MARKETING MANAGEMENT 12th edition 11 Dealing with Competition Kotler Keller

Objectives 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?

Competitive Forces & Analyzing Competition DEFINITION Competition is any past, current or future potential solution to an application need from either an internal or external entity = risk and opportunity ANALYZING COMPETITORS - INDIVIDUALLY Who is the Competition / leaders and key others per target market What are their strengths and weaknesses (products, resources, alliances, value chain integration, market share, etc.) What are their objectives and strategies What trends have their historical performance demonstrated How do they react to new competitors and current competitors with new initiatives Determine Segment Structural Attractiveness Five Forces DINDUSTRY CONCEPT INDUSTRIES Groups of firms with products that are close substitutes for each other Number of sellers Degree of differentiation Entry, mobility, and exit barriers Cost structure Degree of vertical integration Degree of globalization Pure Monopoly Oligopoly Monopolistic Pure Competition MARKETING CONCEPT Any type of functional solution to an application need versus grouping competitors by common product attributes

Analyzing Competition By Group What are the strategic groups that comprise the industry What are the marketing mix characteristics that define each group What market share (and history) does each group constitute in the industry What group offers the product mix within which it is best to compete Who are the leaders and key players in each group What are the objectives, strategies, strengths and weaknesses of each What are their reaction patterns to competitive initiatives EXAMPLES: Industry Strategic Groups SURVEY: CUSTOMER RATINGS OF COMPETITORS – KEY SUCCESS FACTORS Customer Awareness Product Quality Product Availability Technical Assistance Selling Staff Competitor A E P G Competitor B Competitor C F Note: E = excellent, G = good, F = fair, P = poor. Dominant Strong Favorable Tenable Weak Nonviable SURVEY: CUSTOMER MIND SHARE AND HEART SHARE Market Share Mind Share Heart Share 2000 2001 2002 Competitor A 50% 47% 44% 60% 58% 54% 45% 42% 39% Competitor B 30 34 37 31 35 44 47 53 Competitor C 20 19 10 11 8 Dell Market Objectives and Strategies

Hypothetical Market Structure Competitive Strategies for Market Leaders Hypothetical Market Structure Market-Leader Strategies Expanding the Total Market New Users Market-penetration strategy New-market segment strategy Geographical-expansion strategy New Uses More Usage Defending Market Share Expanding Market Share May Not Always Increase Profits Because: Provoking antitrust action is a possibility Economic cost could increase Pursuing the wrong marketing-mix strategy may occur Of the effect of increased market share on actual and perceived quality Defense Strategies Position Defense Flank Defense Preemptive Defense Counteroffensive Defense Mobile Defense Market broadening Principle of the objective Principle of mass Market diversification Contraction Defense Planned contraction (Strategic withdrawal) Concept Of Optimal Market Share Expanding Market Share

Other Competitive Strategies & Balancing Orientations Hypothetical Market Structure Market-Challenger Strategies Defining the Strategic Objective and Opponent(s) It can attack the market leader It can attack firms of its own size that are not doing the job and are under financed It can attack small local and regional firms Choosing a General Attack Strategy Market-Nicher Strategies High margin versus high volume Nicher Specialist Roles End-user specialist Value-added reseller Vertical-level specialist Customer-size specialist Specific-customer specialist Geographic specialist Product or product-line specialist Encirclement Flank Bypass Guerrilla Choosing a Specific Attack Strategy Price-discount Lower price goods Prestige goods Product proliferation Product innovation Improved services Distribution innovation Manufacturing cost reduction Intensive advertising promotion Market-Follower Strategies Innovative imitation (Product imitation) Product innovation Four Broad Strategies: Counterfeiter Cloner Imitator Adapter Product-feature specialist Job-shop specialist Quality-price specialist Service specialist Channel specialist MUST BALANCE BETWEEN BEING A CUSTOMER VS COMPETITOR CENTERED COMPANY

SUMAMRY Know Who Our Competition is Analyze the Competition Design a competitive intelligence system to assure accurate data Develop market objectives and a competitive strategy based on: opportunities from customer needs, strengths of core competencies and probability for success relative to the strength of competitors and factors that facilitate or inhibit competition within the industry Focus on Being Customer-Centered versus Competitor Centered

Additional Perspectives Other Supporting Foils

Analyzing Competitors REACTION PATTERNS If competitors are nearly identical and make their living the same way, then their competitive equilibrium is unstable. Since differentiation is hard to maintain then price wars are frequent. 2. If a single major factor is the critical factor, then the competitive equilibrium is unstable. Here economies of scale often provide cost differentiation opportunity. Improvements in cost generally result in price wars. 3. If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differentially attractive to some customers. The more factors that may provide an advantage, the more competitors who can coexist. Competitors all have their segment, defined by the preference for the factor trade-offs they offer. Opportunities for reasonable margins exist through multiple differentiation (quality, service, support, etc.) opportunities. 4. The fewer the number of critical competitive variables, the fewer the number of competitors. 5. A ratio of 2 to 1 in market share between any two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for either competitor to increase or decrease share.

The Competitive Intelligence System Selecting Competitors Customer Value Analysis (CVA) – Another Tool for Developing Competitive Strategies Customer Value = Customer Benefits – Customer Costs Customer Benefits = product benefits, service benefits, personnel benefits, image benefits Customer Costs = purchase price, acquisition costs, usage costs, maintenance costs, ownership costs, disposal costs A B C Price $100 $ 90 $ 80 Acquisition costs 15 25 30 Usage costs 4 7 10 Maintenance costs 2 3 Ownership costs 5 Disposal costs 6 8 Total costs $130 $135 $140 Major Steps in Customer Value Analysis: 1. Identify the major attributes customers value. 2. Assess the quantitative importance of the different attributes. 3. Assess companies’ & competitors’ performances on the different customer values against their rated importance. 4. Examine how customers in a specific segment rate the company’s performance against a specific major competitor on an attribute-by-attribute basis. 5. Monitor customer values over time.