1. Dealing with CompetitionBy
Prantosh Banerjee

2. Conceptual base to deal with Competition :
Concept 1: Effective marketing strategies involve studying competitors and competitive forces. (who?)
Concept 2: The 5 Competitive Forces
Concept 3: Marketers need to identify competitors' strategies, objectives, strengths and weaknesses. (what?)
Concept 4: A company should identify competitors by using both industry- and market-based analyses.
Concept 5: There are four roles that firms can play in a market: the market leader, the market challenger, the market follower, the market nicher. Important to business success (why?)

4. Threat of New Entry the existence of barriers to entry
economies of product differences
brand equity
switching costs
capital requirements
access to distribution
absolute cost advantages
learning curve advantages
expected retaliation
government policies

5. Competitive Rivalry number of competitors rate of industry growth
intermittent industry overcapacity
exit barriers
diversity of competitors
informational complexity and asymmetry
brand equity
fixed cost allocation per value added
level of advertising expense

6. Supplier Power
supplier switching costs relative to firm switching costs
degree of differentiation of inputs
presence of substitute inputs
supplier concentration to firm concentration ratio
threat of forward integration by suppliers relative to the threat of backward integration by firms
cost of inputs relative to selling price of the product

7. Buyer Power buyer concentration to firm concentration ratio
bargaining leverage
buyer volume
buyer switching costs relative to firm switching costs
buyer information availability
ability to backward integrate
availability of existing substitute products
buyer price sensitivity
price of total purchase

8. Threat of Substitution
buyer propensity to substitute
relative price performance of substitutes
buyer switching costs
perceived level of product differentiation

9. Definition Competitive Analysis
The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

10. Steps in Analyzing Competitors

11. Competitor Analysis Steps in the Process:
Firms face a wide range of competition
Be careful to avoid “competitor myopia”
Methods of identifying competitors:
Industry point-of-view
Market point-of-view
Steps in the Process:
Identifying Competitors
Assessing Competitors
Selecting Competitors to Attack or Avoid

12. Competitor Analysis Steps in the Process: Identifying Competitors
Determining competitors’ objectives
Identifying competitors’ strategies
Strategic groups
Assessing competitors’ strengths and weaknesses
Benchmarking
Estimating competitors’ reactions
Steps in the Process:
Identifying Competitors
Assessing Competitors
Selecting Competitors to Attack or Avoid

13. Competitor Analysis Steps in the Process: Identifying Competitors
Strong or weak competitors
Customer value analysis
Close or distant competitors
Most companies compete against close competitors
“Good” or “Bad” competitors
The existence of competitors offers several strategic benefits
Steps in the Process:
Identifying Competitors
Assessing Competitors
Selecting Competitors to Attack or Avoid

14. Competitive Strategies
Basic Winning Competitive Strategies: Porter
Overall cost leadership
Lowest production and distribution costs
Differentiation
Creating a highly differentiated product line and marketing program
Focus
Effort is focused on serving a few market segments

15. Competitive Advantage
Having a competitive advantage is necessary for a firm to compete in the market
But what is more important is whether the competitive advantage is sustainable
A firm must identify its position relative to the competition in the market
By knowing if it is a leader, challenger, follower or nicher, it can adopt appropriate strategies to compete

16. Hypothetical Market Structure
Figure 18-3:
Hypothetical Market Structure

17. Strategies for Market Leaders
Market Leader’s objectives:
Expand the total market by
Finding new users
Creating new uses, and
Encouraging more usage
Protect its current market share by
Adopting defense strategies (see following slides)
Increase its market share
Note the relationship between market share and profitability

18. Defense Strategy
A market leader should generally adopt a defense strategy
Six commonly used defense strategies
Position Defense
Mobile Defense
Flanking Defense
Contraction Defense
Pre-emptive Defense
Counter-Offensive Defense

19. Defense Strategies - Defense Contraction Defense Mobile Defense Flank
Attacker
Defender
Position
Defense
Preemptive
Defense
Counteroffensive
Contraction
Defense
The 6 defense strategy options are depicted here for Market Leaders.
Our focus is on the two prominant options in the center:
the Preemptive Defense; and the Counteroffensive Defense.
Mobile
Defense

20. Defense Strategy (cont’d)
Position Defense
Least successful of the defense strategies
e.g. Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus.

21. Defense Strategy (cont’d)
Mobile Defense
By market broadening and diversification
For marketing broadening, there is a need to
Redefine the business (principle of objective), and
Focus efforts on the competition (the principle of mass)

22. Defense Strategy (cont’d)
Flanking Defense:
Secondary markets (flanks) are the weaker areas and prone to being attacked
Pay attention to the flanks

23. Defense Strategy (cont’d)
Contraction Defense
Withdraw from the most vulnerable segments and redirect resources to those that are more defendable
By planned contraction or strategic withdrawal

24. Defense Strategy (cont’d)
Pre-emptive Defense
Detect potential attacks and attack the enemies first
Let it be known how it will retaliate
Product or brand proliferation is a form of pre-emptive defense

25. Defense Strategy (cont’d)
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

26. 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

27. Market Challenger Strategies (cont’d)
Types of Attack Strategies
Frontal attack
Flank attack
Encirclement attack
Bypass attack
Guerrilla attack

28. Attack Strategies - Bypass Attack Flank Attack Defender Attacker
Frontal Attack
This diagram depicts the 5 attack strategy options.
Encirclement Attack
Guerrilla Attack

29. 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)

30. 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

31. 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

32. Bypass attack
By diversifying into unrelated products or markets neglected by the leader
Could overtake the leader by using new technologies

33. 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

34. Which Attack Strategy should a Challenger Choose?
Use a combination of several strategies to improve market share over time

35. 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

36. 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 e.g. the IBM PC clones
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

37. 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

38. Market-Nicher Strategies (cont’d)
Nichers must create niches, expand the niches and protect them
What is the major risk faced by nichers?
Market niche may be attacked by larger firms once they notice the niches are successful

39. 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.”

40. Competitive Roles & Strategy:
Target Market Role
Position Descriptor
Objective
Strategy
Market-Leader
Dominant - Controls behavior of other competitors & has wide choice of strategic options
1. Expand Market:
2. Defend Current Share:
3. Increase Share:
- New Users
- New Uses
- More Usage
- Position Defense
- Flank Defense
- Preemptive Defense
- Counteroffensive
Defense
- Mobile Defense
- Contraction Defense
- New Product Activity
- Relative Product Quality
- Marketing Expenditures

41. Competitive Roles & Strategy:
Target Market Role
Position/Descriptor
Objective
Strategy
Market-Challenger
Strong/Favorable -
Can take independent action without endangering its long-term position;
can maintain its position regardless of competitors’ actions
Increase Share:
1. Frontal Attack
2. Flank Attack
3. Encirclement Attack
4. Bypass Attack
5. Guerrilla Attack
Market-Follower
Tenable/Weak - Growth
path that does not invite
competitive retaliation
Hold Share:
1. Counterfeiter
2. Cloner
3. Imitator
4. Adapter
Market-Nicher
Tenable/Weak/Nonviable -
Smaller firms avoid competing
with larger firms by targeting
small markets of little or no
interest to larger firms
High Margins:
(Specialization)
1. Creating Niches
2. Expanding Niches
3. Protecting Niches