Chapter 7 Dealing with the Competition PowerPoint by Yu Hongyan Business School of Jilin University

Objectives Understand how a company identifies its primary competitors and ascertains their strategies. Review how companies design competitive intelligence systems.

Objectives Learn how a company decides whether to position itself as a market leader, a challenger, a follower, or a nicher. Identify how a company can balance a customer vs. competitor orientation.

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

Competitive Markets Figure 8-1: Five Forces that Determine Market Attractiveness

Barriers and Profitability Low, stable returns Low High, stable returns HighLow Low, risky returns High, risky returnsHigh Entry Barriers Exit barriers

Competitive Markets Figure 8-2: Barriers and Profitability

Discussion Scenario Assume that Texas passes legislation which legalizes casino riverboat gambling (riverboats must be located on rivers, lakes, or oceans). A limited number of gaming licenses are strictly controlled by the state gaming commission. Assume you work for Harrah’s. Using Porter’s Five Forces, analyze the market attractiveness of Texas.

Competitive Markets Failing to identify competitors can lead to extinction Internet businesses have led to disintermediation of middlemen Competition can be identified using the industry or market approach

Competitive Markets Industries Can Be Classified By: Number of sellers and degree of differentiation Entry barriers, mobility and exit barriers Degree of globalization Degree of vertical integration Cost structure Industry Characteristics

Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition Only one firm offers an undifferentiated product or service in an area Unregulated Regulated Example: Most utility companies

Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition A few firms produce essentially identical commodities and little differentiation exists Lower costs are the key to higher profits Example: oil

Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition A few firms produce partially differentiated items Differentiation is by key attributes Premium price may be charged Example: Luxury autos

Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition Many firms differentiate items in whole or part Appropriate market segmentation is key to success Example: beer, restaurants

Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition Many competitors offer the same product Price is the same due to lack of differentiation Example: farmers selling milk, crops

Competitive Markets A broader group of competitors will be identified using the market approach Competitor maps plot buying steps in purchasing and using the product, as well as direct and indirect competitors

Competitive Markets Figure 8-3: Competitor Map of Eastman Kodak

Competitor Analysis Key Competitive Characteristics to be Identified: Strengths and Weaknesses Effect a firm’s competitive position Reactive Patterns Objectives Strategies

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

Competitor Analysis Figure 8-4: Strategic Groups in the Major Appliance Industry

Analyzing Competitors CompetitorActions Objectives Strengths & Weaknesses ReactionPatterns Strategies

Competitor Analysis Competitive Positions in the Target Market Weak Favorable Dominant Nonviable Tenable Strong

Discussion Scenario Choose one of these three product classes: personal computers, soft drinks, or mass merchandise retailers. Identify key competitors within your chosen product class, as well as the competitive position held by each. Be prepared to defend your classifications.

Competitive Intelligence Systems Designing the system Collecting the data Evaluating and analyzing the data Disseminating information and responding to queries Designing the System Involves:

Competitive Intelligence Systems The CI Resource Index is a search engine devoted to competitive intelligence resources

Competitive Intelligence Systems Value analysis helps firms to select competitors to attack and to avoid Customers identify and rate attributes important in the purchase decision for the company and competition Attacking strong, close, and bad competitors will be most beneficial

Designing Competitive Strategies Major Strategies Market-Leader Market-Challenger Market-Follower Market-Nicher Expanding the total market Defending market share Expanding market share

Competitor’s Expansion Plans Markets Products Individual Users Commercial & Industrial Educational Personal Computers Hardware Accessories Software Dell

Hypothetical Market Structure & Strategies 40% Market leader 30% Market challenger 20% Market follower Expand Market Defend Market Share Expand Market Share Attack leader Status quo Imitate 10% Market nicher Special- ize

Designing Competitive Strategies Expanding the Total Market: Targeting Product to New Users Market-penetration strategy New-market strategy Geographical-expansion strategy Promoting New Uses of Product Encouraging Greater Product Use

Designing Competitive Strategies Figure 8-5: Defense Strategies

Designing Competitive Strategies Before Attempting to Expand Market Share, Consider: Probability of invoking antitrust action Economic costs involved Likelihood that marketing mix decisions will increase profits

Designing Competitive Strategies Major Strategies Market-Leader Market-Challenger Market-Follower Market-Nicher First define the strategic goals and opponent(s) Choose general attack strategy Choose specific attack strategy

Designing Competitive Strategies Figure 8-6: Attack Strategies

Designing Competitive Strategies Intensive advertising promotion Product proliferation Prestige goodsPrice-discount Product innovation Distribution innovation Improved services Manufacturing cost reduction Specific Attack Strategies Lower-price goods

Discussion Scenario As brand manager for the IBM personal computing division, you have been given the formidable task of increasing market share. Identify and justify the general and specific attack strategies that you would use to accomplish this goal.

Designing Competitive Strategies Major Strategies Market-Leader Market-Challenger Market-Follower Market-Nicher Imitation may be more profitable than innovation Four broad strategies: Counterfeiter Cloner Imitator Adapter

Designing Competitive Strategies Major Strategies Market-Leader Market-Challenger Market-Follower Market-Nicher Niche specialties: End-user Vertical-level Customer-size Specific customer Geographic Product/product line Product feature Job-shop Quality-price Service Channel

Discussion Scenario Companies or brands may successfully fill market niches. Can you think of some companies or brands that follow a market niche strategy? If so, which ones?

Balancing Customer and Competitor Orientations Competitor-centered companies evaluate what competitors are doing, then formulate competitive reactions Customer-centered companies focus on customer developments when formulating strategy

Competitor’s Expansion Plans Markets Products Individual Users Commercial & Industrial Educational Personal Computers Hardware Accessories Software Dell

Hypothetical Market Structure & Strategies 40% Market leader 30% Market challenger 20% Market follower Expand Market Defend Market Share Expand Market Share Attack leader Status quo Imitate 10% Market nicher Special- ize

Defense Strategies Attacker (3)Preemptive defense (4)Counter- offensivedefense Defender (1)Positiondefense (5) Mobile defense (2) Flank defense (6) Contraction defense

Optimal Market Share Profitability Market share 0%25%50%75%100% Optimal market share

Attack Strategies Attacker Defender (3) Encirclement attack (4) Bypass attack (2) Flank attack (5) Guerilla attack (1) Frontal attack

Specific Attack Strategies Price-discount Cheaper goods Prestige goods Product proliferation Product innovation Improved services Distribution innovation Manufacturing cost reduction Intensive advertising promotion

“Nichemanship” 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

Balance Competition Customer + Fighter orientation + Alert + Exploit weaknesses - Reactive + ID opportunities + Long-run profit + Emerging needs & groups