February 4, 2008

Rules of Competition: The Magic Number is 2

by Freddy J. Nager, Founder & Fusion Director, Atomic Tango LLC

During the South Carolina Democratic debate, Barack Obama and Hillary Clinton spent the evening attacking each other instead of addressing the issues. I was completely irked by their misbehavior — then realized that this was classic marketing strategy in action

In many industries, from soft drinks to sneakers, the top two competitors battle it out viciously. Yes, the objective is to steal market share from each other. But the key effect of this one-on-one face-off is that it excludes Competitor Number 3 (and any other upstarts) from the conversation — and, ultimately, from consumer consideration.

The classic example is Pepsi vs. Coke. This decades-long competition has involved an arms race (in ad expenditures), channel hijacking (such as Coke snatching the USC campus rights from Pepsi), and direct ridicule (Pepsi loves to position Coke as stodgy and old). The loser in this battle? Anyone else who dares to challenge the top two. Ever hear of RC Cola? This 103-year-old brand is now synonymous with the word “irrelevant.” Then there’s marketing wiz Richard Branson, who couldn’t dent the sales of the two giants despite launching his Virgin Cola in America by driving a tank down Wall Street.

Back in South Carolina, the New York Times reported that Edwards “had to fight to speak.” He even had to remind moderator Wolf Blitzer, “There are three people in this debate, not two.” But to no avail. Edwards finished a distant third in his birth state, and dropped out of the race. Having successfully driven Number 3 from the contest, Obama and Clinton then proceeded to have a genial and issues-centric debate in L.A.

On an even higher level, the Republicans and Democrats focus only on each other, which keeps those pesky independents and third parties out of the national limelight.

Here are a few other benefits of fierce competition between Numbers 1 and 2.

1. It draws attention to the category. All the hype generates consumer interest. Whenever a cola ad plays, whether Pepsi or Coke, it creates greater craving for soft drinks. The battle between Clinton and Obama has likewise drawn record numbers of Democrats to the polls.

2. It keeps the troops fired up. An arch-enemy keeps employees and fans amped about the product. For eons, kings and queens have picked one scary enemy to keep the citizens supportive and obedient. (See “Cold War” and “PC vs. Mac”.)

3. It keeps regulators at bay: Two players splitting the pie is healthy competition; one player eating the pie is a monopoly/dictatorship. In 1997, Microsoft invested $150 million in Apple, which was making one last-ditch effort under Steve Jobs. For giant corporations, $150 million is chump change, but it enabled Microsoft to say, who, us, a monopoly?

For all the above reasons, it’s been said that, if Number 2 didn’t exist, Number 1 would have to create it.

So what cool rules can we draw from this?

If you’re Number 1: Identify a Number 2 in your category and gradually escalate your rivalry. Go too fast and hard and you’ll crush it out of existence. Should that happen, immediately find new arenas to fight in before anti-trust regulators come knocking.

If you’re Number 2: Focus your ads on Number 1. This positions you as the beloved challenger and possible equal. Don’t even acknowledge other competitors. And by all means necessary, don’t slip to Number 3!

If you’re Number 3: Do something completely different. You won’t win the ad wars, so focus on innovation. Nintendo was the odd one out versus PlayStation and Xbox, so it launched the groundbreaking Wii. Red Bull didn’t enter the soft drink market; it launched itself in bars as an energy drink and high-priced vodka complement.

“The rule of threes” is a key element of comedy, perseverance (“third time’s a charm”), and fairy tales (three bears, blind mice, little pigs). But when it comes to competitive strategy, the magic number is two.

Need competitive strategies for your company? Contact Atomic Tango

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Freddy is the Founder & Creative Strategist of Atomic Tango. He also teaches at the University of Southern California (go Trojans!), shoots pool somewhat adequately, and herds cats. Freddy received his BA from Harvard and his MBA from USC.

One Response

  1. I clicked on to the site via the word “pronto”. I like what you are saying . I’m trying to come up with a name for a children’s educational/fun art and music projects ..from many years of teaching.. possibly to market..and I am new at computer skills. I’m venturing out here..People more than ever want to organize their thinking into something finite I think that has something to do with”2″.What happens to poor #3? or, when #2 becomes #1 and #3 becomes #2 what happens to poor #1? They’re still “out there” somewhere…aren’t they? (or just not heard, a` la the “tree in the forest” theory. DDP.

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