Ch11 dealing with competition marzo

TOP 10 Learning Concepts

Chapter 11: Dealing with Competition

Sherrylou M. Marzo
Sept. 8, 2011

http://sherryloumarzo.blogspot.com/

Outline: Dealing with
Competition

 Forces that Determine Market
Structure
 Identifying Competitors
 Three Variables in Analyzing
Competitors
 Selecting Competitors
 Competitive Strategies for
Market Leaders
 Other Competitive Strategies
http://sherryloumarzo.blogspot.com/ 2

Competition
 Market- Challenger Strategies
 General Attack Strategies
 Specific Attack Strategies
 Market Follower Strategies
 Market- Nicher Strategies


Competition

Structure
Competitors
 Competitive Strategies for Market
Leaders

Concept 1:
Five Forces that Determine
Market Structure
Threat of
New Entrants

Segment Rivalry
Buyer
Supplier Industry
Competitors Power
Power

Threat of Michael Porter’s
Substitutes 5 Forces


Concept 1:
Segment is Unattractive if
Threat of Rivalry is Intense

This Happens When:
• Fixed cost & Exit
Barriers are high
Segment Rivalry • Competitors have high
Industry stakes in staying in
Competitors the segment
• Plant Capacity must
be added in large
increments


Concept 1:
Threat of Intense Segment
Rivalry will results to:

Segment Rivalry
Industry
Competitors Advertising Battle
Price Wars

New Product Intro


Concept 1:
The Most Attractive segment is when
entry barriers are low & exit barriers
are high
Threat of
New Entrants

This Means:
Few New Firms can enter
the industry and poor Segment Rivalry
performing firms can Industry
easily exit. Competitors


Concept 1:
A Segment is unattractive when there
are actual/potential substitutes for the
product.

Threat of Substitutes Can:
• Limit on prices and on
profits.
• And if technology
Segment Rivalry advances or competition
Industry increases in these
Competitors substitutes then prices &
profits might fall

Threat of
Substitutes


Concept 1:
A Segment is unattractive if buyers
possess strong or growing bargaining
power

Buyers’ Bargaining Power
Grows When:
• Buyers become
concentrated or organized
• When product represents
significant costs to them
• When product is Segment Buyer
Rivalry
undifferentiated Power
• When switching costs are Industry
low Competitors
• When buyers are price
sensitive due to low profits
• When they can integrate
upstream


Concept 1:
The Best Defense to Buyer Power is

Developing
Superior Segment Buyer
Rivalry
offers that Power
Industry
strong buyers Competitors
cannot refuse


Concept 1:
A segment is unattractive if company’s
suppliers are able to raise price or
reduce quantity supplied

Suppliers Tend to be Powerful
When:
• They are concentrated or
organized
• There are few substitutes
• If the supplied product is an
Segment Rivalry
important input
Supplier Industry
• Costs of switching suppliers
Power Competitors
are high
• Suppliers can integrate
downstream


Concept 1:
The best defenses to Supplier Power
is:

• Build Win-
win
Segment Rivalry relationships
Supplier Industry with them
Power Competitors • Use multiple
supply
sources


Concept 1 Example:
Bottled Water Segment
Rivalry is Intense
Absolute
Nature’s Spring
Wilkins

Nestle Segment Rivalry
Water Industry
Competitors Hidden Spring

Summit

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Concept 1 Example:
Substitutes to Bottled Water

House Brand Waters and Water
Refilling Stations are cheaper
than the usual Bottled Water

House Water Refilling Stations
Brands

Concept 1 Example:
New Entrant

Threat of
New Entrants

Magnolia entered the segment as
a Purified Water and its pricing
strategy is very cheap.


Concept 1 Example:
Asia Brewery maintains few
suppliers

Asia Brewery has only one
Supplier supplier in their labels as well as
Power with carton packaging


Concept 1 Example:
Buyers with Power

These accounts have the power
Buyer to dictate because main volume
Power of sales comes from these key
accouts


Competition

Structure
Competitors
Leaders

Concept 2:
Identifying Competitors
Competition


Concept 2:
Competition

Industry is a group
of firms that offer a
product or class of
products that are
close substitutes for
one another.
From Industry


Concept 2:
Competition

From Industry From market point of view

Using the market approach, competitors are companies that
satisfy the same customer need.


Concept 2:
Industry Classification
According to:

Number of Sellers


Concept 2:
According to:

Number of Sellers

Degree of Differentiation


Concept 2:
According to:

Presence/absence of entry


Concept 2:
According to:

Presence/absence of entry

Mobility


Concept 2:
According to:

Exit Barriers


Concept 2:
According to:

Exit Barriers

Cost Structure


Concept 2:
According to:

Degree of Vertical
Integration


Concept 2:
According to:

Degree of Vertical
Integration

Degree of Globalization


Concept 2 Example:
Asia Brewery’s Absolute Distilled
Water

Absolute is under the Beverage Industry particularly in
Distilled Water Category


Concept 2 Example:
Asia Brewery’s Absolute Distilled Water
Competitors Based on Industry Point of
View

Pepsi Cola
Philippines
Coca Cola Philippines


Concept 2 Example:
Asia Brewery’s Absolute Distilled Water
Competitors Based on Market Point of
View

Wilkins Hidden Spring
Nature’s Spring

House Brands of Summit
Nestle Water Retailers


Competition

Structure
Competitors
Leaders

Concept 3:
Three Variables in Analyzing
Competitors

Benchmarking to your most
successful competitor can
improve competitive
performance

Share of Market


Concept 3:
Competitors

% of Customers who named the
competitor in respond to this
statement: “Name the 1st company
that comes to mind in this industry?”

Share of Mind


Concept 3:
Competitors

% of Customers who named the competitor in respond
to this statement: “Name the company from which you
would prefer to buy the product

Share of Heart


Concept 3:
Competitors

Share of Market Share of Mind

Share of Heart


Concept 3 Example:
Wilkins still dominates the bottled water
segment in mind share and heart share thus
gaining higher market share

Wilkins is always on
top of mind because
Already Build Brand
advertisements are
Equity
everywhere

Preferred Brand because its
good for the family & doctors
actually recommends it


Competition

Structure
Competitors
Leaders

Concept 4:
Selecting Competitors

Classes
of
Competitors

Strong vs. Weak Good vs. Bad

Close vs. Distant


Concept 4:
Classes of Competitors

• Most companies aims
their shots at weak
competitors because it
has fewer resources per
share point gained.

• But one should still
Strong vs. Weak compete with the strong
to keep up with the best


Concept 4:

• Most companies compete with the competitors
that resemble them the most.

• But one should still identify their distant
competitors.

Close vs. Distant


Concept 4:

Good competitors: Bad Competitors:
• Play by the • Try to buy
industry’s rules shares than
• They set prices earn it.
in reasonable • Take large risks
relationship to • Invest in over-
cost. capacity.
• They favor a • Upset industrial
healthy industry. equilibrium Good vs. Bad


Concept 4 Example:
Asia Brewery’s 100 Plus
Sports Drink
Strong Weak

Pocari Sweat (Smallest
Gatorade (Market Leader)
Share in the Market)


Concept 4 Example:
Asia Brewery’s Cobra Energy
Drink
Close Distant

Sting (Energy Drink) Gatorade (Sports Drink)


Competition

Structure
Competitors
Leader

Concept 5:
Hypothetical Market
Structure

10%

40% Market Leader
20%
Market Challenger
Market Follower
Market Nichers

30%


Concept 5:
Characteristics of a Market
Leaders

• The firm with the
largest market share.


Concept 5:
Characteristics of a Market
Leaders

Market
Price Changes Distribution Coverage
Leaders
Leads other
Firms in

New Product Intro Promotional Intensity


Concept 5:
Strategies of Market Leaders

Expand Total Market Demand

Defending Market Share

Expanding Market Share


Concept 5:
Expanding the Total Market

Adding New
Customers

More Usage

Increase Total
Market Demand

Concept 5:
Defending Market Share
6 Types of Defense Strategies
• Position Defense- occupying the most desirable
market space in consumers’ minds
• Flank Defense- erect outposts to protect a weak
front or possibly serve as a counterattack
• Preemptive Defense- more aggressive way to
attack before the enemy starts its offense.
• Counteroffensive Defense- meet the attacker
frontally.
• Mobile Defense- stretches its domain over new
new territories.
• Contraction Defense-strategic withdrawal or
giving up weaker territories & reassigning
resources to stronger ones.


Concept 5:
Exanding Market Share
Factors before Pursuing Increased Share:
• The possibility of provoking antitrust action
- jealous competitors would cry monopoly if a
dominant firm makes further inroads.

• Economic Cost

• Pursuing wrong marketing activities
- go with the right activities.

• Effect of increased market share on actual and
perceived quality
- too many customers can put strain on the
firm’s resources hurting product value & service


Concept 5 Example:
Cobra Energy Drink as Market
Leader with 60% share
New Product Intro Promotional Intensity

Distribution Coverage
Cobra Smart
Placement already
Nationwide


Competition

Structure
Competitors
Leader

Concept 6:
Other Competitive Strategies

Market
Followers
Market
Market Nichers
Challengers


Concept 6:

• They have gained ground or even
overtaken the leader.

• They have high aspirations

• They leverage their resources
Market
Challengers


Concept 6:

• They usually imitate the leader by
Market improving the product.
Followers
• They bring distinction to its target
market

• They usually keep manufacturing
costs low & its product quality and
services high.

• They define growth path but does
not invite competitive retaliation


Concept 6:

• They are the leader in the small
markets.

• They avoid competing with larger
firms

Market
Nichers


Concept 6 Example:
Absolute Distilled Water as
Market Challenger
Market Challenger

Market Leader

TO


Concept 6 Example:
Absolute Distilled Water as
Market Challenger
Market Challenger

Market Leader

TO
Share of Absolute is not that
far and there are even
months that Absolute’s share
is larger than the leader


Concept 6 Example:
Pacific Sun Ice Tea as Market
Follower
Market Follower

Market Leader

TO


Concept 6 Example:
Pacific Sun Ice Tea as Market
Follower
Market Follower

Market Leader

TO
Pacific Sun is pattern to C2,
its flavors are the leading
flavors of C2 and it follows C2
in promoting Healthy Drinks
to people

Concept 6 Example:
Nature’s Spring as Market
Niche
Market Niche

Nature Spring is the
Preferred brand of
water in Visayas
Region


Competition



Concept 7:
General Attack Strategies

Frontal Attack Flank Attack

Encirclement Attack Bypass Attack

Guerrilla Warfare


Concept 7:

• Matches the opponent’s
Frontal Attack
product, advertising, price,
distribution
distribution
Advertisement

Product Price


Concept 7:

• An Enemy’s weak spots are
Flank Attack natural targets

Weak Spot


Concept 7:

• An attempt to capture a
Encirclement Attack wide slice of enemy’s
territory through a blitz.

To capture a slice


Concept 7:

• Bypassing the enemy
Bypass Attack
altogether and attacking
easier markets to broaden
the firm’s resource base.


Concept 7:
• Consists of waging small,
Guerilla Warfare intermittent, attacks to harass
and demoralize the opponent
& eventually secure permanent
footholds.


Concept 7 Example:
Frontal Attack of Manila Beer
to San Miguel
Concerts

Bundlings

Billboards

Walking Advertisements


Competition



Concept 8 :
Specific Attack Strategies

Price Discounts
Product Proliferation

Lower- Priced Goods

Value- Priced Goods Prestige Goods


Concept 8 :
Specific Attack Strategies
Distribution Innovation
Product Innovation

Improved Services
Manufacturing Cost
Intensive advertising
Reduction
promotion


Concept 8 Example:
Specific Attack Strategies of Absolute
Distilled Water
Price Discounts
Value- Priced Goods

Intensive
advertising
promotion


Competition



Concept 9:
Market Follower Strategies

Counterfeiter Imitator

Adapter

Cloner

Concept 9:

• Duplicates the leader’s product
and packages and sells it on
the black market or through
disreputable dealers

Counterfeiter


Concept 9:

• Emulates the leader’s
products, name, and
packaging with slight variation

Cloner


Concept 9:

• Copies some things from the
leader but maintains
differentiation in terms of
packaging, advertising, pricing,
or location.

Imitator


Concept 9:

• Takes the leader’s products
and adapts or improves them

Adapter


Concept 9 Example:
Samurai Energy Drink as an
Imitator to Cobra Energy Drink

• Copied the packaging,
color, and size but is
price a little lower than
Cobra

Samurai Energy Cobra Energy
Drink Drink


Competition



Concept 10:
Market Nicher Strategies

End- User
Specialist Specific Customer
Specialist

Customer Size
Specialist

Vertical Level
Specialist Geographic
Specialist


Concept 10:
Market Nicher Strategies
Quality Price
Product Line Specialist
Specialist

Service Specialist

Job Shop
Specialist

Channel Specialist


Concept 10 Example:
Virgin Cola as Geographic
Specialist

• Asia Brewery Decided to
Pull Out Virgin Cola in
Luzon and Visayas and
concentrate its
distribution in Mindanao
Area particularly in CDO.

Virgin Cola


SUMMARY
1. Forces that Determine Market Structure
- Michael Porter’s 5 Forces
2. Identifying Competitors
- Competitors in Industry & Market Point of View
3. Three Variables in Analyzing Competitors
- Share of Market, Share of Mind, Share of Heart
4. Selecting Competitors
- Strong vs. Weak, Close vs. Distant, Good vs. Bad
5. Competitive Strategies for Market Leaders
- Expand Total Demand, Defend Market Share, Expand Market Share
6. Other Competitive Strategies
- Market Challenger, Market Follower, Market Nitcher

SUMMARY

7. General Attack Strategies
- Frontal, Flank, Encirclement, By Pass, & Guerrilla Attack
8. Specific Attack Strategies
- 10 strategies for Attacking specifically
9. Market Follower Strategies
- Counterfeiter, Cloner, Imitator, Adapter
10. Market- Nicher Strategies
- 10 Strategies for Market Nitchers


Ch11 dealing with competition marzo

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