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Five Forces Determining Segment Structural
Attractiveness
Number of sellers anddegree of differentiation
Entry, mobility, and exitbarriersCost structureDegree of verticalintegrationDegree of globalization
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Barriers and Profitability
Low, stablereturns
Low
High, stablereturnsHigh
Low
Low, riskyreturns
High, riskyreturns
High
EntryB
arriers
Exit barriers
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Competitive Strategy
Industry
Force
Generic Strategies
CostLeadership
Differentiation Focus
Entry
Barriers
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 offerlower price to
powerful buyers.
Large buyers have lesspower to negotiate because
of few close alternatives.
Large buyers have less power to negotiate
because of few alternatives.
Supplier
Power
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 of
Substitutes
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.
RivalryBetter able to
compete on price.
Brand loyalty to keep
customers from rivals.
Rivals cannot meet differentiation-
focused customer needs.
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Analyzing Competitors
CompetitorActions
Objectives
Strengths &
Weaknesses
Reaction
Patterns
Strategies
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Strengths and Weaknesses
Share of market(The competitors share of the target market)
Share of mind(The first company that comes to mind)
Share of heart(The company from which you would prefer tobuy)
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Competitive Strategies for Market
Leaders
40%
Market
leader
30%
Market
challenger
20%
Market
follower
Expand Market
Defend Market Share
Expand Market Share
Attack leader
Status quoImitate
10%
Market
nicher
Special-ize
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Expanding the Total Market
New customers(Penetration/new marketsegmentation/geographical-expansion)
More usage(Consumption Amount/Frequency)
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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 Toyotalaunched a frontal attack with its Lexus.
Mobile Defense By market broadening and diversification (airtel)
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
attackers weakness and then launch a counter attack e.g. Toyota launched the Lexus to respond to Mercedes attack
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Market Challenger Strategies
The market challengers strategic objective is togain market share and to become the leadereventually
How? By attacking the market leader
By attacking other firms of the same size
By attacking smaller firms
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Market Challenger Strategies (contd)
Types of AttackStrategies
Frontal attack
Flank attack
Encirclement attack
Bypass attack
Guerrilla attack
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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 launchedfrontal attacks in various ASPAC
countries through quality, price and lowcost
Surf Vs Ariel
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Flank attack
Attack the enemy at its weak points orblind spots i.e. its flanks
Ideal for challenger who does not havesufficient resources
e.g. Google v/s Wikipedia
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Encirclement attack
Attack the enemy at many fronts at thesame time
Ideal for challenger having superior
resources e.g. Seiko attacked on fashion,
features, user preferences and
anything that might interest theconsumer
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Bypass attack
By diversifying into unrelated productsor 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
Instead of launching carbonated drinksNestle brought pure juices vs. thecarbonated drinks
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Guerrilla attack
By launching small, intermittent hit-and-run attacks to harass and destabilizethe leader
Usually use to precede a strongerattack
e.g. airlines use short promotions to attackthe national carriers especially when
passenger loads in certain routes are low local water brands vs. multinational water
brands
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Which Attack Strategy should a Challenger
Choose?
Use a combination of several strategies
to improve market share over time
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Market-Follower Strategies
Theodore Levitt in his article, InnovativeImitationargued that a product imitationstrategy might be just as profitable as a
product innovation strategye.g. Product innovation--Sony
Product-imitation--Panasonic
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Market-Follower Strategies (contd)
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 leaders product, name & package)
e.g. china iphone
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 andeventually leaders
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Market-Nicher Strategies
Smaller firms can avoidlarger firms by targetingsmaller markets orniches that are of little
or no interest to thelarger firms
e.g. Zippo
Bullet-Proof Cars
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Market-Nicher Strategies (contd)
Nichers must create niches, expand theniches 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
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