2. DEALING WITH THE
COMPETITION
Competitive forces
Identifying competitors
Analyzing competitors
Designing the competitive intelligence
system
Designing competitive strategies
Balancing customer and competitor
orientation
4. Five Forces Determining Segment
Structural Attractiveness
1. Threat of intense segment rivalry – A segment is
unattractive if it already contains numerous, strong,
or aggressive competitors.
2. Threat of new entrants – A segment’s attractiveness
varies with the height of its entry and exit barriers.
3. Threat of substitute products – A segment is
unattractive when there are actual or potential
substitutes for the product.
4. Threat of buyer’s growing bargaining power – A
segment is unattractive if the buyers possess strong
or growing bargaining powers.
5. Threat of supplier’s growing bargaining power – A
segment is unattractive if the company’s suppliers
are able to raise prices or reduced quantity
supplied.
6. Industry Concept of
Competition
Number of sellers and degree of
differentiation
1.Pure monopoly : Only one firm provides a certain product
or service in a certain country or area.
2.Oligopoly : A small number of large firms produce products
that range from highly differentiated to standardized.
3.Monopolistic competition: Competitors focus on market
segments where they can meet customer needs in a superior
way and command a price premium.
4.Pure competition : Many competitors offer the same
product and service. Because there is no basis for
differentiation, competitors’ prices will be the same.
7. Entry, Mobility and Exit Barriers
1. Entry Barriers : Include high capital
requirements, economies of scale, patents and
licensing requirements; scare locations, raw
materials, or distributors; and reputation
requirements.
2.Mobility Barriers : when it tries to enter more
attractive market segments.
3.Exit Barriers : such as legal or moral obligations
to customers, creditors, and employees;
government restrictions; low asset salvage
value due to overspecialization or obsolescence;
lack of alternative opportunities; high vertical
integration; and emotional barriers.
8. Cost Structure – Each industry has a certain
cost burden that shapes much of each
strategic conduct.
Degree of vertical integration – Vertical
integration often lowers costs, and the
company gains a larger share of the value-
added stream
Degree of globalization – Companies in
global industries need to compete on a
global basis if they are to achieve economies
of scale and keep up with the latest
advances in technology.
9. Market Concept of competition
Competitors – are companies that satisfy
the same customer need.
The market concept of competition
reveals a broader set of actual and
potential competitors
11. Analyzing Competitors
Share of market—target marketShare of market—target market
Share of mind--% of customers
who names companies
Share of mind--% of customers
who names companies
Share of heart--% of customers
who prefer a company
Share of heart--% of customers
who prefer a company
12. Strategies : A company must
continuously monitor competitors
strategies.
Objectives
Strengths and weaknesses
Dominant
Strong
Favorable
Tenable
Weak
Nonviable
13. Reaction patterns
Companies react differently to
competitive assaults. Some are slow to
respond. Others respond only to certain
types of attacks, such as price cuts. Still
others strike back swiftly and strongly to
any assault. Some industries are marked
by relative accord among the
competitors, and others by constant
fighting.
15. Four Main Steps
Setting up the system : The first step calls for identifying
vital types of competitive information, identifying the best
sources of this information, and assigning a person who will
manage the system and its services.
Collecting the data : The data are collected on a continuous
basis from the field, from people who do business with
competitors, from observing competitors, and from
published data.
Evaluating and Analyzing the data : The data are checked for
validity and reliability, interpreted and organized.
Disseminating Information and responding : Key information
is sent to relevant decision makers, and managers inquiries
are answered. With a well designed system, company
managers receive timely information about competitors via
email, phone calls, bulletins, newsletters and reports.
16. Selecting Competitors
With good competitive intelligence,
managers will find it easier to formulate
competitive strategies.
Customer Value Analysis – Managers
conduct CVA to reveal the company’s
strengths and weaknesses relative to various
competitors.
17. Classes of Competitors
Strong versus weak – Most companies aim
their shots at weak competitors, because this
requires fewer resources per share point
gained. The firm should also compete with
strong competitors to keep up with the best.
Close versus Distant – Most companies
compete with the competitors who resemble
them the most. Yet companies should also
recognize distant competitors. At the same
time, the company should avoid trying to
destroy the closest competitor.
“Good” versus “Bad”
19. Market-Leader
ois the firm with the largest market
share and leads the market price
changes, product innovations,
distribution coverage, and promotion
spending
STRATEGIC OBJECTIVES
Expanding the total market
Defending Market Share
20. oExpanding the total market
New Customers
More usage
oDefending Market Share
oExpanding Market Share
Six Types of Defense Strategies
1) Position Defense
fortify firm’s existing position
2) Flank-positioning
extend firm’s offerings into new segments to protect existing
3) Preemptive Defense
Attacking first (first strike)
4) Counter-offensive Defense
gathering resources and counter-attacking when threatened
5) Mobile Defense
Market broadening
6) Strategic Withdrawal
Six Types of Defense Strategies
1) Position Defense
fortify firm’s existing position
2) Flank-positioning
extend firm’s offerings into new segments to protect existing
3) Preemptive Defense
Attacking first (first strike)
4) Counter-offensive Defense
gathering resources and counter-attacking when threatened
5) Mobile Defense
Market broadening
6) Strategic Withdrawal
21. Other Competitive Strategies
• Market challengers
oare firms fighting to increase
market share
– Attack the market leader
– Attack firms of its own size
that are not doing the job and
are underfinanced
– Attack small local and regional firms
MARKET LEADER
Market leader is the firm with the largest market share and leads the market price changes, product innovations, distribution coverage, and promotion spending
To stay number one, the firm must first find ways to expand total market demand. Second, it must protect its current share through good defensive and offensive actions. Third, it should increase market share, even if market size remains constant. Let’s look at each strategy
Expanding the total market-When the total market expands, the dominant firm usually gains the most.
In general the market leader should look for new customer and more usage of its products.
New Customer– Every product class has the potential to attract buyers who are unaware ofthe product or are resisting it because of price or lack of certain features.
Three groups can be search by company: those who might use it but do not (market penetration strategy), those who have never used it (new-market segment strategy), or those who liveelsewhere (geographical-expansion strategy).
More usage – A third market-expansion strategy is to convince people to use more products per use occasion.
Defending Market Share – While trying to expand total market size, the dominant firm must continuously defend its current business.
Protect current market by:
Fixing or preventing weaknesses that provide opportunities to competitors
Maintaining consistent prices that provide value
Keeping strong customer relationships
Continuous innovation
Defense Strategies – The aim is to reduce the probability of attack, divert attack to less threatening areas, and lessen their intensity.
Position Defense —most desirable market space in the minds of the consumers, making the brand almost impregnable. Tide laundry detergent with cleaning; crest toothpaste with cavity prevention; and Pampers diapers with dryness.
Flank Defense —must protect against weak front or possibly serve as a weak invasion base for counterattacked.
Preemptive Defense —attack before the enemy starts its offense
Counteroffensive Defense —meet the attacker frontally or hit its flank (i.e., invade the attacker’s main territory so that it will pull back to defend it) (e.g., FedEx watched UPS successfully invade its airborne delivery system, FedEx invested heavily in ground delivery service to challenge UPS on its home turf)
Mobile Defense -stretches its domain over new territories that can serve future centers for defense and offense; Market broadening (e.g., BP recast itself from oil to energy); Diversification (e.g., Reynolds and Philip Morris moved into new industries—beer, liquor, soft drinks and frozen foods).
Contraction Defense —giving up weaker territories and reassigning resources to stronger territories (e.g., Sara Lee spun off products that accounted for 40% of its profits, such as Hanes hosiery brand, to concentrate on food brand)
Expand market share by:
Increasing market share in served markets, thus increasing profitability
Producing high-quality products
Creating good service experiences
Building close customer relationships
So what is Market Challenger?
Market Challenger- strategic objective is to gain market share and to become the leader eventually
How? The market challenger has three options whom to attack:
Attack the market leader. Challenge the leader with an aggressive bid for more market share. This is a high risk but potentially high-payoff strategy and makes good sense if the leader is not serving the market well. And a sustainable competitive advantage over the leader is key to success.
Attack firms of its own size that are not doing the job and are underfinanced. These firms have aging products, that are charging excessive prices, or are not satisfying customers in other ways.
Attack small local and regional firms. If the attacking company goes after a small local company, its objective might be to drive that company out of existence.
Market Challenger Strategy
Given clear opponents and objectives we need to know to what kind of strategies the competitive positions are using.
Let’s start with Market Challenger Strategy:
These can either:
Choose a general attack strategy
Choose a specific attack strategy
There are 5 types of Attack Strategies for Market Challenger.
Frontal attack
Flank attack
Encirclement attack
Bypass attack
Guerrilla attack
For Frontal Attack – a Pure frontal attack involves a head on attack on the competitor which the attacker matches its opponent’s product, advertising, price and distribution. The one which has better and more resources wins the market.
Frontal attack is a highly risky marketing strategy, it has only a better chances of success if the player attacks the weakest element of the opponent, and also if the opponent is constrained in its ability to react.
Seldom work unless
-The challenger has have more than three times the fire power of the opponent.
A good example of this is the wars between Pepsi and Coke starting from the early 1900s.
For Flank Attack –here the enemy’s weak spots are natural targets. It is also ideal for challenger who does not have sufficient resources.
A flank attack can be directed along two strategic dimensions – geographic and segmental.
For geographic attack, the challenger spots areas where the opponents areunderperforming. For example some of the former mainframe rivals, such as Honeywell, chose to set up strong sales branches in medium and smaller sized cities that were relatively neglected by IBM.
For segmental attack strategy its purpose to serve uncovered market needs as Japanese automakers did when they developed more fuel-efficient cars.
The purpose of marketing here is to discover needs and satisfy them.
Encirclement attack here it attempts to capture a wide slice of enemy’s territory through blitz.
Here Challenger attacks the big company by offensive attack in all fronts, by superior product & high quality service. Challenger almost attacks in offensive way to the established company. And it is ideally for challenger having superior resources
(e.g., Google attacked on Yahoo in all front like search Engine, mail, News, Chat etc.)
Bypass attack the most indirect assault strategy is the bypass. It means bypassing the enemy and attacking easier markets to broaden ones resource base. Attackers attack where opponents are not looking and by finding a new market segment.
These strategies offer three lines of approach
-by diversifying into unrelated products,
-diversifying into new geographical markets(markets neglected by the leader)
-and technological leapfrogging is the strategy practiced in high tech industries. ( Could overtake the leader by using new technologies)
An example of bypass strategy is when Pepsi bough the quaker Oats Company, owner of Gatarade Thirst Quaenchers, which has a much larger share of sports drink market than Coca-Cola’s Powerade.
5. Guerilla warfare-consists of launching small, intermittent hit-and-run attacks to harass and demoralize the opponent (usually the leader) and eventually secure permanent footholds. A guerrilla campaign can be expensive, although admittedly less expensive than a frontal, encirclement, or flank attack, but it typically must be backed by a stronger attack to beat the opponent
(e.g., Princeton Review successfully challenged Kaplan Educational Centers for test preparation)
So let’s move on to another market challenger strategy which is the specific attack strategy.
Price discounts
-The challenger can offer a comparable product at a lower price. This is usually the strategy of discounts retailers. Three conditions must be fulfilled. First, the challenger must convince the buyers that its product and service are comparable to the leaders. Second, buyers must be price sensitive. Third, the market leader must refuse to cut its price in spite of the competitors attack.
Lower-priced goods
-The challenger can offer an average or lower quality product at a market lower price.
Value-priced goods and services
-Combining lower prices and high quality to snag market share from leader.
Example of this is the Cebu Pac & Tiger airlines
Prestige goods
-A market challenger can launch a higher quality product and change higher price than the leader. Example Mercedes
Product proliferation
-The challenger can attack the leader by launching a larger product variety thus giving buyers more choice.
Product innovation
-The challenger can pursue product innovation by introducing product improvement and breakthrough
Improved services
-The challenger can offer new or better services to customers
Distribution innovation
-A challenger might develop a new channel of distribution
Example- Avon
Manufacturing cost reduction
-The challenger might achieve lower manufacturing costs than its competitor through more efficient purchasing, lower labor costs and more modern production equipment.
Intensive advertising promotion
-Some challenger attacks the leader by increasing expenditures on advertising and promotion. Substantial promotional spending however is usually not a sensible strategy unless the challenger’s product or advertising message is superior
Market Follower- these are firms that want to hold onto their market share. They follow the market leader which focusing on improving profit instead of market share.
Each follower tries to bring distinctive advantages by:
Learning from the market leader’s experience
Copy or improve on the leader’s offerings
Strong profitability
Market Follower Strategy
Now let’s move on to 3rd competitive strategy which is the Market Follower Strategy.
Each follower tries to bring distinctive advantages to its target market by its location, services, financing–while defensively keeping its manufacturing costs low and its product quality and services high.
So there are four broad follower strategies, we can distinguish it
Counterfeiter it duplicates the leader’s product and packages and sells it on the black market or through disreputable dealers (which is illegal). The best example of counterfeiting is selling the originals via piracy. Example of this is the pirated DVDs and CDs of movies and music that have been plagued by the counterfeiter problem, especially in Asia.
Cloner- The cloner emulates the leader’s products, name, and packaging, with slight variations. Cloning means making the same product as yours, but with very subtle difference. For example, if you get watches made from Rado, or bags of Gucci, with Rado spelled as RADA and Gucci spelled as GUCCA, so that’s cloning.
Imitator The imitator copies some things from the leader but differentiates on packaging, advertising, pricing, or location. Imitators make use of your hard earned brand equity and give a product which has the same characteristics as yours, albeit at a lower price. The difference might be that the new product is made from poor material or that it does not have the service or promise that your brand can offer. The leader doesn’t mind as long as the imitator doesn’t attack aggressively . Example: many car companies are now imitating the hatchback car models of one another as it is the most successful in Indian market.
Adapter- The adapter takes the leader’s products and adapts or improves them. The adapter may choose to sell to different markets, but often it grows into a future challenger,
Example of this is that many Japanese firms are excellent adapters initially before developing into challengers and eventually leaders
These are the four main market follower strategies existing in the market. In these four categories, it is the adapter and possibly the imitator who has a chance to take over the market leader. However, the cloner and counterfeiter can never overtake the market leader because they are not present in the market with their own manufactured products or with their own brand equity.
Market Nicher- these are firms that serve small market segments not being pursued by other firms. Serving market niches means targeting subsegments. It is a good strategy for small firms with limited resources and offers high margins.
The Key to market niching is specialization:
By market, customer, product, or marketing mix lines
Market Nicher Strategy
An alternative to being a follower in a large market is to be a leader in a small market, or niche, which is our last competitive strategy. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms. But even large, profitable firms may choose to use niching strategies for some of their business units or companies.
Nichers have three tasks create niches, expand the niches and protect them.
What is the major risk faced by nichers?
This is when Market niche may be attacked by larger firms once they notice the niches are successful