The Nash Equilibrium: A Formula for Managing Social Media Competition

America’s food brands have earned a reputation for back-and-forth banter on social media. Whether its Burger King and McDonalds, Popeyes and Chick-fil-A or Pepsi and Coca-Cola, the bored social media managers at these billion-dollar corporations can’t seem to get enough of it. Neither can their audiences: each zinger typically earns thousands of engagements, bringing in followers for both brands. It’s a mutually beneficial show of sportsmanship: but to onlookers, it seems strange.

Conventional wisdom suggests that brands should ignore their competitors on social media. After all, each share, re-tweet or mention is simply a reminder to potential customers that that their competition exists. Why do the famously cautious executives at big brands authorize their marketing departments to talk about competitors, or even actively engage with them?

It turns out, there’s some strategy behind this counter-intuitive approach. But in order to understand it, we have to lay down one of the most famous principles of economics developed this past century.

Finding the Nash Equilibrium

When food companies banter on social media, they are actually following the rule which causes restaurants, gas stations, auto-mechanics and other businesses to open up right across the street from their competitors. Traditionally, Hotelling’s Model of Spatial Competition suggested that this was a bad idea: businesses gain an optimal share of customers when they are evenly spaced throughout a community.

But in the mid-20^th century, mathematician John Nash explained why it wasn’t such a bad strategy after all. When businesses are not grouped closely together, one business can relocate to gain more territory. Leaving this opening gives competitors an unfair advantage. As time wears on, businesses will keep inching closer to their competitors until they’re standing back to back.

And that’s exactly where they belong: at this point, a “Nash Equilibrium” has been achieved. Neither business can deviate from this arrangement without losing territory and revenue – the rules of the game will never change, because they are perfectly calibrated to benefit both players equally.

It’s clear how this strategy applies in real life: but how does it apply to social media?

Keep Your Competitors Close

A Nash Equilibrium occurs whenever two competitors can see each other’s strategy, and develop a maximally beneficial strategy in response. Learning about your competitor is therefore the first step in achieving a Nash Equilibrium, and – online – there are many ways to do that.

While Internet brands do not compete for “space,” they do compete for the attention of an audience. This is the closest Internet analogue to space: the farther a prospect lies outside the periphery of your target audience, the “farther” they are from you as a brand.

Boiling it down: imitating the practices of other brands is the way to take your fair share of a market segment and prevent your competitors from surging ahead. Here are questions to ask while gathering research:

1. Who are your competitors?

Direct competitors are the most important ones to worry about: they sell a product similar to yours, and they are trying to reach the same audience as you. Occasionally, a business will have indirect competitors who target the same audience with a completely different purpose.

While indirect competitors can reduce your exposure, they are not your primary concern. If you don’t know who your direct competitors are, do market research by looking up keywords associated with your business, and with tools like SpyFu.

2. Who are they targeting?

Once you’ve listed your competitors, find out what audience they’re trying to reach. Even if brands have a similar business model, they may seek out a different segment of customers due to differences in branding and product functionality.

Simply by observing a brand’s posts and engagements, it is possible to get a high level read on their target audience. For more detailed analysis, consider using social media analytics tools like Sprout Social.

3. How successful are they?

Analyze your competitor’s success over time. Stats to look at include:

• Post engagement
• Number of mentions
• Coverage (positive or negative?)
• Website traffic and SERP rank

Where your competitor performs significantly better than you, trying to gain an edge might be a waste of time. A small business is never going to rank higher than Amazon for the term “books”. But highlight where your competitor has a slight advantage: this will help you to “bridge the gap” later and achieve a Nash Equilibrium.

4. What tactics does your competitor use?

Now you want to know your competitor’s strategy. Questions to ask include:

• What keywords do they target?
• How often do they post, and at what times of the day?
• What kind of content do they post?
• How do they represent their brand?
• What ad campaigns do they run, and what language do they use?

Right now, the point isn’t to determine what makes your competitor successful. Indeed, some of these tactics may hurt them. But keep all of this data together and note where it differs from your own company’s strategy: it will help in the next steps.

Closing the Gap

Once you’ve determined who your competitors are, their target audience, their performance and their strategy, close the gap by adjusting your own strategy in response. Here are your goals:

• Better define your brand – what can you learn from your competitors in terms of branding? Do they use “buzzwords” that help them to stand out? What about their style of content or social engagement? Pillage them for inspiration.
• Refine target audience – is your competitor reaching people that you aren’t? Fix that, if possible. Do they take a unique approach to different segments? Consider doing likewise.
• Improve your message – think about the difference between your content strategy, and your competitor’s. Are they providing better value? Are they clearer about their products and services?
• Raise KPIs – think of a few key performance indicators (KPIs) where your competitor is winning, and set goals to reach or beat them if it’s realistic. Every gain they have is a gain you can steal.

The point of analyzing one’s competitors is to learn, not to copy them. Copy and you’ll never know the reasons why you’re lagging behind: learn, and you can gradually refine your own strategy until you stand back-to-back in the digital marketplace.

Related Articles