Dealing with Competition

ByBy

Prantosh BanerjeePrantosh Banerjee

Conceptual base to deal with Competition : Conceptual base to deal with Competition :

Concept 1: Effective marketing strategies involve studying competitors and competitive forces. (who?)

Concept 2: The 5 Competitive Forces

Concept 3: Marketers need to identify competitors' strategies, objectives, strengths and weaknesses. (what?)

Concept 4: A company should identify competitors by using both industry- and market-based analyses.

Concept 5: There are four roles that firms can play in a market: the market leader, the market challenger, the market follower, the market nicher. Important to business success (why?)

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Threat of New Entry• the existence of barriers to entry • economies of product differences • brand equity • switching costs • capital requirements • access to distribution • absolute cost advantages • learning curve advantages • expected retaliation • government policies

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Competitive Rivalry• number of competitors • rate of industry growth • intermittent industry overcapacity • exit barriers • diversity of competitors • informational complexity and asymmetry • brand equity • fixed cost allocation per value added • level of advertising expense

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Supplier Power

• supplier switching costs relative to firm switching costs

• degree of differentiation of inputs • presence of substitute inputs • supplier concentration to firm

concentration ratio • threat of forward integration by suppliers

relative to the threat of backward integration by firms

• cost of inputs relative to selling price of the product

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Buyer Power

• buyer concentration to firm concentration ratio • bargaining leverage • buyer volume • buyer switching costs relative to firm switching

costs • buyer information availability • ability to backward integrate • availability of existing substitute products • buyer price sensitivity • price of total purchase

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Threat of Substitution

• buyer propensity to substitute • relative price performance of substitutes • buyer switching costs • perceived level of product differentiation

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Definition

• Competitive Analysis– The process of identifying key

competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

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Steps in Analyzing Competitors

Competitor Analysis

• Firms face a wide range of competition

• Be careful to avoid “competitor myopia”

• Methods of identifying competitors:– Industry point-of-view– Market point-of-view

Identifying Identifying CompetitorsCompetitorsAssessing Assessing CompetitorsCompetitorsSelecting Selecting Competitors to Competitors to Attack or AvoidAttack or Avoid

Steps in the Steps in the Process:Process:

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Competitor Analysis

• Determining competitors’ objectives

• Identifying competitors’ strategies– Strategic groups

• Assessing competitors’ strengths and weaknesses– Benchmarking

• Estimating competitors’ reactions

Identifying Identifying CompetitorsCompetitorsAssessing Assessing CompetitorsCompetitorsSelecting Selecting Competitors to Competitors to Attack or AvoidAttack or Avoid

Steps in the Steps in the Process:Process:

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Competitor Analysis

• Strong or weak competitors– Customer value analysis

• Close or distant competitors– Most companies compete

against close competitors

• “Good” or “Bad” competitors– The existence of competitors

offers several strategic benefits

Identifying Identifying CompetitorsCompetitorsAssessing Assessing CompetitorsCompetitorsSelecting Selecting Competitors to Competitors to Attack or AvoidAttack or Avoid

Steps in the Steps in the Process:Process:

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• Basic Winning Competitive Strategies: Porter– Overall cost leadership• Lowest production and

distribution costs– Differentiation• Creating a highly

differentiated product line and marketing program

– Focus• Effort is focused on serving

a few market segments

Competitive Strategies

Competitive Advantage

• Having a competitive advantage is necessary for a firm to compete in the market

• But what is more important is whether the competitive advantage is sustainable

• A firm must identify its position relative to the competition in the market

• By knowing if it is a leader, challenger, follower or nicher, it can adopt appropriate strategies to compete

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Figure 18-3:

Hypothetical Market Structure

Strategies for Market Leaders

Market Leader’s objectives:• Expand the total market by– Finding new users– Creating new uses, and– Encouraging more usage

• Protect its current market share by– Adopting defense strategies (see following

slides)• Increase its market share– Note the relationship between market share and

profitability

Defense Strategy

• A market leader should generally adopt a defense strategy

• Six commonly used defense strategies– Position Defense– Mobile Defense– Flanking Defense– Contraction Defense– Pre-emptive Defense– Counter-Offensive Defense

Defense Strategies -Defense Strategies -Defense Strategies -Defense Strategies -

Defender

Attacker

MobileDefense

PreemptiveDefense

CounteroffensiveDefense

ContractionDefense

PositionDefense

Flank

Defense

Defense Strategy (cont’d)

Position Defense• Least successful of the defense strategies • e.g. Mercedes was using a position defense

strategy until Toyota launched a frontal attack with its Lexus.

Defense Strategy (cont’d)

Mobile Defense • By market broadening and diversification• For marketing broadening, there is a need

to– Redefine the business (principle of

objective), and– Focus efforts on the competition (the

principle of mass)

Defense Strategy (cont’d)

Flanking Defense: • Secondary markets (flanks) are the weaker

areas and prone to being attacked• Pay attention to the flanks

Defense Strategy (cont’d)

Contraction Defense• Withdraw from the most vulnerable

segments and redirect resources to those that are more defendable

• By planned contraction or strategic withdrawal

Defense Strategy (cont’d)

Pre-emptive Defense• Detect potential attacks and attack the

enemies first• Let it be known how it will retaliate• Product or brand proliferation is a form of

pre-emptive defense

Defense Strategy (cont’d)

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 Strategies

The 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

Attack Strategies -Attack Strategies -Attack Strategies -Attack Strategies -

DefenderAttacker

Frontal AttackFrontal Attack

Bypass AttackBypass Attack

Flank AttackFlank Attack

Encirclement AttackEncirclement Attack

Guerrilla AttackGuerrilla 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)

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

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

Bypass attack

• By diversifying into unrelated products or markets neglected by the leader

• Could overtake the leader by using new technologies

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

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 strategye.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 e.g. the IBM PC clones– 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

Market-Nicher Strategies (cont’d)

• Nichers must create niches, expand the niches and protect them

• 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.”

Competitive Roles & Strategy:Competitive Roles & Strategy: Position Descriptor

Market-Leader Dominant - Controls behavior of other competitors & has wide choice of strategic options

1. Expand Market:

2. Defend Current Share:

3. Increase Share:

- New Users- New Uses- More Usage

- Position Defense- Flank Defense- Preemptive Defense- Counteroffensive Defense- Mobile Defense- Contraction Defense

Target Market Role Objective

- New Product Activity- Relative Product Quality- Marketing Expenditures

Strategy

Competitive Roles & Strategy:Competitive Roles & Strategy:

Position/Descriptor

Strong/Favorable - Can take independent action without endangering its long-term position; can maintain its position regardless of competitors’ actions

Strategy

Market-Challenger 1. Frontal Attack2. Flank Attack3. Encirclement Attack4. Bypass Attack5. Guerrilla Attack

Target Market Role Objective

Increase Share:

Market-Follower Tenable/Weak - Growthpath that does not invitecompetitive retaliation

Hold Share: 1. Counterfeiter2. Cloner3. Imitator4. Adapter

Market-Nicher Tenable/Weak/Nonviable -Smaller firms avoid competingwith larger firms by targetingsmall markets of little or no interest to larger firms

High Margins: (Specialization)

1. Creating Niches2. Expanding Niches3. Protecting Niches