In one line
A war game plays out a move against rivals who answer by their own goals and habits, to see how they are likely to respond and what that does to your result. Done on a model, it gives the odds of each response rather than one guess.
What it does
- Rivals mostly answer what they can see. In packaged goods that is retail data, which arrives with a lag, so a move made this quarter is usually answered next quarter, if at all.
- Most moves go unanswered. Across more than 400 consumer-goods categories, about half of incumbents did nothing after a rival's promotion attack and over four in five did nothing after an advertising attack (Steenkamp, Nijs, Hanssens and Dekimpe, 2005). Those that did answer mostly used the same weapon.
- Who answers depends on who the rival is. A leader defending share answers a price or deal attack more often than a premium brand, which may move upmarket instead. Leaders also feel a share loss more than an equal gain (loss aversion: Kahneman and Tversky, 1979).
- Countermove's rivals start from those published odds and tilt them by looking two quarters ahead on a small model of the market and their read of your strategy, choosing with some noise (quantal response: McKelvey and Palfrey, 1995). Playing your move in many worlds turns that into odds.
Business and brand
Impact on the businessP&L, cash, share price
- A move is worth its result after the rivals answer, not before: a price cut that is matched keeps little of its volume and all of its cost.
- Odds let you plan the second move: what you will do if the leader matches, and what if it holds.
- Moves rivals seldom answer, like brand advertising, keep more of their effect; moves they often answer, like deep deals and price cuts, keep less.
Impact on the brandMemory, loyalty, pricing power
- A price war trains shoppers to buy on price, which lowers what every brand in the category can charge.
- A rival answering with advertising shrinks your share of voice, so the same budget builds less memory.
- Rivals learn what kind of player you are from what you do, and plan around it: a habit of deep deals invites deals back.
Try it
War game one move
Choose Brightwater's move for the year. The engine plays it in sixty worlds, with Halvard Cola and Brisa running their own policies, then counts how each rival answered and what the move earned against running the plan in the same world.
Deep deals and loaded stock all year.
Halvard Cola
- Holds its plan62% plan 85%
- Matches with deals18% plan 2%
- Follows on shelf price12% plan 0%
- Moves into retail media8% plan 5%
- Pushes reviews and content0% plan 8%
If it matches with deals: Halvard Cola's deals pull deal buyers away from you: your volume on deal buys less, and a deeper deal of your own would start a price war.
Brisa
- Holds its plan35% plan 48%
- Matches with deals13% plan 2%
- Follows on shelf price2% plan 0%
- Outspends on media30% plan 45%
- Pulls back to protect margin20% plan 0%
- Moves into retail media0% plan 5%
If it outspends on media: Louder Brisa advertising shrinks your share of voice, so each €1 of your brand media buys less memory this year.
Share of 60 worlds in which each rival made each move in Q2. The tick marks the same rival when Brightwater just runs its plan.
Notice: In Q2, the first quarter it can see the move, Halvard Cola makes a move in 38% of worlds, against 15% when Brightwater runs its plan. Over two years the move earns −€13.8m of profit after media in the middle world (eight in ten: −€16.1m to −€10.1m). In the worlds where Halvard Cola answered in Q2, the move earned −€13.8m on average; where it held, −€13.3m.
Runs Countermove's full game in sixty numbered worlds: Halvard Cola and Brisa choose their own answers from published odds, a look-ahead and their read of Brightwater.
Sources
- Steenkamp, Nijs, Hanssens & Dekimpe (2005), Marketing Science: competitive reactions to advertising and promotion attacks
- McKelvey & Palfrey (1995), Games and Economic Behavior: quantal response equilibria for normal form games
- Kahneman & Tversky (1979), Econometrica: prospect theory
- Gilad (2009), Business War Games, Career Press