Consider this situation:you heard about this latest product from vendor A. It is still in development stage but your sales rep from Vendor A is confidentially leaking information to you about the product. Given that the purported new product meets a specific requirement you’ve been looking for, you “confidentially” indicate the potential of a sale coming into the horizon.

Along comes another sales rep from Vendor B. He, too, is aware of the rumored new product from Vendor A. In fact, he and his colleagues have been briefed about the new developments at Vendor A more than many of the people at Vendor A. He brings you some “secret” documents that purportedly claim to debunk the new product. The new information looks damning. What do you do?

Welcome to the real world of competition. The tactic illustrated above is called Fear, Uncertainty, Doubt or FUD. FUD is a commonly used tool to slow or stop a competitor from closing a sale. But it is not limited in its use to new products. It is also used in ‘combat’ situations where a sales opportunity is being hard fought by everyone. Sales rep throw FUD documents to instill a sense of fear in the would-be buyer.

The old adage that no one gets fired from buying IBM does not always work anymore.

These days competitors will try to stop a sale simply by debunking the competitor’s claims about their product. Consider you are buying the latest solution from Vendor A. But reps from Vendor B show you that the offering from Vendor A is flawed. What do you do with this information? If you want to keep your job, you would do well to investigate further. The additional time to investigate will slow down the sales process. It may even give you time to launch a new counter-offer, perhaps a new solution of your own.

Sales reps are hoping the FEAR of failure will create UNCERTAINTY in your decision-making process. At best, they hope this will create DOUBT, which will result in either totally throwing out the proposal from Vendor A. At worst, it will slow down the sales process long enough for the competition to make their own counter offer. Is it ethical? In reality it is bad marketing practice and bad business practice. That said, it is a often used sales strategy or tactic. 

Not all FUD is true. But then again, not all FUD is false either. The best option is to investigate the claims from both camps. Ask around from consultants, experts and your peers. Perform due diligence. Remember, the diligent one keeps his job and becomes the hero. And everybody loves a hero.

Check-out the formal and more detailed definition on the following sites:
Wikipedia: Fear, Uncertainty and doubt
Whatis.com: What is FUD?

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