MM: Chapter 9 Dealing with the Competition Warin Chotekorakul

Outline: Outline: –Competitive Five Forces –Identify competitors –Analyze competitors: Strategies, Objectives, Strengths and Weaknesses, and Reaction Pattern MM: Chapter 9

Competitive Forces Segment Rivalry Supplier Power Supplier Power Buyer Power Buyer Power Threat of Substitutes Threat of Substitutes Threat of New Entrants Threat of New Entrants

Why study??? The forces help you determine the L-R profit attractiveness of a market or market segment.

Threat of intense segment rivalry A market/ segment is unattractive when: - No of competitors:High - Weak or Strong Competitors - Exit barrier:High

Threat of new entrants unattractive Entry barrier is___Exit barrier is ___. Why? A market/ segment is most unattractive when: Entry barrier is___ and Exit barrier is ___. Why? attractive Entry barrier is___Exit barrier is ___. Why? A market/ segment is most attractive when: Entry barrier is___ and Exit barrier is ___. Why?

Threat of substitute products A market/ segment is unattractive when: – High or Low level of substitute products. What is its result?

Threat of buyers’ growing bargaining power A market/ segment is unattractive when: - Buyers have strong bargaining power. - Scattered or Concentrated? - In/Significant part of the buyers’ costs? - Un/Differentiated? - High or Low switching costs? - Price In/Sensitive? - Backward Integration? Yes

Threat of suppliers’ growing bargaining power SS can easily increase prices or decrease quantity supplied. A market/ segment is unattractive when: SS can easily increase prices or decrease quantity supplied. - Scattered or Concentrated? - In/Significant part of the company’s output? - Find substitutes un/easily? - High or Low costs of switching suppliers? - Forward Integration? Yes

How to identify competitors? 2 ways –Industry point of view: Looking at the companies making the same product Close substitutes or not? e.g., Massaging Centers –Market point of view: Looking at the companies satisfying the same customer need: e.g., “Relaxing Ability”

Industry Concept of Competition Number of sellers and degree of differentiation 1. Pure monopoly: Electricity and Water supplies. 2. Oligopoly: Rice, Steel, Autos, Cameras, Cell phones 3. Monopolistic competition: Cosmetics, Watches 4. Pure competition: Commodities (Beer, Fruits, etc.) Entry, mobility, exit, shrinkage barriers Cost structure Degree of vertical integration: How vertical should they be? Degree of globalization

Analyzing Competitors strategies strategies objectives objectives strengths and weaknesses strengths and weaknesses reaction patterns reaction patterns

Identifying Competitors’ Strategies A company’s closest competitors are those pursuing the same target markets with the same strategy. A group of firms following the same strategy in a given target market is called a “Strategic Group”.

Strategies Quality LowHigh Low Vertical Integration Group 1 *narrow line *high price *high service *exclusivedistribution Group 2 *broad line *moderately high price *medium service *selective distribution distribution Group 3 *broad line *medium price *high service *selective distribution distribution Group 4 *narrow line *low price *medium service *selective distribution distribution

Determining Competitors’ Objectives What is each competitor seeking in the marketplace? What drives each competitor’s behavior? Basically, a company needs to analyze that its objectives are the same as its competitor's or not?

Assessing Strengths and Weaknesses: 6 competitive positions Dominant Nonviable Strong Favorable Tenable Weak

3 variables to analyze competitors share of market share of heart share of mind

Reaction Patterns The laid-back competitor: React slowly The stochastic competitor The tiger competitor The selective competitor

Bruce Henderson’s Competitive Equilibrium Competitive Equilibrium Competitive Equilibrium is the point at which all competitors will finally be better off after certain conditions of competitions.