When Divide and Conquer is a Dangerous Strategy

The collective yawn heard among auto racing observers last week was in response to the announcement that the Indy Racing League and Champ Car World Series would merge. This move had been long anticipated; Champ Car had been struggling going back to its days as Championship Auto Racing Teams (CART). Prior to the formation of the competing racing leagues in 1996, open wheel racing enjoyed greater fan interest than stock car racing and its premier league, NASCAR. However, in the years following the split into IRL and CART the market for open wheel racing was too fragmented, and NASCAR benefited as it gained casual fans as well as fans unhappy with the split in open wheel racing.

Segmenting markets is often good. We seek market niches that we can best serve and do it with as little competitive interference as possible. The split of open wheel racing serves as an example of when not to segment markets. The IRL-CART open wheel racing war only divided the market that liked this form of auto racing. Little differentiation occurred, other than the IRL's ownership of the crown jewel of auto racing, the Indianapolis 500. CART/Champ Car attempted to position itself as more of a global brand as well as a greater emphasis on road course racing. Hindsight is always 20/20, but in this case the feuding factions in American open wheel racing would have been better off to resolve their differences. Instead, the bitter fight dragged the sport through 12 years of strife and let NASCAR leave open wheel racing in the rear view mirror.

A similiar battle for a limited market has taken place in recent years in the satellite radio industry . XM Radio and Sirius racked up hundreds of millions of dollars in losses by paying dearly to secure content and market heavily to attract customers. At least these two companies realized a divide-and-conquer strategy had no hope of succeeding in the satellite radio industry. Hopefully their proposed merger will not be another case of too little, too late.

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