The Art of Being Invincible: Strategy, Game Theory, and Why Price Wars Lose
World Peace.
I strongly oppose starting a war for any purpose. But history has taught us that war is inevitable. As long as humans are not united, different parties will fight against each other to maximize their benefits without considering the benefit as a whole. People may think that being a strategist is about finding ways to win. However, quite the contrary, I believe that strategy is more of an art of remaining invincible.
I started reading The Art of War by Sun Tzu again because of yet another war in the news, trying to find some insights about why wars are still around us. The line is still shocking and powerful every time I read it: "The supreme art of war is to subdue the enemy without fighting."
I genuinely see The Art of War as the Bible of strategy. When we look into Sun Tzu's life, he didn't win significant battles or wars in records. Some people may say that this book was the most important achievement of his life. For his defence, peace always outweighs war. It is tough to win a war without harming ourselves. People's lives were thrown away, money invested in weapons and supplies, reputation destroyed globally, etc.
Healthy competition can motivate businesses to improve their services and products for customers' well-being. But why does vicious competition still have a play in the market? Game theory presents a theoretical framework for conceiving social situations among competing players. The key to game theory is that one player's payoff is contingent on the strategy implemented by the other player.
The Prisoner's Dilemma is the most well-known example of game theory. Consider the example of two criminals arrested for a crime. Prosecutors have no hard evidence to convict them. However, to gain a confession, officials remove the prisoners from their solitary cells and question each one in separate chambers. Neither prisoner has the means to communicate with each other. Officials present four deals, often displayed as a 2 × 2 box.
If both confess, they will each receive a five-year prison sentence.
If Prisoner 1 confesses, but Prisoner 2 does not, Prisoner 1 will get one year and Prisoner 2 will get nine years.
If Prisoner 2 confesses, but Prisoner 1 does not, Prisoner 1 will get nine years, and Prisoner 2 will get one year.
If neither confesses, each will serve two years in prison.
The collectively best outcome is for neither prisoner to confess. However, neither is aware of the other's strategy, and without certainty that one will not confess, both will likely confess and receive a five-year prison sentence. The Nash equilibrium suggests that in a prisoner's dilemma, both players will make the move that is best for them individually but worse for them collectively.
The same concept can be applied in business. You may have heard of a "price war" between two major industry players. Some companies want to gain market share by cutting their price to lower it than their competitors. The counterattack from the competitors is also to reduce its price to secure its market share. The outcome is obvious. All parties lose profit in this price war.
Therefore, it is time to switch the attention from the competitors to the customers. When I was a brand manager, we did many competitor analyses such as price, product, distribution, etc. The idea of competitor analysis should be about gathering data and gaining knowledge about the industry, not mimicking them. When we try to copy the same thing onto our business, it becomes a distraction. Each company is different from others, and the model that works for our competitors does not mean it would also work in ours. Hence, a customer-centred strategy should be prioritized for more sustainable development, which is the key to being invincible in the business world.
Humans are not rational animals. We prefer something great to good enough. This eagerness drives us toward flourish and war. It is sad, but it is who we are.