KNOW THINE ENEMY AND THYSELF

By Paul Winters

The first, the supreme, the most far-reaching act of judgment that the statesman and commander have to make is to establish the kind of war on which they are embarking; neither mistaking it for nor trying to turn it into something that is alien to its nature.--Karl Von Clausewitz.

Every time I read this quotation from the Prussian general of the early 1800's I am amazed at the wisdom of these simple words. If you read through it quickly, take another moment to reread those 48 words and think about the concept he is trying to convey.

In time of war this means to diligently gather information about your enemies. What is the size of their force? Where are they? What kind of weapons do they have? What are their strengths? And, more importantly, what are their weaknesses?

Only after gathering this knowledge can you intelligently plan your strategy. And your strategy must vary based on each battle. The US forces won in South Korea on defense and lost in North Korea on offense. England lost in the colonies on offense and won at Waterloo on defense. Offense gets the glamour, but defense wins football games as any NFL coach will tell you.

If defense appears to always have the advantage, why would you ever fight an offensive battle? First of all, glory, fame and the all-too-familiar ego strokes come to those who win an offensive battle or score a goal. Winning an offensive battle also allows you to acquire territory. In future battles you can fight a defensive battle, which requires fewer resources.

How does this relate to your business? A significant factor in strategic planning for a business is a situation analysis. Situation analysis, described below, involves gathering information about the marketplace where you will do battle.

MARKET SEGMENTATION is a process of identifying groups of customers with similar buying motives in order to satisfy their wants, needs and expectations. Segmenting the market allows you to focus on those segments with greatest potential for you, and to tailor your product to meet the needs of the chosen segment. In essence, market segmentation defines the territory you want to acquire.

Once you have defined your market, you can identify the resources needed to produce and market your product. And, most importantly, focus your resources at the critical point of the battle. Remember the basic rules from my May 1992 article that defined the Principle of Force and the Superiority of Defense.

INDUSTRY ANALYSIS defines the arena where the battle will take place. This analysis defines the threats of new entrants, and barriers to entering and exiting the market. These barriers normally relate to the cost of entering a market. It is far more expensive to manufacture aluminum than it is to open a hot dog stand. If the barriers are not significant, competitors can quickly sprout up in an attractive market segment.

Industry analysis also reviews the economic and governmental factors that could have a significant impact. Look at the impact that governmental regulations are having on the timber and paper industries.

COMPETITIVE ANALYSIS defines who the competitors are, their relative positions in the market, and their operating characteristics. There are several forms of competitors in any market. Identifying yours is not as simple as just listing the companies who provide identical products. Competitors are defined in the form of desire, generic, form or brand competitors.

For example, if you were a manufacturer of boats, brand name competitors would be Bayliner and Boston Whaler; form competitors to your boating product would be sailing and canoeing; generic competitors to your recreation product would be tennis and baseball; and, desire competitors would be housing, clothing and education.

A competitive analysis identifies the demands on your customers' resources. Understanding those demands helps project each market segment potential. In the above example, consumers earning the minimum wage will create little potential market, since basic needs (desire competitor) consume the majority of their disposable income.

A situation analysis can be quite involved and due to the expense is generally performed only by larger companies. A less time-consuming, although not as analytical, process can be undertaken by smaller companies. This process is called a SWOT analysis. SWOT is short for the definition of a company's Strengths, Weaknesses, Opportunities, and Threats.

Only after gathering this intelligence can you take the next step in developing your strategic plan. Future articles will cover the four basic types of marketing warfare. Knowing which type of warfare to fight, as taught by Von Clausewitz, is the first and most important decision you can make.