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Marketing Management • 14e
Kotler • Keller Phillip Kevin Lane Marketing Management • 14e
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Chapter 11 Competitive Dynamics
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Discussion Questions How can market leaders expand the total market and defend market share? How should market challengers attack market leaders? How can market followers or niche compete effectively? What marketing strategies are appropriate at each stage of the PLC? How should marketers adjust their strategies and tactics for an economic downturn or recession?
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Companies are facing increased competition – from global competitors, emerging online competitors, private-label and store brands, and brand extensions by mega-brands. No brand, unless it is a monopoly, can rest on its laurels.
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Market Members Market leader Market challenger Market follower
Market nichers Market leaders have the higher market share and usually base-line in terms of price. Leaders also lead the market in new-product introductions, distribution coverage, and promotional intensity. Historic market leaders include: McDonald’s, Microsoft, Visa, Gatorade, Best Buy, and Blue Cross. Other market members include challengers, followers, and niche players. Other firms enter and exit the markets, primarily during the maturity and decline stage of the product life cycle.
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Hypothetical Market Structure
Figure 11.1 Hypothetical Market Structure
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Staying Number One Expand total market demand
Protect current market share Increase market share
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Expanding Total Market Demand
New Customers More Usage Replacement rate New product uses
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Protect Current Market Share
Offensive Strategy Defensive Strategy Proactive Marketing
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Six Types of Defense Strategy
Figure 11.2 Six Types of Defense Strategy
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Increase Market Share Antitrust action Decreased profitability
Lower overall quality “Actual” quality If the size of the market remains constant, market leaders often look to increase share. The payoffs can be rewarding. For example, the Carbonated Soft Drink (CSD) market has about $70 billion in annual sales. A 1% point market share increase by Coke or Pepsi is worth around $700 million. However, firms must exercise caution. Marketers must consider the cost needed to gain share. Market leaders can face issues such as: Antitrust actions Higher economic costs (covered next slide w/figure 11.3) Loss of focus Impact on actual and perceived quality. By serving too many customers, actual quality can decrease. This may result in lower market share over time as customers switch to competitors. Pursue wrong marketing activity “Perceived” quality 2012 2013
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Optimal Market Share Figure 11.3
Figure 11.3 outlines that profitability may decline with an increase in market share. This occurs if the firms expense related to gaining market share above the optimal point exceeded the value that new customers brought to the company. Increasing market share may require the firm to pursue customers that are loyal to competitors (switched due to price promotion) or that have unique needs (with higher costs). Firms have actually increased profits by decreasing market share through the elimination of unprofitable customers.
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Other Competitive Strategies
Market-challenger Market-nicher Being the market leader is not the only road toward profitability. Firms such as PepsiCo, Ford, and Avis are examples of large, profitable companies that are not the leaders in their industry. Depending on the position of the firm, in terms of market order, various strategies are available. Market-follower
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Market-Challenger Strategies
Define objectives and opponent(s) Choose general attack strategy Choose Specific attack strategy Market challengers, such as Toyota, Lowe’s, and PepsiCo have performed well despite not being the leader in their markets. Being #2 provides numerous options to increase sales. In devising a strategy, challengers must: 1) define their objectives and determine who to attack; 2) select the attack strategy, and 3) choose a specific attack strategy.
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Market-Challenger Strategies
Objectives and Opponents General attack strategies Frontal attack Flank attack Encirclement attack Bypass attack Guerrilla attack Attack: Market leader Weaker, similar size firms Smaller local or regional firms A typical objective for challengers is to increase market share. This decision on who to attack is determined by who the competitors are. Attacking market leaders is typically a high-risk, high-reward strategy, if successful. Market leaders often have superior resources to counter an attack, but at times are unfocused at serving the market well. Avis attacked Hertz with the slogan “We try harder,” to emphasize a higher level of customer service. Challengers can attack firms of similar size, in terms of market share, that may be underfinanced, or are not satisfying customers. Smaller firms can be the focus of the attack through expansion or acquisition. Attack strategies include: Frontal attack – Attacking the opponent head on in terms of product, price, advertising, and distribution. Flank attack – Finding gaps that are being created by shifts in the market place. Encirclement attack – Launching an offensive attack on many fronts. Bypass attack – Focusing on easier, smaller markets that the leader does not bother with. Guerilla attack – Are small attacks, both conventional and unconventional, that are used to harass a competitor. Is typically followed by a larger attack.
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Market-Follower Strategies
Counterfeiter Adapter Followers can achieve success by taking advantage of the groundwork that market leaders laid. They can hold an advantage over competitors through its location or service offerings, and keeping manufacturing costs low. Followers can use a variety of strategies including: Counterfeiter - Duplicate the leaders products and package and sell on the black market or through disreputable dealers. Cloner – Emulate the product leader’s products, name, and packaging, but with slight variations. Ralcorp Holdings sells imitations of name brand cereal in look-alike packaging, which retail for nearly $1 less per box. Imitator – Copies some things from the leader but differentiates on packaging, advertising, pricing, or location. Leaders do not protest too much unless the imitator seeks to attack aggressively. Adapter – Takes the leaders products and improves them. May select a different market than the leader but if left uncheck may grow into a formidable opponent. Japanese automakers are examples. Imitator Cloner
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Market-Nicher Strategies
Nichers Task Create niches Expand niches Protect niches Nicher can be successful by focusing on smaller, highly profitable segments of the market. These segments are typically underserved by larger competitors who are focused on high volume. The risk comes if the niche become so profitable that competitors (such as challengers) take notice and attack. Target small, profitable segments Achieve higher margins
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Product Life-Cycle Strategies
Products have a limited life Sales pass through stages For products, strategies must change as the product, market, and competitors change over the product life cycle. The PLC can be used to analyze a product category (liquor), a product form (white liquor), a product (vodka), or a brand (Smirnoff). Profits rise, then fall Different strategies needed
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Sales and Profit Life Cycles
Figure 11.4 Sales and Profit Life Cycles The typical PLC is bell-shaped. However, for some products the curve will vastly different.
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Common Product Life-Cycle Patterns
Figure 11.5 Common Product Life-Cycle Patterns 11.5 (a) – Growth-slump-maturity pattern, is characteristic of small kitchen appliances. Sales grow when the product if first introduced, but the fall. The market is only sustained by late adopters entering the market, and early adopters reentering to buy replacements. 11.5 (b) – Cycle-recycle pattern is used to describe the sales of new drugs. Promotions create both the first (primary) and the second (recycle) cycle. 11.5 (c) – Scalloped pattern shows how some product categories continue to grow based on the discovery of new-product characteristics, uses, or users. Nylon has shown a scalloped patter because of new uses – parachutes, hosiery, shirts, carpeting, boat sails, tires – discovered over time.
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Style, Fashion, and Fad Life Cycles
Figure 11.6 Style, Fashion, and Fad Life Cycles 11.6 (a) – A style is a basic and distinctive mode of expression. Include homes, clothing, and art. Can last for generations and go in and out of vogue. 11.6 (b) – A fashion is a currently accepted or popular style in a given field. Fashions pass through 4 stages: distinctiveness, emulation, mass fashion, and decline. 11.6 (c) – Fads are fashions that come quickly into public view, are adopted with great zeal, peak early, and decline very fast.
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Product Life-Cycle Stages
Introduction
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PLC: Introduction Stage
Slow sales growth, negative profits Marketing Strategies: Create awareness Induce product trial Secure retail distribution. Speed to Market Sales growth is slow, profits are negative, and promotional expenses are at their highest in terms of ratio to sales. Inform potential consumers Induce product trial Secure retail distribution. Which is more profitable over 5 years? 6 months late, but on budget? On time, but 50% over budget?
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Order of Market Entry Inventor Product pioneer Market pioneer
Pioneer Advantage Inventor Product pioneer Market pioneer First Mover Advantage Brand name association Define product class Customer inertia Producer advantages Imitator Advantage
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Long-Range Product Market Expansion Strategy
Figure 11.7 Long-Range Product Market Expansion Strategy
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Rapid sales growth; New competitors
PLC: Growth Stage Rapid sales growth; New competitors Marketing Strategies: Improve product quality; add new features Add new models and flanker products Enter new market segments Focus advertising on preferences Increase distribution coverage Lower price; Attract price-sensitive buyers Early adopters like the product which helps to bring new customers into the market. Competitors, attracted by the opportunity, enter the market with new product features and further expand distribution. This results in prices stabilizing, or even falling. Promotional expense levels are maintained or increased (to meet competition). The rapid sales growth causes a welcomed decline in the promotion-sales ration. The volume increase results in lower manufacturing costs per unit.
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Growth slows; Weak competitors exit
PLC: Maturity Stage Growth slows; Weak competitors exit Marketing Objectives: Maximize profit Defend market share The maturity stage poses the most challenges to market members. Slowing sales creates overcapacity (capacity was increased in the growth stage), which intensifies competition. Weaker competitors exit the market leaving a few dominant players – perhaps a quality leader, service leader, and a cost leader. Firms must decide whether to work to be come one of the big three players and achieve profits through high volume and low costs, or to pursue a niching strategy, profiting through low volume and high margins. Mature markets can be highly profitable. Marketers have three courses of action in a mature market including (a) market modification (expand the market), (b) product modification (improve quality, features, or styles), or (c) marketing program modification (alter price, distribution, communications).
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Slow sales growth, negative profits
PLC: Decline Stage Slow sales growth, negative profits Product Options: Rejuvenate Harvest Divest The decline can be either slow, such as with sewing machines and newspapers, or it can be sudden such as with computer floppy disks. Remaining firms often reduce the number of products they offer, withdraw from smaller segments, cut marketing budgets and reduce prices further. Companies can remain in the market by strengthening the investment in the product category; or it can harvest the product by gradually reducing expenses (promotional, advertising, and other business costs); or by exiting the market by selling or dropping the product altogether.
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Characteristics of the PLC
Table 11.2 Characteristics of the PLC Introduction Growth Maturity Decline CHARACTERISTICS Sales Low Rapidly rising Peak Declining Costs/customer High Average Profits Negative Rising Customers Innovators Early Adopters Middle majority Laggards Competitors Few Increasing Stable number
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PLC Objectives and Strategies
Table 11.2 PLC Objectives and Strategies Introduction Growth Maturity Decline MARKETING OBJECTIVES Awareness and trial Maximize market share Maximize profits; Defend share Milk the brand STRATEGIES Product Basic Extend; Service, warranty Diversify brands and models Phase out the weak Price Charge cost-plus Price to penetrate Price to match Cut price Distribution Selective Intensive More intensive Go selective Communications Awareness early adopters Awareness w/ mass market Stress brand benefits Reduce to minimal
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Marketing in an Economic Downturn
More Compelling Value Proposition Review Budget Allocations Get Closer to Customers Increasing Investments
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