Chapter 2

Type of competition No of competitors Type of product Barriers to market

entry Example

Monopoly One Unique - almost no

substitutes Very high / usually

blocked Eskom

Oligopoly Few Homogeneous Major Cellulay phone operators

Monopolistic Many Differentiated with many

substitutes Few and not major

Home electric appliance companies

Perfect Competition Many Homogeneous None Agricultural prods such as

soya beans

Chapter 2 Competitor Analysis

• Process of identifying an org’s competitors , understanding their objectives, and strategies, and assessing their strengths/weaknesses

• Key quests:- • Who are the org’s competitors?

• What are their objectives?

• What competitive strategies are they pursuing?

• What are their strengths/weaknesses?

• How are they likely to respond to competitors’ actions?

Chapter 2 Who are the competitors?

• Two ways :- Industry approach Market approach

• Industry approach – businesses producing prods that are close substitutes • Absa, FNB, Std Bank and Nedbank competing firms –

banking industry • Coca-cola and Pepsi – soft drink industry

• Marketing approach – competitors providing prods that satisfy the same customer need • Quenching of thirst – satisfied – variety of prods, bottled

water, soft drinks, ice tea and fruit juices

Chapter 2 Who are the competitor’s objectives?

• Pursue a mix of diff objectives – these determine the strategies that they take as they compete in the market

• Common marketing objectives – relate to profits, sales, market share and customer orientation

• Diff marketing objectives for diff markets / market segments

• Imp to look at not only the overall business obj but also objectives at prod/market segment level

Chapter 2 What competitive strategies are they pursuing?

• Compete on low prices or quality

• Michael Porter identified three generic competitive strategies

• Cost leadership strategy

• Differentiation strategy

• Focused strategy

Chapter 2 What competitive strategies are they pursuing?

• Cost leadership strategy • Producing prods at lowest possible prices – to

sell at prices lower than their competitors to a broad target market – Game and Shoprite

• Differentiation strat • Products are unique (different to that of

competitors) selling to a broader mkt

• Woolworths Foods emphasizes differentiation rather than low prices

Chapter 2 What competitive strategies are they pursuing?

• Focused strat • Target a narrow segment of the market – excluding

others

• E.g., clothing retailer – sell clothing for children between the ages of 3-10yrs

• Two variants: • Focused cost leadership – lower its costs – sell at

lower prices than competitors

• Focused differentiation – uniqueness of prods rather than low prices

Chapter 2 Competitive Advantage

• Advantage a business has over competitors • Gained by offering consumers – same benefits as competitors

but at a lower price, • Or, delivering more benefits than competitors • What are the competitor’s strengths weaknesses? • To assess collect relevant info re:

1. Competitor’s HR – marketing personnel, skills of employees, staff deve programmes,

2. Financial/technological resources 3. Supplier and customer info –major custs and suppliers, service

quality levels 4. Marketing strats – planning & control systems, incl, 4 P’s strategies 5. Operating results – period of time – i.t.o – sales, marketshare, profit

margins and costs

Chapter 2 Competitive Advantage

• Info can be collected - variety of sources

• Annual reports

• Websites and promo messages

• Personal interviews – staff, custs, suppliers

• Must be in an ethical manner

• This info can be used to benchmark a firm against leading firms in the industry

Chapter 2 Competitive Advantage

• How are they likely to respond to their competitor’s actions?

• Some competitors respond swiftly and aggressively • Some may delay their responses • And others may choose to respond to some actions

and not to others • A competitor interest in maintaining a high market

share – more likely to respond to the actions of competitors – to make inroads in that strategic market

• Business following cost leadership – will respond quickly to price cuts by competitors

Chapter 2 Determining market attractiveness

• The different players in the market environ affects a company’s level of competitiveness

• Michael Porter identifies – “five forces of competition” • This is used to assess a firms’ level of competitiveness in a

market 1. The threat of new entrants

• Bring increased competition and can threaten a company’s profits and share of the market

• E.g. budget airlines - Kulula.com and 1Time – domestic air travel market – SAA lost market share

• The threat of new entrants is high in industries with low barriers to entry and low where barriers to entry are high

Chapter 2 Determining market attractiveness

• Common barriers to entry:-

• High capital reqts

• Lack of access to prod resources and distr sources

• Effective differentiation - increased customer loyalty

• Economies of scale

• High switching costs

Chapter 2 Determining market attractiveness

• Economies of scale - average cost per production unit decreases as the production run gets bigger – fixed costs are shared over an increased no of goods

• Switching costs – once off cost incurred by customers when switching to another supplier

• E.g decision to use a different software package in business – employees will have to be trained to use it

Chapter 2 Bargaining power of suppliers

• Higher the bargaining power of suppliers – the less attractive that market is

• Suppliers – have more power in a mkt – if they can increase the cost of their prods or lower prod quality at will

• Power of suppliers driven by:- • Uniqueness of their product • How great the costs of switching are • Businesses – find a market – unattractive – if it has an unfavourable

supply situation, i.e. too few suppliers offering unique prods with no close substitutes

• Suppliers will have large amt of bargaining power and can choose who they want to do business with

• E.g African Oxygen (Afrox) biggest supplier in southern Africa – gasses used in manuf. Soft drinks, often has more demand for its prods than it can meet – means that it has a strong position to bargain with soft drink manufacturers

Chapter 2 Bargaining power of buyers

• Customers – more power if they can drive prices down or dictate other terms of sale

• The higher the bargaining power of buyers – the less attractive the market is

• Driven by a no of factors:- • No of buyers relative to the supply • Uniqueness of the prod • Costs of switching • The importance of particular buyers • Attractive markets are – large nos of unorganised buyers,

buying unique prods with no close substitutes, with each buyer buying small quantities and facing high switching costs

• Many big retailers have so much bargaining power that they can force their suppliers to reduce prices

Chapter 2 Threat of substitute products

• E.g – margarine / butter, potatoes / rice • If the price of one prod increases, consumers will

switch to the other – this limits the potential for price invcreases

• Threat of prod substitution increases – when switching costs are low , and quality and performance is equal to or higher than its competitor

• E.g introduction of cellphones to SA put Telkom’s landline business under pressure

Chapter 2 Intensity of rivalry among competitors

• Affected by a no of factors:-

• No of businesses competing in a mkt

• Level of prod differentiation

• Size of the mkt

• And whether the market is growing or not

• High rivals – associated with large no of competitors, low levels of prod differentiation and slow of declining customer markets

Chapter 2 The internal market

• Consists of actors and forces within an organisation – affects its ability to effectively serve its customers

• Only part of the marketing environment – under direct control of the org’s management team

• Analysis of internal environ important – helps management – better understand the org’s strengths and weaknesses

• Factors that should be looked at:- • Organisation’s mission and objectives

• Resources

• Skills and capabilities

Chapter 2 The mission

• Mission statement – reason for existence

• Invisible hand to guide the activities of the employees and how its resources are used

• Good mission statement – customer-oriented - customer satisfaction – key to success

• Def:

• Business objectives – things an organisation wants to achieve over a given period of time

Chapter 2 Business objectives

• Directly linked to the mission statement

• Set at various levels of the org:-

• Corporate level

• Strategic business unit level

• Functional level

• Corporate level – relate to whole organisation

• E.g Absa Bank - overall objectives – apply to whole org

Chapter 2 Business objectives

• Strategic business unit level • Relate to specific product markets – e.g home loan

section, private banking section and car financing section – each have their own objectives

• Functional-level - - function areas of the org that support strategic business units and the organisation as a whole

• These include marketing , finance, production, procurement, and human resource management – each have their own objectives

Chapter 2 Business objectives

• Objectives must be SMART • Specific – specify what needs to be achieved - objectives relating

to profits, market share, brand awareness • Measurable – success can be easily traced – e.g to increase market

share by 10% by the end of the current year • Achievable – needs to be challenging but achievable – too high

objectives – managers who set too high objectives - cause staff to become discouraged when they fail to reach their targets

• Relevant – should add something useful to the org – important to ensure that lower-level objectives – aligned with overall organisational objectives

• Time-bound – should be set within a time frame (usually a year, long-term and short- term plans – have different timeframes)

Chapter 2 Business objectives

• Objectives must be SMART • Specific – specify what needs to be achieved - objectives relating

to profits, market share, brand awareness • Measurable – success can be easily traced – e.g to increase market

share by 10% by the end of the current year • Achievable – needs to be challenging but achievable – too high

objectives – managers who set too high objectives - cause staff to become discouraged when they fail to reach their targets

• Relevant – should add something useful to the org – important to ensure that lower-level objectives – aligned with overall organisational objectives

• Time-bound – should be set within a time frame (usually a year, long-term and short- term plans – have different timeframes)