Dealing with Competition 9 Dealing with Competition Marketing Management, 13th ed- A South Asian Perspective

Chapter Questions 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?

Five Forces Determining Segment Structural Attractiveness Number of sellers and degree of differentiation Entry, mobility, and exit barriers Cost structure Degree of vertical integration Degree of globalization

Barriers and Profitability Entry Barriers Exit barriers High, stable returns High Low High, risky returns High Low, stable returns Low Low, risky returns

Competitive Strategy Industry Force Generic Strategies Cost Leadership 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. Buyer Power Ability to offer lower price to powerful buyers. Large buyers have less power 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. Rivalry Better able to compete on price. Brand loyalty to keep customers from rivals. Rivals cannot meet differentiation-focused customer needs.

Analyzing Competitors Objectives Competitor Actions Strategies Strengths & Weaknesses Reaction Patterns

A Competitor’s Expansion Plans Customers’ ratings of competition on Key Success Factors: An example

Strengths and Weaknesses Share of market (The competitor’s 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 to buy)

Selecting Competitor Strong Vs Weak (Fewer Resources required) Close Vs Distant (Resemblance) Good Vs Bad

Competitive Strategies for Market Leaders 10% Market nicher 40% Market leader 30% Market challenger 20% Market follower Expand Market Attack leader Special- ize Imitate Defend Market Share Status quo Expand Market Share

Expanding the Total Market New customers (Penetration/new market segmentation/geographical-expansion) More usage (Consumption Amount/Frequency)

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 Toyota launched a frontal attack with its Lexus. Mobile Defense By market broadening and diversification (Dialog Telekom Srilanka) 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 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 The strategic choice is to attack the leader or to attack other firms Porter cautioned that this “…may be the most dangerous move a company can make.” Al Ries and Jack Trout suggested that if you are the number two firm in the market, you should attack the leader In order to adopt the attack strategy, the challenger must meet 3 conditions: Must have a SCA either in terms of cost or differentiation Able to neutralize the leader’s advantage by doing as well as the leader When there is some impediment to the leader retaliating Success in attacking the leader is typically based on how well the challenger can reconfigure its market strategies and marketing mix strategies

Market Challenger Strategies (cont’d) Types of Attack Strategies Frontal attack Flank attack Encirclement attack Bypass attack Guerrilla 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) e.g. Japanese and Korean firms launched frontal attacks in various ASPAC countries through quality, price and low cost Surf Vs Ariel

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 e.g. Google Vs ChaCha and or Wikipedia

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 Zong???

Bypass attack By diversifying into unrelated products or 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 Telenor in Pakistan Instead of launching carbonated drinks Nestle brought pure jiuces vs. the carbonated drinks

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 local water brands vs. multinational water brands

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 strategy e.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 (emulation of leader’s product, name & package) e.g. New Joshanda Brand Vs Qarshi S&S Cycle Vs. Harley 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 e.g. Zippo Digicel Bullet-Proof Cars

Market-Nicher Strategies (cont’d) Nichers must create niches, expand the niches 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

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.” Philip Kotler

Balancing Orientations Competitor- Centered Customer- Centered