Rand Fishkin provides a really good example of why you want to be honest, straightforward, and direct with your customers. I even like some of his answers here. One of the best answers to questions people asked Google was on the question of spam. Here’s what Rand had to say:
Google can take anywhere from a day to 2 years to take action on spam reports. Generally speaking, unless the violation is egregious (or appears publicly in the media), Google likes to find scalable, algorithmic solutions to spam issues. Thus, they’ll take your report, compile it with dozens of similar reports of the same types of violations, and work from an engineering perspective to come up with a solution that will catch everyone using the tactic, not just the single site/page you reported.
That’s a good clue for webmasters. It’s not all about you. Google wants to create an environment that benefits the searcher all the way around. Creating algorithms to address issues like search engine spam is one way of doing that. That’s much more effective than just looking at one or two sites and engineering them through human-centered ways. But I do take issue with Rand’s suggestion to publicly out your competitors:
My best advice, if you’re seeking to really get a competitor booted from the index or penalized in the SERPs immediately, is to write about them on major SEO-related forums, submit a thread at Sphinn or a blog post to YOUmoz. When spam is reported publicly, Google tends to take action much more quickly and directly.
That’s really dirty pool. I’d say report the competitor to Google and, if you really want to be competitive, try to figure out what tactic they are using to get the ranking they have. If they are already using blackhat SEO techniques that Google has algorithms for addressing then you don’t want to mirror those. They’ll get their just deserts eventually and it could be bad for them. But if they are using techniques that are not necessarily considered blackhat, but might be questionable, then mirror them and when Google changes their algorithms the playing field will be leveled naturally. This will save you face with industry peers and customers, who might take your public criticisms of your competition and use them against you.
If you do use this mirroring technique, do it sparingly and wisely. You don’t want to get on the bad side of Google either.