LEARNING OBJECTIVESAfter reading this chapter, students should:

Know how marketers identify primary competitors

Know how we should analyze competitors’ strategies, objectives, strengths, and weaknesses

Know how market leaders can expand the total market and defend market share

Know how market challengers should attack market leaders

Know how market followers or nichers can compete effectively

CHAPTER SUMMARY To prepare an effective marketing strategy, a company must study competitors as well as actual and potential customers. Companies need to identify competitors’ strategies, objectives, strengths, and weaknesses.

A company’s closest competitors are those seeking to satisfy customers and needs and making similar offers. A company should also pay attention to latent competitors, who may offer new or other ways to satisfy the same needs. A company should identify competitors by using both industry and market-based analyses.

A market leader has the largest market share in the relevant product market. To remain dominant, the leader looks for ways to expand total market demand, attempts to protect its current market share, and perhaps tries to increase its market share.

A market challenger attacks the market leader and other competitors in an aggressive bid for more market share. Challengers can choose from five types of general attack; challengers must also choose specific attack strategies.

A market follower is a runner-up firm that is willing to maintain its market share and not rock the boat. A follower can play the role of counterfeiter, cloner, imitator, or adapter.

A market nicher serves small market segments not being served by larger firms. The key to nichemanship is specialization. Nichers develop offerings to fully meet a certain groups of customers’ needs, commanding a premium price in the process.

As important as a competitive orientation is in today’s global markets, companies should not overdo the emphasis on competitors. They should maintain a good balance of consumer and competitor monitoring.

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OPENING THOUGHT This chapter adds an additional element to the complexity of marketing—competitive analysis. Students who are having difficulty just understanding consumers and potential markets might begin to be overwhelmed when you add to their load the concept of understanding and predicting competitive responses to marketing’s responsibility! Care should be taken not to over dramatize the importance of monitoring competition, however, many firms do not give competitor reactions the attention it merits so some emphasis is needed in teaching marketing to students.

A key concept introduced in this chapter is that of market nicher—a specialist in small markets underserved by larger corporations. Many large firms today started out as “nichers” and many large firms of tomorrow are our “nichers” today. The concept of “nichers” and the potential of growing them into larger firm can be exciting—the reason so many students study marketing!

TEACHING STRATEGY AND CLASS ORGANIZATION PROJECTS1. At this point in the semester-long project, students should be prepared to present their

competitive analysis. Who are the market leaders for their chosen product or service? What niche have they identified for their product/service? Is their product or service going to be a leader, follower, or challenger to well-established products or brands?

2. Michael Porter’s Five Forces model is as applicable today as it was when it was introduced. Have the students select a market or market segment (jeans, cell phones, etc.) and using Michael Porter’s model, completely define these five forces for the market or market segment. Who are the potential entrants, who are the suppliers (and how much power do they have), who are the buyers (and what sort of buying power do they have), what are the substitutes and how is the industry segmented (market share is a good indicator of segmentation for this project)? Student’s analysis and answers should be comprehensive.

3. Sonic PDA Marketing Plan Competitive strategy analysis is an important part of two areas within the marketing plan. First, in assessing the Current Situation, businesses need to identify key competitors and learn about each rival’s strengths and weaknesses. Second, competitive intelligence and analysis shapes the competitive strategy that is supported by the marketing mix.

Sonic is a new entrant in an established industry that has competitors with relatively high brand identity and strong market positions. As you assist Jane Melody in

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development of the Sonic marketing plan, consider the following key issues that will affect Sonic’s ability to introduce a new PDA successfully:

What is the strategic group for Sonic? Which firm is the market leader, and what are its objectives, strengths, and

weaknesses? What additional competitive intelligence is needed to answer the question about

the market leader more completely, and how should Sonic go about getting the information?

Which competitive strategy should be most effective for Sonic?

Enter your answers in a written marketing plan or enter them into the Competition, SWOT Analysis, and Critical Issues sections of Marketing Plan Pro.

ASSIGNMENTSSmall Group Assignments1. Identify the major competitors in the blue jeans market. Who has the leading market

share, whose shares have declined? What segmentation is(has) occurring/occurred in the blue jeans market and why? Did demographic changes affect the market (from baby boomers to Gen X or Gen Y)? What competitive signs, symbols, events, or occurrences did Levi-Strauss miss? What current shifts in competition and channel power is occurring and what can Levi-Strauss do to minimize the impact from these changes?

2. The competitor map (Figure 11.2) shows a mapping of competitors for Eastman Kodak’s film business. Choosing an industry of their choice, ask the students to complete a competitor map for that industry. For instance, what would a competitor map look like for cell phones, blue jeans, colleges, and universities?

Individual Assignments1. For a market leader, increased sales must come from expanding the total market

through adding new customers or increasing the usage of the product. Picking a market leader in an industry (Dell computers for example) explain how your market leader can expand the total market by adding new customers or increasing the usage of the product. Be as specific as possible.

2. In the Marketing Memo entitled, Strategies for Entering Markets Held by Incumbent Firms, the authors’ outline four strategies for launching a new brand into a market dominated by one brand. Students are to present examples of brands/firms competing in each of these strategies. Students should include their rationale for placing the firm/brand in each of the positions.

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Think-Pair-Share1. In challenging a market leader, the challenger has a number of differing strategies to

employ. Choosing the right one (or wrong one) could result in a larger market share and increased profits (or disaster) for the challenger. In choosing a specific attack strategy, the challenger must go beyond and develop specific strategies of price, lower price goods, value priced goods and services, and so on. Students should explore these strategies and come prepared to identify one company (or brand) that has chosen each of these strategies to implement and to defend their selection(s).

2. Market-nichers avoid large markets and try to be the leader in a small market or niche. Nichers have three tasks: creating niches, expanding niches, and protecting niches. Multiple niching is preferable to single niching. Students should identify three “nichers” (firms and/or brands) and explain why they have identified these as “nichers” based upon the criteria in the chapter.

MARKETING TODAY—CLASS DISCUSSION TOPICSToys “R” Us and KB Toys are facing price pressures from other retailers. In fact, at one time Toys “R” Us flirted with selling its Toys “R” Us stores and concentrating on its more profitable Babies “R” Us niche. In light of the information presented in this chapter, should Toys “R” Us concentrate on niche marketing to babies? In preparing your answers, you first should do a complete financial profile on the company, and then do a demographic profile on the future demand for baby products. Is this market going to increase or decrease in the future? If the company decides on this strategy, what must Toys R Us do to prevent firms like Wal-Mart and Target from taking share away from them as they did in the toy business?

END-OF-CHAPTER SUPPORT MARKETING DEBATE—How Do You Attack a Category Leader?

Attacking a leader is always difficult. Some strategists recommend attacking a leader “head-on” by targeting its strengths. Other strategists disagree and recommend flanking and attempting to avoid the leader’s strengths.

Take a position: The best way to challenge a leader is to attack its strengths versus the best way to attack a leader is to avoid a head-on assault and to adopt a flanking strategy.

Pro: What are some of the strengths of a market leader? A market leader as defined here, generally, has the largest market share in the relevant product, market, usually leads the other firms in price changes, new-product introductions, distribution coverage, and promotional intensity. Market leaders may also have products that generally hold a distinctive position in consumers’ minds. These strengths and competitive advantages can be formable when used by a savvy and seasoned firm. Trying to attack the leader on its strengths requires point-of-differences in brands, sophisticated marketing positioning, and “deep pockets” for the challenger.

The underling strategy for performing a head on attack to a market leader is: If the attacking firm sees that the market leader is not serving the market well; that the attacker has out-

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innovated the market leader through product innovations or other differentials; or if the market leader is conservatively spending or is “milking” the market.

Con: A flanker attack can be directed along two strategic directions—geographic and segmental. In a geographic attack, the challenger spots areas where the opponent is underperforming. In segmental, the challenger uncovers underserved market needs and attempts to penetrate these markets with its products. Flanking is in the best tradition of modern marketing that holds that the purpose of marketing is to discover needs and satisfy them. Flanking is particularly attractive to challengers with fewer resources.

MARKETING DISCUSSION

Pick an industry. Classify firms according to the four different roles they might play: leader, challenger, follower, or nicher. How would you characterize the nature of competition? Do the firms follow the principles described in the chapter?

Suggested Response:

Student answers will differ according to the industries picked and the role the firms play in that industry. All answers should contain some of the following:

Leaders: largest market share, leads on price changes, new-product introductions, distribution coverage, and promotional intensity. Have products that generally hold a distinctive position in the minds of the consumers.

Can use strategies that expand the total market demand: (new customers—market-penetration strategies, new-market segment strategies, geographic-expansion strategies).

More usage (level of quantity or frequency of consumption).

Protect its current market share through good defensive (position defenses, flank defense, preemptive defense, counteroffensive defense, mobile defense, contraction defense).

Challengers, followers: can attack the leader for increased market share, (challengers), or followers (“not rock the boat”), through:

Frontal attack.

Encirclement attack.

Flank attack.

Bypass attack.

Guerrilla warfare.

MARKETING SPOTLIGHT—Accenture

Discussion Questions:

1) What have been the key success factors for Accenture?

a. Niche marketing to the professional services area in management and technology consulting.

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2) Where is Accenture?

a. Niche marketer

3) What should it watch out for?

a. Decline or closing of the niche

b. Increased competition in the niche by larger firms.

4) What recommendations would you make to senior marketing executives going forward?

a. Review its niche to see if it is performing services that others cannot or are unwilling to perform.

5) What should the company be sure to do with its marketing?

a. Emphasize the advantages of a niche marketer: Knowing the target customers so well that it meets their needs better than other firms selling to this niche casually.

DETAILED CHAPTER OUTLINE Building strong brands requires a keen understanding of competition, and competition

grows more intense every year. New competition is coming from all directions—from global competitors; from online competitors; from private label and store brands; and from brand extensions from strong mega-brands leveraging their strengths to move into new categories. Too effectively, devise and implement the best possible brand positioning strategies, companies must pay keen attention to their competitors.

COMPETITIVE FORCES Michael Porter has identified five forces that determine the intrinsic long-run

attractiveness of a market or market segment: industry competitors, potential entrants, substitutes, buyers, and suppliers. The threats these forces pose are as follows:

Figure 11.1 shows Michael Porter’s model.A) Threats of intense segment rivalry.

B) Threat of new entrants.

C) Threat of substitute products.

D) Threats of buyers’ growing bargaining power.

E) Threat of suppliers’ growing bargaining power.

Review Key Definition here: Michael Porter’s Model

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IDENTIFYING COMPETITORS It would seem a simple task for a company to identify its competitors. However, the

range of a company’s actual and potential competitors can be very broad.

A) Many businesses failed to look to the Internet for their most formidable competitors.

Industry Concept of Competition What exactly is an industry? An industry is a group of firms that offer a product or

class of products that are close substitutes for one another.

A) Industries are classified according to: 1) Number of sellers

2) Degree of product differentiation

3) Presence or absence of entry

4) Mobility

5) Exit barriers

6) Cost structure

7) Degree of vertical integration

8) Degree of globalization

Number of Sellers and Degree of Differentiation The starting point for describing an industry is to specify the number of sellers and

whether the product is homogeneous or highly differentiated. These characteristics give rise to four industry structure types:

A) Pure monopoly.

B) Oligopoly.

C) Monopolistic competition.

D) Pure competition.

An industry’s competitive structure can change over time.

Entry, Mobility, and Exit Barriers Industries differ greatly in ease of entry.

A) Major entry barriers include:

1) High capital requirements.

2) Economies of scale.

3) Patents and licensing.

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4) Scarce locations.

5) Raw material.

B) Even after a firm enters an industry, it might face mobility barriers when it tries to enter more attractive market segments.

C) Firms often face exit barriers such as:

1) Legal or moral obligations.

2) Government restrictions.

3) Low asset salvage value.

4) Lack of alternative opportunities.

5) High vertical integration.

6) Emotional barriers.

Cost Structure Each industry has a certain cost burden that shapes much of its strategic conduct.

Degree of Vertical IntegrationA) Companies find it advantageous to integrate backward or forward (vertical

integration).

B) Vertical integration often lowers costs, and the company gains a larger share of the value-added stream.

Degree of GlobalizationA) Some companies are highly local; others are global.

B) Companies in global industries need to compete on a global basis if they are to achieve economies of scale.

Market Concept of Competition Using the market approach, competitors are companies that satisfy the same

customer need. Marketers must overcome “marketing myopia” and stop defining competition in traditional category terms.

A) Rayport and Jaworski suggest profiling a company’s direct and indirect competitors by mapping the buyer’s steps in obtaining and using the product.

Figure 11.2 illustrates Eastman Kodak’s competitor map.

ANALYZING COMPETITORS Once a company identifies its primary competitors, it must ascertain their

strategies, objectives, strengths, and weaknesses.

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StrategiesA) A group of firms following the same strategy in a given target market is called a

strategic group. Figure 11.3 shows a chart for the four strategic groups.

Objectives Once a company has identified its main competitors and their strategies, it must ask

what each competitor is seeking in the marketplace. What drives each competitor’s behavior?

A) One useful initial assumption is that competitors strive to maximize profits.

B) A company must monitor competitors’ expansion plans.

Figure 11.4 shows a product-market battlefield map for the personal computer industry.

Strengths and WeaknessesA) A company needs to gather information on each competitor’s strengths and weaknesses.

Table 11.1 shows the results of a company survey that asked customers to rate its three competitors on five attributes. B) In general, a company should monitor three variables when analyzing competitors:

1) Share of market.

2) Share of mind.

3) Share of heart.

Table 11.2 shows the number for these measures for the three competitors listed in Table 11.1.C) Companies that make steady gains in mind share and heart share will inevitably

make gains in market share and profitability.

Selecting CompetitorsA) After the company has conducted value analysis and examined competitors carefully,

it can focus its attack on one of the following classes of competitors:

1) Strong versus weak.

2) Close versus distant.

3) “Good” versus “bad.”

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COMPETITIVE STRATEGIES FOR MARKET LEADERSA) We can gain further insight by classifying firms by the roles they play in the target

market:

1) Leader.

2) Challenger.

3) Follower.

4) Nicher.

Figure 11.5 shows the hypothetical market structure.

Expanding the Total Market The dominant firm normally gains the most when the total market expands.

New CustomersA) Every product class has the potential of attracting buyers who are unaware of the

product or who are resisting it because of price or lack of certain features.

B) A company can search for new users among three groups:

1) Those who might use it but do not (market-penetration strategy).

2) Those who have never used it (new-market segment strategy).

3) Those who live elsewhere (geographical-expansion strategy).

More Usage Usage can be increased by increasing the level of quantity of consumption or

increasing the frequency of consumption. A) Increasing the amount of consumption can sometimes be done through packaging or

product design.

B) Increasing frequency of use involves identifying additional opportunities to use the brand in the same basic way or identifying completely new and different ways to use the brand.

C) To generate additional usage opportunities, a marketing program can communicate the appropriateness and advantages of using the brand more frequently in new or existing situations and /or remind consumers to actually use the brand as close as possible to those situations.

D) Another potential opportunity to increase frequency of use is when consumers’ perceptions of their usage differ from the reality of their usage.

E) The second approach is to identify completely new and different applications.

F) Product development can spur new uses.

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Defending Market Share While trying to expand total market size, the dominant firm must continuously

defend its current business.

A) What can the market leader do to defend its terrain?

1) By continuous innovation—developing new product and customer services, distribution effectiveness, and cost cutting—it keeps its competitive strength and value to customers.

B) In satisfying customer needs, a distinction can be drawn between responsive marketing, anticipative marketing, and creative marketing.

1) A responsive marketer finds stated need and fills it.

2) An anticipative marketer looks ahead into what needs customers may have in the near future.

3) A creative marketer discovers and produces solutions customers did not ask for but to which they enthusiastically respond.

C) Even when it does not launch offensives, the market leader must not leave any major flanks exposed.

D) A dominant firm can use the six defense strategies

1) Position defense.

2) Flank defense.

3) Preemptive defense.

4) Counteroffensive defense.

5) Mobile defense.

a. Market broadening.

b. Market diversification.

6) Contraction Defense.

a. Strategic withdrawal. Figure 11.6 shows the six defensive strategies. Review Key Definitions here: continuous innovation, responsive marketer,

anticipative marketer, creative marketer, position defense, flank defense, preemptive defense, counteroffensive defense, mobile defense, and contraction defense

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Expanding Market Share Market leaders can improve their profitability by increasing market share.

A) Gaining increased share in the served market does not automatically produce higher profits.

B) A company should consider four factors before pursuing increased market share:

1) The possibility of provoking antitrust action.

2) Economic cost.

Figure 11.7 shows that profitability might fall with further market-share gains after some level.

3) Pursuing the wrong marketing-mix strategy.

4) The effect of increased market share on actual and perceived quality.

OTHER COMPETITIVE STRATEGIES Firms that occupy second, third, and lower ranks in an industry are often called

runner-up, or trailing firms. These firms can adopt one of two postures. Each can attack the leader and others in an aggressive bid for further market share (market challengers), or they can play ball and not “rock the boat” (market followers).

Market-Challenger Strategies Many market challengers have gained ground or even overtaken the leader.

Defining the Strategic Objective and Opponents(s) A market challenger must first define its strategic objective. The challenger must

decide whom to attack:

A) It can attack the market leader.

B) It can attack firms of its own size that are not doing the job and are underfinanced.

C) It can attack small local and regional firms.

Choosing a General Attack Strategy We can distinguish among five attack strategies:

A) Frontal.

B) Flank.

C) Geographic.

D) Segmental.

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E) Encirclement.

F) Bypass.

1) Diversifying into unrelated products.

2) Diversifying into new geographical markets.

3) Technological leapfrogging into new technologies .

G) Guerrilla Warfare Review Key Definitions here: frontal attack, flank attack, geographic attack,

segmental attack, encirclement attack, bypass attack, and guerrilla warfare

Choosing a Specific Attack StrategyA) The challenger must go beyond the five broad strategies and develop more specific

strategies:

1) Price discount.

2) Lower price goods.

3) Value priced goods and services.

4) Prestige goods.

5) Product proliferation.

6) Product innovation.

7) Improved services.

8) Distribution innovation.

9) Manufacturing-cost reduction.

10) Intensive advertising promotion.

B) A challenger’s success depends on combining several strategies to improve its position over time.

Market-Follower Strategies Many companies prefer to follow rather than challenge the market leader.

A) A market follower must know how to hold current customers and win a fair share of

new customers.

B) Each follower tries to bring distinctive advantages to its target market—location, services, and/or financing.

C) Four broad strategies can be distinguished:

1) Counterfeiter.

2) Cloner.

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3) Imitator.

4) Adapter.

Market-Nicher Strategies An alternative to being a follower in a large market is to be a leader in a small

market, or niche.

A) Firms with low shares of the total market can be highly profitable through smart niching.

B) Such companies tend to offer high value, charge a premium price, achieve lower manufacturing costs, and shape a strong corporate culture and vision.

C) Why is niching so profitable?

1) The main reason is that the market nicher ends up knowing the target customers so well that it meets their needs better than other firms selling to this niche. The nicher achieves high margin, whereas, the mass marketer achieves higher volume.

D) Nichers have three tasks:

1) Creating niches.

2) Expanding niches.

3) Protecting niches.

E) Niching carries a major risk in that the market niche might dry up or be attacked

F) Because niches can weaken, the firm must continually create new ones.

G) Multiple niching is preferable to single niching.

BALANCING CUSTOMER AND COMPETITOR ORIENTATIONS We have stressed the importance of a company’s positioning itself competitively as

a market leader, challenger, follower, or nicher. Yet a company must not spend all its time focusing on competitors.

Competitor-Centered Companies A competitor-centered company sets its course based on reactions to its competitors.

A) This kind of planning has some pluses and minuses.

1) On the positive side, the company develops a fighter orientation.

2) On the negative side, the company is too reactive.

a. Rather than formulating and executing a consistent, customer-orientated strategy, it determines its moves based on competitors’ moves.

Customer-Centered Companies

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A customer-centered company focuses more on customer developments in formulating its strategies:

A) The customer-centered company is in a better position to identify new opportunities and set a course that promises to deliver long-run profits.

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