1. Chapter 9
Dealing with
the Competition
Dr. S. Borna
MBA 671

2. There is nothing more exhilarating than to be shot at without result.
Winston Churchill
Induce your competitors not to invest in those products, markets and services where you expect to invest the most … that is the fundamental rule of strategy.
Bruce Henderson, Founder of BCG

3. 1. Identify relevant Industry and specify strategic groups
Industry and competitor
analysis process
1. Identify relevant Industry
and specify strategic
groups
2. Industry structure
analysis

4. 3. Examine bases of
Competition
4. Individual competitor
analysis

5. Industry attractiveness or unattractiveness and a
What is the benefit (s) of industry and competitor analysis?
Industry attractiveness
or unattractiveness and a
firm’s competitive position
within an industry have
profound impact on strategy
formulation.

6. What do we mean by
the term “industry”?
“Soft drink” industry

7. A Definition of Industry
Firms that produce
similar products
(product substitution)

8. 1. Generic competition 2. Form competition 3. Industry competition
Four Levels of Competition Based on the Degree of Substitutability
1. Generic competition
2. Form competition
3. Industry competition
4. Brand competition

9. Socializing Exercising Eating . What desire do I What do I want
want to satisfy?
What do I want
to eat?
Generic
competition
Desire Competition
Socializing
Exercising
Eating .
Potato chips
Candy
soft drink .

10. What type of candy? Hershey Nestle Mars . Which brand do I want?
Form competition
Brand
competition
Chocolate bars
Licorice
Sugar drops .
Hershey
Nestle
Mars .

11. A strategic group consists of firms pursuing similar
Identification of Strategic
Groups
A strategic group consists
of firms pursuing similar
strategies, i.e., employing
a similar mix of strategy
elements.

12. How to classify firms? H ?
quality L D I ?
Markets served

13. Strategic Groups in the Major Appliance Industry
High
Low
Quality
Vertical Integration
Group A
Narrow line
Lower mfg. cost
Very high service
High price
Group C
Moderate line
Medium mfg. cost
Medium service
Medium price
Group B
Full line
Low mfg. cost
Good service
Medium price
Group D
Broad line
Medium mfg. cost
Low service
Low price

14. Bases for classification:
(Strategic groups)
1. Markets served: BMW
Mercedes-Benz etc.
2. Products: full line, limited
line etc. Coke and Pepsi, 7 up
3. Distribution channels
Goodrich vs. Dunlop
(own retailers vs indp’t R.)

15. Identification of Potential Competitors
1. Firms expanding their
geographical markets
examples: Wal-mart, Meijer

16. Example, IBM entering the PC market
Firms expanding their
Product line
Example, IBM entering the
PC market S P W R
Firms integrating Forward
And backward
A supermarket manufacturing
its own private labels

17. Firms seeking merger or
buyout
Hicks and Hass Acquiring
Dr. Pepper, Seven-up, and
A&W

18. Michael Porter’s Model
INDUSTRYSTRUCTURE
ANALYSIS
Michael Porter’s Model

19. Five Forces Determining Segment Structural Attractiveness
Potential Entrants
(Threat of
Mobility)
Suppliers
(Supplier power)
Industry
Competitors
(Segment rivalry)
Buyers
(Buyer power)
Substitutes
(Threats of
substitutes)

20. Experience effect (economies of Capital requirements
Potential Competitors
And Industry attractiveness
Experience effect (economies of
scale and experience effect)
Capital requirements
Product differentiation
Distribution channels
(Retailer reluctance, Mature products etc.)
Switching costs (ex. new software
for new computers)

21. Present Competitors Investment intensity Product differentiation
Switching Costs
Industry growth
Industry structure
Exit barriers

22. Investment Intensity By investment intensity, we
mean the amount of fixed
and working capital required
to produce a dollar sales.

23. Monopolistic competition Pure competition (in pure competition there
A Note on Industry Structure
Monopoly
Oligopoly
Monopolistic competition
Pure competition
(in pure competition there
is no competition!)

24. Less differentiated an industry
less attractive is that industry!
Switching costs, or the costs
of changing suppliers-
inhibit competition.

25. Threat of Substitute Products Actual or potential substitute product
ELECTRICITY
BUTTER
GLASS
GAS
MARGARINE
PLASTIC

26. Bargaining Strength of Suppliers Supplier product is a large
SUPPLIER CONCENTRATION
NO. OF suppliers
Supplier product is a large
part of buyer’s value added
SWITCHING COSTS

27. Suppliers Cont. SUBSTITUTE RAW MATERIALS (soft drink:sugar cans etc)
THREAT OF FORWARD INTEGRATION

28. Threat of backward integration Product importance Buyer profitability
Bargaining Power of Buyers
Buyers Concentration
Threat of backward integration
Product importance
Buyer profitability
Substitutes
Switching costs
(e.g. food, beer, soft-drink & metal cans)

29. Analyzing Competitors
Objectives
Competitor
Actions
Strategies
Strengths &
Weaknesses
Reaction
Patterns

30. Individual Competitor Analysis
Competitor Characteristics
Competitor Objectives
Competitor Strategy
Competitor Success Today
Competitor Strength and weakness
Competitor Future Behavior

31. Competitor Characteristics
Information related to:
Size of Sales
Profitability
Market Share
Growth
Relation of SBU to the parent
Company, etc.

32. Competitor Objectives
Market Growth Objectives
Price Objectives
Product Technology Objectives
Human Resource Objectives
etc.

33. Competitor’s Strategy
Review of past and present
strategies
Company’s current marketing
mix strategy
(BIC as an example: strategy of
low cost, mass produced and
disposable products)

34. Competitor’s Strengths and
Weaknesses
Marketing:
Product Quality
Brand Names
Distribution
Promotion skills
Salesforce
cont.

35. Innovation:
R&D
Technologies
New Product Capabilities
Management:
Quality of top management
Loyalty-turnover
Quality of Middle-
management

36. How to Develop a Response
Policy?

37. The laid-back competitors The selective competitors
Estimating the Competitors’
Reaction Patterns
The laid-back competitors
The selective competitors
The tiger competitors
The Stochastic competitors

38. Designing the Competitive
Intelligence System
1. Setting up the system
What type of information?
What is the best source of
information?
Who will manage the system?

39. 2. Collect Information
Sales force
Channel members
Trade association
etc.

40. Other sources of Information
1. Company Financial:
10-k, annual reports
Moody’s, State Filing
Published articles
2. Company Background
Standard & Poor’s
F & S Indexes
Newspaper Index

41. College alumni association
3. Management Personnel
Who’s who
Local Newspapers
College alumni association
4. Foreign Information
Consulates
Embassies
International Trade
Commission

42. 3. Evaluate and analyze the
information
check validity and reliability
of the information

43. 4. Dissemination and
Response

44. Review Identifying Competitors Evaluating Competitors
Competitive Intelligence Systems
Competitive Strategies (not discussed)
Customer vs. Competitor Orientation