Why the rivalry between two test-prep services makes them both more competitive.
The test-prep-industry catfight between onetime upstart the Princeton Review and longtime leader Kaplan Educational Centers proves one thing above all else: a hated competitor can be a company's best friend
In the middle of a meeting, John Katzman glances out his third-floor window to see a city bus roar down Broadway. The ad on its flank announces, "Take Kaplan and Get a Higher Score." Katzman glares and then takes a deep breath to collect himself. "It makes me crazy to see that," says the chief executive and founder of the $50-million Princeton Review, a test-preparation company based in New York City. Katzman's arch rival, Kaplan Educational Centers, has a knack for needling him, he admits. But plastering its logo on the bus that drives up and down his avenue all day long is downright cruel.
"I don't like to see their advertising. I don't like to read their press. I don't like to see or hear the word Kaplan," he explains. "It's like an irritant. I have a bad reaction."
This from the man whose company once advertised that "friends don't let friends take Kaplan," who appropriated Kaplan's name on the Internet so he could post "horror stories" about his competitor, who just recently faxed questionnaires to Kaplan offices around the country goading Kaplan partisans with questions like "Why do you think the Princeton Review is beating Kaplan so badly?"
Of course, Katzman's counterpart, camped little more than a mile away in midtown Manhattan, just beams to hear that his ads have riled his rival. "If seeing the Kaplan name makes him angry, he must spend a lot of his waking hours in a rage," says Jonathan Grayer, the 30-year-old marketing whiz appointed Kaplan's CEO last year. An aggressive ad campaign in New York has the Kaplan name bedecking billboards, buses, and subways all over the metro area. As Grayer sees it, Katzman's company is getting its comeuppance. "They've spent years getting in our face, running rude ads like 'Stanley's a wimp' or 'Stanley's finally lost it" -- taking in vain the name of industry father and company progenitor Stanley H. Kaplan. "They've run ads that made my blood boil," notes Grayer. "Now the battle is engaged. We're mad as hell, and we're not going to take it anymore."
"He's whistling past the graveyard," counters Katzman, "and wasting his money."
"No, he's in denial," snaps Grayer.
The two sides do agree on one thing: in this battle of the testmasters, a truce is nowhere in sight. There will be no strategic alliances or joint ventures or pseudopartnerships here, thank you. "They have only utter loathing for each other," comments one former instructor. "And they like it that way."
The simple truth is that their mutual contempt may be the best thing that ever happened to either company. Despite the animosity -- Katzman refers to Kaplan's management as "those humorless cheeseballs"; Grayer dismisses Katzman as a "rebel at any cause" -- this is a regular bowl game to watch and perhaps the best evidence yet that having a nemesis can be a beautiful experience. An honest-to-God gift. Not just to customers, the obvious beneficiaries, but to the warring parties themselves: what team, after all, doesn't play better against an opponent it positively despises?
Let's forget for a moment the minor inconveniences that result from fierce competition: the churlish ads, the spying, the bad-mouthing, the talent stealing. Trash talk is all in a day's work. OK, so maybe there's the occasional ambush, although Princeton denies ever sending operatives to disrupt a Kaplan class. ("Even if we did, who would notice?" Katzman speculates.) Let's overlook the issues of Dumpster security: Kaplan refutes the suggestion that its employees ever picked through its competitor's trash in search of customer names. So there's a little price pressure? And a chronic tug-of-war over market share? Quit whining. A competitor that stalks you also spurs you on. In a heated rivalry, you finally find that special someone -- to copy, to conquer, to kvetch about. With enemies like this, who needs friends?
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"Our company invented the industry, and we're back to claim what's rightfully ours," explains Kaplan's Grayer. Founded by Stanley H. Kaplan in 1938, the company Grayer now runs spent nearly half a century developing the market for its test-coaching services and building a national chain, to become the country's largest test-prep business. Then a young punk, not long out of Princeton University and packing a 1500 SAT score of his own, burst onto the scene to steal a slice here and a slice there from Kaplan's previously uncut tart.
Throughout the 1980s Katzman's new company posted runaway sales growth (landing on the Inc. 500 four times). By 1986 the Princeton Review had chipped away at Kaplan's near-monopolistic reign and had grabbed as much as half of its SAT business.
Katzman and company pressed their incursions into Kaplan's market with a guerrilla's fervor and a frat boy's sense of fun. They picked fights with the Educational Testing Service (ETS), which administers the standardized tests that the test-prep companies coach students to take, and earned a reputation as a cheeky champion of students' rights, an image that sold well to the SAT set. They fought and won a costly court battle against ETS over whether their coaching methods constituted cheating. They skewered the competition with mocking ads. They deployed smart, competitive, mischievous troops who thrilled at beating Kaplan in a hundred tiny ways. "We were the bad boys in the industry," says Katzman with a proud grin.
Come the 1990s, the industry began to change. After a decade of robust expansion, overall market growth tapered as the baby bust matured. The Princeton Review had taken the lead in the SAT market. (It claims to hold 40%, to Kaplan's reported 20%.) And it was gaining ground in the grad-school-exam market, where Kaplan's dominance (the company still holds a 60% share) had begun to erode.
The besieged Kaplan empire, facing the double threat of adverse demographics and a rapidly growing competitor, began to strike back. "We decided we would no longer allow the Princeton Review to 'run wild' in the industry," says Grayer. "They needed to be disciplined."
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"If it weren't so arrogant, it would be pathetic," scoffs Katzman. "Before, they were sinking in the quicksand. Now they're flailing in it." Kaplan remains the biggest player, with $80 million in annual revenues. But it has not posted a profit in three years, Katzman points out. The Washington Post Co., which bought Kaplan in 1985, reports losses in excess of $15 million for the division of which Kaplan is the largest part. Although Grayer predicts the ink will run black this year, Katzman remains skeptical. "They've been saying that for three years," he says. "Some turnaround."
Though the clever Mr. Katzman is loath to admit it, he owes no small part of his success to Kaplan, the industry leader that pioneered the market in the first place and then foolishly left so much of it for him to pocket. Usually, a competitor's mistakes are mere opportunities. For Katzman, Kaplan's missteps and weaknesses were like the photo negative for a business plan. The question of which market to pursue hardly stumped him. "That was easy," Katzman says. "There was a monopoly in test prep, run by a guy who was doing it all wrong."
"From the beginning we knew what market was there to take because Kaplan had defined it for us," says Matt Rosenthal, president of Princeton's New England franchise. "We looked at Kaplan and said, 'Whatever they have, we could have."
