Obviously, your most important objective as a small business is to survive and make money. Realistically speaking, there may be times when you'll decide, after careful analysis, that the competition in one area is simply too hot. Here are some situations that may indicate that the cost of direct competition is unwise and ineffective, from a sales and marketing perspective:

1. When you are faced with taking a loss on any marketing program. Breakeven spending should also be avoided when done in response to competitive programs.
2. When your direct competitor can outspend you both in money and quality of the offer. Larger competitors can almost always outspend you whenever you try to match one of their programs. They can spend more money for longer periods and increase the depth and quality of their discounts and promotional programs.
3. When your competitor's resources are significantly larger and more effective. It may make little difference if one of your direct competitors has eight sales people and you have six sales people covering the same geographic area and accounts. However, if your competitors can deliver programs faster on a broader front and still not commit all their forces, you are significantly outgunned. No battlefield general or business manager should risk a head-on confrontation.
4. When your competitor has more strategic and tactical advantages. Equal competitive resources may still be strategically and tactically more advantageous than your company's resources. For example, a competitor who spends the same amount in the same media but has higher recall/better-liked advertising has a strategic advantage. Or a competitor who has strong distributors in all your company's markets, while your company has a few weak distributors in the same markets, has a tactical advantage.