MARKETING MANAGEMENT12th edition

11 Dealing with Competition

Kotler Keller

11-2

Objectives

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?

11-3

Competitive Forces & Analyzing Competition

Competition is any past, current or future potential

solution to an application need from either an

internal or external entity = risk and opportunity

DEFINITIONDEFINITION

DINDUSTRYDINDUSTRY CONCEPT CONCEPT• Number of sellers

• Degree of differentiation

• Entry, mobility, and exit barriers

• Cost structure

• Degree of vertical integration

• Degree of globalization

Five Five Forces Forces

Determine Determine SegmentSegmentStructural Structural AttractivenessAttractiveness

● Pure Monopoly

● Oligopoly

● Monopolistic

● Pure Competition

INDUSTRIESINDUSTRIESGroups of firms with products that are closesubstitutes for each other

MARKETING CONCEPTMARKETING CONCEPT

Any type of functional solution to an application need

versus grouping competitors by common product attributes

Who is the Competition / leaders and key others per target market

What are their strengths and weaknesses (products, resources, alliances, value chain integration, market share, etc.)

What are their objectives and strategies

What trends have their historical performance demonstrated

How do they react to new competitors and current competitors with new initiatives

ANALYZING COMPETITORS - INDIVIDUALLYANALYZING COMPETITORS - INDIVIDUALLY

11-4

What are the strategic groups that comprise the industry

What are the marketing mix characteristics that define each group

What market share (and history) does each group constitute in the industry

What group offers the product mix within which it is best to compete

Who are the leaders and key players in each group

What are the objectives, strategies, strengths and weaknesses of each

What are their reaction patterns to competitive initiatives

EXAMPLES: Industry Strategic Groups

Dell Market Objectives and Strategies

Customer Awareness

Product Quality

Product Availability

Technical Assistance

Selling Staff

Competitor A E E P P G

Competitor B G G E G E

Competitor C F P G F F

Note: E = excellent, G = good, F = fair, P = poor.

Market Share Mind Share Heart Share

2000 2001 2002 2000 2001 2002 2000 2001 2002

Competitor A 50% 47% 44% 60% 58% 54% 45% 42% 39%

Competitor B 30 34 37 30 31 35 44 47 53

Competitor C 20 19 19 10 11 11 11 11 8

SURVEY: CUSTOMER RATINGS OF COMPETITORS – KEY SUCCESS FACTORS

SURVEY: CUSTOMER MIND SHARE AND HEART SHARE

DominantDominant

StrongStrong

FavorableFavorable

TenableTenable

WeakWeak

NonviableNonviable

Analyzing Competition By Group

11-5

Hypothetical Market Structure

Market-Leader StrategiesMarket-Leader Strategies Expanding the Total MarketExpanding the Total Market

New UsersNew Users Market-penetration strategyMarket-penetration strategy New-market segment strategyNew-market segment strategy Geographical-expansion strategyGeographical-expansion strategy

New UsesNew Uses More UsageMore Usage

Defending Market ShareDefending Market Share

Defense StrategiesDefense StrategiesPosition DefensePosition Defense

Flank DefenseFlank Defense

Preemptive DefensePreemptive Defense

Counteroffensive DefenseCounteroffensive Defense

Mobile DefenseMobile Defense

Market broadeningMarket broadening

Principle of the objectivePrinciple of the objective

Principle of massPrinciple of mass

Market diversificationMarket diversification

Contraction DefenseContraction Defense

Planned contraction Planned contraction (Strategic withdrawal)(Strategic withdrawal)

Expanding Market ShareExpanding Market Share

ConceptOfOptimalMarketShare

Competitive Strategies for Market Leaders

● Provoking antitrust action is a possibility

● Economic cost could increase

● Pursuing the wrong marketing-mix strategy

may occur

● Of the effect of increased market share on actual and perceived quality

Expanding Market Share Expanding Market Share

May Not Always Increase May Not Always Increase

Profits Because:Profits Because:

11-6

Market-Challenger StrategiesMarket-Challenger Strategies

Defining the Strategic ObjectiveDefining the Strategic Objective

and Opponent(s)and Opponent(s)

It can attack the market leaderIt can attack the market leader

It can attack firms of its ownIt can attack firms of its own

size that are not doing the jobsize that are not doing the job

and are under financedand are under financed

It can attack small local and It can attack small local and

regional firmsregional firms

Choosing a General Attack StrategyChoosing a General Attack Strategy

Choosing a Specific Attack StrategyChoosing a Specific Attack Strategy

Price-discountPrice-discount

Lower price goodsLower price goods

Prestige goodsPrestige goods

Product proliferationProduct proliferation

Product innovationProduct innovation

Improved servicesImproved services

Distribution innovationDistribution innovation

Manufacturing cost reductionManufacturing cost reduction

Intensive advertising promotionIntensive advertising promotion

Hypothetical Market Structure

Market-Follower StrategiesMarket-Follower Strategies

Innovative imitation Innovative imitation (Product imitation)(Product imitation)

Product innovationProduct innovation

Four Broad Strategies:Four Broad Strategies:

CounterfeiterCounterfeiter

ClonerCloner

ImitatorImitator

AdapterAdapter

Market-Nicher StrategiesMarket-Nicher Strategies

High margin versus high High margin versus high volume volume

Nicher Specialist RolesNicher Specialist Roles

End-user specialistEnd-user specialist

Value-added resellerValue-added reseller

Vertical-level specialistVertical-level specialist

Customer-size specialistCustomer-size specialist

Specific-customer specialistSpecific-customer specialist

Geographic specialistGeographic specialist

Product or product-line Product or product-line

specialistspecialistProduct-feature specialistProduct-feature specialist

Job-shop specialistJob-shop specialist

Quality-price specialistQuality-price specialist

Service specialistService specialist

Channel specialistChannel specialist

Other Competitive Strategies & Balancing Orientations

EncirclementEncirclement

FlankFlank

FlankFlank

BypassBypass

GuerrillaGuerrilla

MUST BALANCE BETWEEN BEING A CUSTOMER VS COMPETITOR CENTERED COMPANY

11-7

SUMAMRY

Design a competitive intelligence system to assure accurate data

Develop market objectives and a competitive strategy based on:

opportunities from customer needs, strengths of core competencies

and probability for success relative to the strength of competitors

and factors that facilitate or inhibit competition within the industry

Focus on Being Customer-Centered versus Competitor Centered

Know Who Our Competition is

Analyze the Competition

11-8

Additional Perspectives

Other Supporting Foils

11-9

REACTION PATTERNS

1. If competitors are nearly identical and make their living the same way, then their competitive equilibrium is unstable. Since differentiation is hard to maintain then price wars are frequent.

2. If a single major factor is the critical factor, then the competitive equilibrium is unstable. Here economies of scale often provide cost differentiation opportunity. Improvements in cost generally result in price wars.

3. If multiple factors may be critical factors, then it is possible for each competitor

to have some advantage and be differentially attractive to some customers. The more factors that may provide an advantage, the more competitors who can coexist. Competitors all have their segment, defined by the preference for the factor trade-offs they offer. Opportunities for reasonable margins exist through multiple differentiation (quality, service, support, etc.) opportunities.

4. The fewer the number of critical competitive variables, the fewer the number of competitors.

5. A ratio of 2 to 1 in market share between any two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for either competitor to increase or decrease share.

Analyzing Competitors

11-10

The Competitive Intelligence System Selecting Competitors

Customer Value Analysis (CVA) – Another Tool for Developing Competitive Strategies

• Customer Value = Customer Benefits – Customer Costs• Customer Benefits = product benefits, service benefits, personnel benefits, image benefits• Customer Costs = purchase price, acquisition costs, usage costs, maintenance costs,

ownership costs, disposal costs

A B C

Price $100 $ 90 $ 80

Acquisition costs 15 25 30

Usage costs 4 7 10

Maintenance costs 2 3 7

Ownership costs 3 3 5

Disposal costs 6 5 8

Total costs $130 $135 $140

Major Steps in Customer Value Analysis:Major Steps in Customer Value Analysis:1. Identify the major attributes customers value.1. Identify the major attributes customers value.

2. Assess the quantitative importance of the different attributes.2. Assess the quantitative importance of the different attributes.

3. Assess companies’ & competitors’ performances on the different customer values against their rated importance.3. Assess companies’ & competitors’ performances on the different customer values against their rated importance.

4. Examine how customers in a specific segment rate the company’s performance against a specific major competitor 4. Examine how customers in a specific segment rate the company’s performance against a specific major competitor on an attribute-by-attribute basis.on an attribute-by-attribute basis.

5. Monitor customer values over time.5. Monitor customer values over time.

11-11

Value Category

FactorWeight

Co. A.1 - 1.0Grade

Co. ATotal%Impact

Co. B.1 - 1.0Grade

Co. BTotal%Impact

Co. C.1 - 1.0Grade

Co. CTotal%Impact

Morale 10% .6 6% .8 8% .4 4%

Quality 40% .4 16% .7 28% .3 12%

Ease of Use 20% .8 16% .6 12% .6 12%

Reliability 20% .4 8% .8 16% .4 8%

Image 10% .8 8% .6 6% .5 5%

Total 100% 54% 70% 41%

Total Influenceon Revenue $ 1 Mil $540K $700K $410K

Cost ofInvestment $200K $300K $250K

Net Benefit $340K $400K $160K

Net Value of Attributes versus Expenses