a new thought or term is met with aggressions from several established scholars it may have hit a sore spot; it may even be important. The original intention was to show that equilibrium from the idealized and imrealistic assumptions of neoclassical theory could be supplemented by a marketing management-oriented equilibrium based on real-world premises.Neoclassical economics currently seems to be no more than a computer game for adult entertainment and career boosting under the disguise of â€Å"sdence†. To me, the contrast between â€Å"market† and â€Å"marketing†, designating an economics versus a management approach but still indicating affinity, makes the term expressive. Whatever term I choose, however, I am confident that economists and â€Å"me-too† researchers wiU not be impressed. 2. â€Å"Hyper† was claimed by Americans to mean â€Å"too much†, for example a hyperactive child is active to a degree that implies mental and/or physical disorder.The British perceived it as â€Å"very much†, for example a hypermarket which is a bigger European version of a supermarket. Maybe this is evidence of the validity of Oscar Wilde's statement that â€Å"England and America are two countries separated by a common language†. On the other hand, maybe â€Å"too much† is also a correct interpretation. For many of us, hypercompetition i s probably too much. Personally, it makes me nervous. References Blumberg, P. (1989), The Predatory Society, New York, Oxford University Press. Brandenburger, A.M. and Nalebuff, B. J. (1996), Co-opetition, Boston, MA, Harvard Business School Press. Christopher, M. , Payne, A. and Ballant)Tie, D. (1991), Relationship Marketing, London, Heinemarm. D'Aveni, R,A. (1994), Hypercompetition, New York, The Free Press. Fukuyama, F. (1995), Trust, New York, The Free Press. Gray, B. (1989), Collaborating, San Francisco, CA, Jossey-Bass. Gronroos, C. (1994), â€Å"Quo vadis, marketing? 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