Dealing with Competition

Marketing Management, 13th ed- A South Asian Perspective

9

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?

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

Low, stablereturnsLowLow

High, stablereturnsHighHigh

LowLow

Low, riskyreturns

High, riskyreturns

HighHigh

En

try

Bar

rier

sE

ntr

y B

arri

ers

Exit barriersExit barriers

Competitive Strategy

IndustryForce

Generic Strategies

Cost Leadership

Differentiation Focus

EntryBarriers

Ability to cut price in retaliation deters potential entrants.

Customer loyalty can discourage potential entrants.

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

BuyerPower

Ability to offer lower price to powerful buyers.

Large buyers have less power to negotiate because of few close alternatives.

Large buyers have less power to negotiate because of few alternatives.

SupplierPower

Better insulated from powerful suppliers.

Better able to pass on supplier price increases to customers.

Suppliers have power because of low volumes, but a differentiation-focused firm is better able to pass on supplier price increases.

Threat ofSubstitutes

Can use low price to defend against substitutes.

Customer's become attached to differentiating attributes, reducing threat of substitutes.

Specialized products & core competency protect against substitutes.

Rivalry Better able to compete on price.

Brand loyalty to keep customers from rivals.

Rivals cannot meet differentiation-focused customer needs.

Analyzing Competitors

CompetitorCompetitorActionsActions

ObjectivesObjectives

Strengths &Strengths &WeaknessesWeaknesses

ReactionReactionPatternsPatterns

StrategiesStrategies

A Competitor’s Expansion Plans

Customer Awareness

Product QualityProduct

AvailabilityTechnical Assistance

Selling Staff

J unaid J amshed E E P E ER-Sheen G G G G GShahid Afridi F P E F PNote: E= Excellent, G= good, F = Fair, P= poor

Customers’ ratings of competition on Key Success Factors: An example

Strengths and Weaknesses

Share of market(The competitor’s share of the target market)

Share of market(The competitor’s share of the target market)

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

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

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

buy)

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

buy)

Selecting Competitor

Strong Vs Weak (Fewer Resources required)

Close Vs Distant (Resemblance)

Good Vs Bad

2006 2007 2008 2006 2007 2008 2006 2007 2008J unaid J amshed 50% 47% 44% 60% 58% 54% 45% 42% 39%R-Sheen 30 34 37 30 31 35 44 47 53Shahid Afridi 20 19 19 10 11 11 11 11 8

Market Share Mind Share Heart Share

Competitive Strategies for Market Leaders

40%

Marketleader

30%

Marketchallenger

20%

Marketfollower

Expand MarketDefend Market Share

Expand Market Share

Attack leaderStatus quo

Imitate

10%

Marketnicher

Special-ize

Expanding the Total Market

New customers(Penetration/new market

segmentation/geographical-expansion)

New customers(Penetration/new market

segmentation/geographical-expansion)

More usage(Consumption Amount/Frequency)

More usage(Consumption Amount/Frequency)

Defense Strategy- Creative/Anticipative/Responsive A market leader should generally adopt a defense strategy

Six commonly used defense strategies Position Defense

e.g. Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus.

Mobile Defense By market broadening and diversification (Dialog Telekom Srilanka)

Flanking Defense Secondary markets (flanks) are the weaker areas and prone to

being attacked Contraction Defense

Withdraw from the most vulnerable segments and redirect resources to those that are more defendable

Pre-emptive Defense Detect potential attacks and attack the enemies first

Counter-Offensive Defense Responding to competitors’ head-on attack by identifying the

attacker’s weakness and then launch a counter attack e.g. Toyota launched the Lexus to respond to Mercedes attack

Market Challenger StrategiesThe market challengers’ strategic objective is to

gain market share and to become the leader eventually

How? By attacking the market leader By attacking other firms of the same size By attacking smaller firms

Market Challenger Strategies (cont’d)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-and-

run 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?

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 (cont’d) 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 leader’s 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 (cont’d) Nichers must create niches, expand the

niches and protect them e.g. Nike constantly creates new niches--

cycling, walking, hiking, cheerleading, etc What is the major risk faced by nichers?

Market niche may be attacked by larger firms once they notice the niches are successful

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

Competitor-

Centered

Customer-

Centered