1 11 Competitive Dynamics

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?

Figure 1.1 Five Forces Determining Segment Structural Attractiveness (Michael Porter’s) Potential Entrants (Threat of Mobility Suppliers (Supplier power) Industry Competitors (Segment rivalry) Buyers (Buyer power) Substitutes (Threat of substitutes)

Industry Concept of Competition Number of sellers and degree of differentiation Entry, mobility, and exit barriers Cost structure Degree of vertical integration Degree of globalization

Industry Concept of Competition Pure monopoly Oligopoly Monopolistic competition Pure competition

Market Concept of Competition Substitutes Secondary Competitors Primary Competitors The product (and its value proposition)

Analyzing Competitors Share of market Share of mind Share of heart

Selecting Competitors Strong versus Weak Close versus Distant “Good” versus “Bad”

Competitive Strategies for Market Leaders: Expanding the Total Market New customers More usage

Figure 11.6 Six Types of Defense Strategies Defender Flank Preemptive Counteroffensive Mobile Contraction

Factors Relevant to Pursuing Increased Market Share Possibility of provoking antitrust action Economic cost Pursuing the wrong marketing-mix strategy The effect of increased market share on actual and perceived quality

Other Competitive Strategies Market challengers Market followers Market nichers

Market Challenger Strategies Define the strategic objective and opponents Choose a general attack strategy Choose a specific attack strategy

General Attack Strategies (1) Frontal attack

General Attack Strategies (2) Flank attack: an enemy’s weak spots are natural targets.

General Attack Strategies (3) Encirclement attack: a grand offensive attack on several fronts.

General Attack Strategies (4) Bypass attack: bypassing the enemy and attacking easier markets to broaden one’s resource base (by diversifying into unrelated products/ geographical markets, and leapfrogging into new technologies)

General Attack Strategies (5) Guerrilla warfare: consists of small, intermittent attacks to harass and demoralize the opponent and eventually secure permanent footholds. Suitable for smaller firms against a larger one.

Specific Attack Strategies Price discounts Lower-priced goods Value-priced goods Prestige goods Product proliferation Product innovation Improved services Distribution innovation Manufacturing-cost reduction Intensive advertising promotion

Market Follower Strategies Counterfeiter Cloner Imitator Adaptor

Market Nicher Strategies A leader in small market End-user specialist Vertical-level specialist Customer-size specialist Specific-customer specialist Geographic specialist Product or product-line specialist Product-feature specialist Job-shop specialist Quality-price specialist Service specialist Channel specialist

Marketing in an Economic Downturn Invest Get close to customers Review budgets Use a compelling value proposition Fine-tune offerings Despite reduced funding for marketing programs and intense pressure to justify them as cost effective, some marketers survived—or even thrived—in the recession. This slide lists five guidelines to improve the odds for success during an economic downturn.

Balancing Orientations Competitor-centered Customer-centered We were going to obsess over our customers and not our competitors. We watch our competitors, learn from them, see the things that they were doing for customers and copy those things as much as we can. But we were never going to obsess over them.