Dealing with Competition

Marketing Management, 13th edA South Asian Perspective

Chapter Questions

How do marketers identify primary competitors? How should we analyze competitors strategies, objectives, strengths, and weaknesses? How can market leaders expand the total market and defend market share? How should market challengers attack market leaders? How can market followers or nichers compete effectively?

Competitive forces-Five Forces Determining Segment Structural Attractiveness

Number of sellers and degree of differentiation Entry, mobility, and exit barriers Cost structure Degree of vertical integration Degree of globalization

Barriers and Profitability

Exit barriers
Low High

Entry Barriers

Low

Low, stable returns

Low, risky returns

High

High, stable returns

High, risky returns

The purpose of Five-Forces Analysis

The five forces are environmental forces that impact on a companys ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Threat of New Entrants

Economies of Scale

Barriers to Entry

Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Expected Retaliation

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Suppliers are likely to be powerful if: Supplier industry is dominated by a few firms

Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases

Suppliers products have few substitutes Buyer is not an important customer to supplier Suppliers product is an important input to buyers product

Suppliers products are differentiated

Suppliers products have high switching costs Supplier poses credible threat of forward integration

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Bargaining Power of Buyers

Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to sellers sales Purchase accounts for a significant fraction of suppliers sales Products are undifferentiated Buyers face few switching costs Buyers industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality

Buyers compete with the supplying industry by:

* Bargaining down prices * Forcing higher quality * Playing firms off each of other

Buyer has full information

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

Threat of Substitute Products

Keys to evaluate substitute products: Products with similar function limit the prices firms can charge

Products with improving price/performance tradeoffs relative to present industry products

Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways: Jockeying for strategic position
Using price competition

Staging advertising battles

Increasing consumer warranties or service Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors

Rivalry Among Existing Competitors

Cutthroat competition is more likely to occur when: Numerous or equally balanced competitors Slow growth industry

High fixed costs High storage costs

Lack of differentiation or switching costs Capacity added in large increments Diverse competitors High strategic stakes

High exit barriers

The Five Forces are Unique to Your Industry

Five-Forces Analysis is a framework for analyzing a particular industry.

Yet, the five forces affect all the other businesses in that industry.

Competitive Strategy
Industry Force
Entry Barriers Buyer Power Supplier Power Threat of Substitutes

Generic Strategies
Cost Leadership
Ability to cut price in retaliation deters potential entrants. Ability to offer lower price to powerful buyers.

Differentiation
Customer loyalty can discourage potential entrants. Large buyers have less power to negotiate because of few close alternatives.

Focus
Focusing develops core competencies that can act as an entry barrier.

Large buyers have less power to negotiate because of few alternatives. Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases. Specialized products & core competency protect against substitutes. Rivals cannot meet differentiationfocused customer needs.

Better able to pass on Better insulated from supplier price increases to powerful suppliers. customers. Can use low price to defend against substitutes. Better able to compete on price. Customer's become attached to differentiating attributes, reducing threat of substitutes. Brand loyalty to keep customers from rivals.

Rivalry

Identifying competitors
Pepsico vs coca cola Citigroup vs bank of america Competitive advantage-Discuss about Infosys and TCS. Competition from industry and a Market point of View. Market Approach-Competitors-Same customer needs Marketing Myopia Customer Buying Mapping

Analyzing Competitors
Objectives
Strategies

Competitor Actions

Reaction Patterns

Strengths & Weaknesses

A Competitors Expansion Plans

Customers ratings of competition on Key Success Factors: An example

Customer Awareness Product Quality Product Availability P G E Technical Assistance E G F Selling Staff E G P Junaid Jamshed E E R-Sheen G G Shahid Afridi F P Note: E= Excellent, G= good, F = Fair, P= poor

Strengths and Weaknesses

A company should monitor three variables when analyzing competitors

Share of market
(The competitors share of the target market)

Share of mind
(The first company that comes to mind)

Share of heart
(The company from which you would prefer to buy)

Selecting Competitor
Market Share Junaid Jamshed R-Sheen Shahid Afridi 2006 50% 30 20 2007 47% 34 19 2008 44% 37 19 2006 60% 30 10 Mind Share 2007 58% 31 11 2008 54% 35 11 2006 45% 44 11 Heart Share 2007 42% 47 11 2008 39% 53 8

Strong Vs Weak (Fewer Resources required) Close Vs Distant (Resemblance)-Chevrolet vs Ford,Cocacola vs Tap Water not pepsi.

Good Vs Bad /Industry rules. Share rather than earn it, invest in overcapacity/they upset industrial equilbrium.

Selecting Customers

Which customers its willing to lose and which its wants to retain. Valuable vs Vulnerable Explain segment analysis.

Competitive Strategies for Market Leaders

Market leader Market challenger Market nicher Market follower

40%
Expand Market Defend Market Share Expand Market Share

30%
Attack leader Status quo

20%
Imitate

10%
Specialize

Expanding the Total Market

New customers
(Penetration/new market segmentation/geographical-expansion)

More usage
(Consumption Amount/Frequency)

Defending Market Share/Defense Strategy- Creative/Anticipative/Responsive

A market leader should generally adopt a defense strategy Six commonly used defense strategies Position Defense-Building Superior Brand Power

e.g. Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus. By market broadening and diversification (Dialog Telekom Srilanka) Secondary markets (flanks) are the weaker areas and prone to being attacked Withdraw from the most vulnerable segments and redirect resources to those that are more defendable Detect potential attacks and attack the enemies first Responding to competitors head-on attack by identifying the attackers weakness and then launch a counter attack e.g. Toyota launched the Lexus to respond to Mercedes attack

Mobile Defense

Flanking Defense-Haeubleins brand smirnoff vs wolfschmidt

Contraction Defense

Pre-emptive Defense-SBI

Counter-Offensive Defense

0ther Competitive Strategies/Market Challenger Strategies

The market challengers strategic objective is to gain market share and to become the leader eventually Defining the strategic objective and opponents How? By attacking the market leader By attacking other firms of the same size By attacking smaller firms

Choosing a general Attack Strategy

Types of Attack Strategies

Frontal attack Flank attack Encirclement attack Bypass attack Guerrilla attack

Frontal Attack

Seldom work unless

The challenger has sufficient fire-power (a 3:1 advantage) and staying power, and The challenger has clear distinctive advantage(s)

e.g. Japanese and Korean firms launched frontal attacks in various ASPAC countries through quality, price and low cost Surf Vs Ariel

Flank attack

Attack the enemy at its weak points or blind spots i.e. its flanks Ideal for challenger who does not have sufficient resources e.g. Google Vs ChaCha and or Wikipedia

Encirclement attack

Attack the enemy at many fronts at the same time Ideal for challenger having superior resources e.g. Seiko attacked on fashion, features, user preferences and anything that might interest the consumer Zong???

Bypass attack

By diversifying into unrelated products or markets neglected by the leader Could overtake the leader by using new technologies

e.g. Pepsi used a bypass attack strategy against Coke by acquiring Tropicana Vs. Minute Maid Telenor in Pakistan Instead of launching carbonated drinks Nestle brought pure jiuces vs. the carbonated drinks

Guerrilla attack

By launching small, intermittent hit-andrun attacks to harass and destabilize the leader Usually use to precede a stronger attack

e.g. airlines use short promotions to attack the national carriers especially when passenger loads in certain routes are low local water brands vs. multinational water brands

Which Attack Strategy should a Challenger Choose?Choosing a specific attack strategy.

Use a combination of several strategies to improve market share over time

Market-Follower Strategies

Theodore Levitt in his article, Innovative Imitation argued that a product imitation strategy might be just as profitable as a product innovation strategy e.g. Product innovation--Sony Product-imitation--Panasonic

Market-Follower Strategies (contd)

Each follower tries to bring distinctive advantages to its target market--location, services, financing Four broad follower strategies:

Counterfeiter (which is illegal) Cloner (emulation of leaders product, name & package) e.g. New Joshanda Brand Vs Qarshi S&S Cycle Vs. Harley Imitator e.g. car manufacturers imitate the style of one another Adapter e.g. many Japanese firms are excellent adapters initially before developing into challengers and eventually leaders

Market-Nicher Strategies

Smaller firms can avoid larger firms by targeting smaller markets or niches that are of little or no interest to the larger firms e.g. Zippo Digicel Bullet-Proof Cars

Market-Nicher Strategies (contd)

Nichers must create niches, expand the niches and protect them

e.g. Nike constantly creates new niches-cycling, walking, hiking, cheerleading, etc Market niche may be attacked by larger firms once they notice the niches are successful

What is the major risk faced by nichers?

Multiple Niching
[A] firm should `stick to its niching but not necessarily to its niche. That is why multiple niching is preferable to single niching. By developing strength in two or more niches the company increases its chances for survival. Philip Kotler

Balancing Orientations

CompetitorCentered

CustomerCentered