The Intelligence Function and Business Competition

Webster's New International Dictionary, 2nd ed., Unabridged, defines “intelligence” in part as: “5. The obtaining or dispensing of information, particularly secret information; also, the persons engaged in obtaining information. …”

This is not to say that nothing has been written on this topic but merely that relatively little attention has been given to it. Two items that might be of interest to students of this subject are: Guyton William J. , “A Guide to Gathering Marketing Intelligence,” Industrial Marketing, March 1962, pp. 84–88; and Safford Arthur T. Jr. , “Developing a System of Competitive Intelligence,” in Pricing: The Critical Decision (A.M.A. Management Reports, No. 66 [New York: American Management Association, Inc., 1961]), pp. 34–38.

For a detailed analysis of the nature of business competition, including both the static and dynamic aspects thereof, see Cassady Ralph Jr. , Competition and Price Making in Food Retailing (New York: Ronald Press Co., 1962), pp. 43–113.

Procter & Gamble and Lever Brothers must have intensified their intelligence efforts when in late 1946 the General Aniline & Film Co. started testing its new liquid detergent (known as D-One, later Glim) because shortly thereafter Procter & Gamble first tested and then introduced Joy while Lever Brothers followed later with Lux liquid.

A vendor having specific information regarding improvements in competitive items might decide to measure consumer response to a product change by use of a consumer panel. Often a well known competitive product (unidentified) is used as a control, and if the firm is able to acquire a sample of a company's new product during a test run, this item might be utilized as a control as well. Thus the company would be able to measure the effectiveness of its new formula against both the established as well as the allegedly improved product.

General Motors at one time checked consumer preferences by sending out questionnaires illustrating alternative styles of automobile hoods, engines, tops, and other features. While the plan undoubtedly was an admirable sales promotional device, it had a glaring weakness as an information-gathering plan since no attempt was made to base the survey on a representative sample of respondents; rather, anyone could write to General Motors for a copy of the questionnaire and submit it.

Considering the fact that sales tests cannot be kept secret, a company might be able to acquire much information about new competitive items by directing intelligence efforts toward competitors' testing activities in relation to new and improved products and by estimating test results. A hyperaggressive firm which is in such a position might even choose to counter the rival's efforts by jamming the testing mechanism through the offer of a consumer deal in that market during the test period.

See footnotes 23 and 25.

R. H. Macy & Company has explained this policy in a pamphlet entitled Here's How Macy's 6% Cash Policy Saves You Money, as follows: “This policy begins with the endeavor to price every article in Macy's originally at 6% less than identical or comparable merchandise in charge account stores (except those items price-fixed by law)… .”

According to the policy pamphlet cited above (ibid.): “To back up this policy … Macy's maintains the largest staff of comparison shoppers in the world to ‘police’ the correctness of their prices … [This organization] make[s] an average of 35,000 shoppings a week.”

The Safeway price policy was to “meet the lowest price of every competitor, item by item, day by day, and town by town.” Safeway Stores, Inc., Policies, January 1, 1947, p. 43.

This emphasizes the importance of buyers as a source of “enemy” information. The writer knows of a firm whose sales manager assertedly required his salesmen to ask one particular question re competitors' activities each time the salesmen called on a client with the result that much such information was acquired over a period of time.

During the Civil War, President Lincoln, through General George B. McClellan, contracted with Allan Pinkerton to organize and operate a secret service unit whose purpose was to supply necessary information to the Union forces about enemy moves and to engage in counterespionage activities for the United States. O.W. H., “Allan Pinkerton,” Dictionary of American Biography (New York: Scribner's Sons, 1934), XIV, 622–623.

These include Key Price Book (Los Angeles: Marketing Services Corp.), Grocer's Weekly Guide (Manhattan Beach: Grocer's Survey), and Grocer's Black Book (Long Beach: Grocer's Black Book Pricing Service).

E.g., detergents, margarine, canned milk, shortening, coffee, sugar, butter, soups, etc.

For an exhaustive analysis of price warfare, see Cassady Ralph Jr. , Price Warfare in Business Competition: A Study of Abnormal Competitive Behavior (East Lansing: Michigan State University, Bureau of Business and Economic Research, 1963).

This weekly price-observation service (operated by Dan Lundberg in Hollywood, California) is undoubtedly useful to gasoline competitors, especially since the price-reporting firm provides a midweek supplement relating mainly to departures from normal price levels. Ideally, however, price observations should be frequent enough to reveal all price changes at the exact time changes were made, and this is commercially impracticable. This means that any company interested in a particular critical market situation must occasionally supplement the price reporting firm's figures by market observations made by its own employees, and thus assume a portion of the intelligence function.

One method used by retail vendors of checking on competitors is to seek information from bread and dairy salesmen about the volume of deliveries going to rival outlets. On a basis of this information one can estimate total sales through a rule-of-thumb relationship of, say, $1.00 worth of bread sold to $50.00 worth of groceries. One might generalize from this, incidentally, that suppliers may serve as an important source of “enemy” information.

Such figures are based on sales data by brands (computed from beginning inventory, plus purchases, less ending inventory) secured from a representative sample of retail outlets with which the Nielsen Company has arrangements.

For a discussion of the nature of the ill-fated U-2 reconnaissance operations over Russia in 1960, see de Gramont Sanche , The Secret War (New York: Dell Publishing Company, Inc., 1962), pp. 248–285.

It is both interesting and important to note that the results of an actual price survey indicated that the consumer image was correct, that the firm's prices were higher than those of rival outlets.

According to Duncan and Phillips ( Duncan Delbert J. Phillips Charles F. , Retailing—Principles and Methods [5th ed.; Homewood, Ill.; Richard D. Irwin, Inc., 1959], p. 259): “R, H. Macy & Company, New York, employs a regular staff of more than 50 shoppers guided by a director and 11 assistants. These shoppers purchase goods for comparison purposes valued at from $250,000 to $500,000 per year.”

According to Callman (The Law of Unfair Competition and Trademarks [2nd ed.; Chicago: Callaghan & Co., 1950] Vol. II with 1963 cumulative supplement, pp. 861–862): “Every business has its secrets which outsiders cannot know unless it is desired that they should. Those facts which a competitor honestly learns about his rival's business are those which are made public by the rival through his activity in the market. A competitor has a right to know and inquire into those facts concerning his rival's business which are voluntarily publicized. He may not pursue his inquiry, however, within the business organization of the rival. … “It constitutes … an invasion of the secret sphere of another's business for the competitor to attempt to ascertain the trade secret from the owner's employee, partner, contractor, customer or supplier. … It also amounts to an invasion of the secret sphere for the competitor fraudulently to induce a business owner to confide a trade secret in him. Instances of such invasions may be found where, for example. … defendant, knowing that plaintiffs sell copies of their models only to bona fide customers for their personal use, procures a stranger to pose as a private customer … thus entrapping plaintiffs, in effect into turning the models over to defendant; where defendant surreptitiously places his own employee in a competitor's plant in order to learn the secret; or where the defendant competitor, disguised as a laborer, obtains employment in plaintiff's factory and admission to the secret, leaving shortly thereafter without even bothering to collect his wages.”

See, for example, Gnyton , op. cit., p. 84, in which the author cites an instance of the sales manager of a firm in a highly competitive industry obtaining important internal communications (including customer lists, price changes and sales data) from his girl friend, the secretary to the president of his company's chief competitor.

See, for example, Attorney General v. National Cash Register Co., 182 Mich. 99, 148 N.W. 420, Ann. Cas. 1916D 638 (1914). A similar situation obtains when an operator orders an employee to take customer lists from his competitor's delivery trucks. Sandler v. Gardner, 94 Cal. App. 2d 254, 210 P.2d 314 (1949). See also Dior v. Milton, 9 Misc. 2d 425, 155 N.Y.S. 2d 443 (1956), aff'd, 2 App. Div. 2d 878, 156 N.Y.S. 2d 996 (1956), in which a designer of women's garments displayed his line to restricted and exclusive groups which had agreed not to divulge any of the designs, but some obtained admission on fraudulent promises. See, also, Notes, 41 Minn. L. Rev. 225 (Jan. 1957); 42 Cornell L. Q. 398 (Spring 1957); 70 Harv. L. Rev. 1117 (April 1957); (Wormsley) 26 U. Cinc. L. Rev. 86 (Winter 1957). See finally Montegut v. Hickson, Inc., 178 Ap. Div. 94, 164 N.Y.S. 858 (1917).

See, for example, Smith Jack , “Ex-Army Man Tracks Down Industrial Spies,” Los Angeles Times. Sunday, February 11, 1962, Sec. G, pp. 1–2. See, also, “Modern Mata Haris,” Los Angeles Times, Friday, December 6, 1963, Pt. V, p. 15.

One firm manufacturing toys, which the author knows about, has found it necessary to give lie detector tests to all employees working in a critical segment of the business, including the janitors, and in fact, had to transfer certain individuals who did not satisfactorily pass the tests to less critical areas of the business.

For example, a design or formula totally unlike the actual prospective new offering may be carelessly handled at times with a view of getting it into the hands of the “enemy” and thus confounding him. Several examples of this idea are found in World War II experiences, including the use of a double for General Montgomery who was reportedly sent to the Mediterranean just before D Day in order to mislead the Germans re the time and place of the invasion of the Continent.

A friend of the author told him some years ago of an instance involving his firm's reaction to a rather drastic cut in prices by a small competitor. There was no question about the cut having been müde. The only question was what the effect would be on Lis firm's sales volume, and this involved among other things the price cutter's ability to handle increased volume resulting from the reduction. It was known that the price cutter had only a small proportion of the market for the product, but the question was would he be able to expand operations and thus acquire a substantially larger portion of the market. The intelligence activities in this instance, therefore, were related to the prospective expansion, if any, of the price cutting firm's operations. When it was discovered that this firm was not in a position to expand, the price cut was ignored.

See, for example, Levitt Theodore , “Marketing Myopia,” Harvard Business Review, July-August 1960, pp. 45 to 56, in which the author argues very effectively that a competitor must of necessity (a) conceive his competitive situation in broad perspective and (b) remain flexible in order that he may effectively meet any forthcoming competitive move.