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Learning Objectives
Understand how a company identifies its
primary competitors and ascertains their strategies. Review how companies design competitive intelligence systems.
Poor firms ignore their competitors ; average firms copy their competitors ; winning firms lead their competitors.
Competitive Advantage
Definitions
An advantage over competitors gained by offering consumers greater value than competitors offer.
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.
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 Cost structure Entry, mobility and exit barriers Degree of vertical integration
Degree of globalization
Industry Structures
Pure Monopoly Pure Oligopoly Differentiated
Only one firm offers an undifferentiated product or service in an area Unregulated Regulated Example: Most utility companies
Competitive Markets
Pure Oligopoly A few firms produce essentially identical commodities and little differentiation exists Lower costs are the key to higher profits Example: oil Differentiated Oligopoly few firms produce partially differentiated items Differentiation is by key attributes Premium price may be charged Example: camera, washing m/c etc.
Competitive Markets
Monopolistic competition Many firms differentiate items in whole or part Appropriate market segmentation is key to success Example: beauty clinics, restaurants Pure Competition Many competitors offer the same product Price is the same due to lack of differentiation Example: farmers selling milk, commodity market etc.
Cost Structure
Each industry has a certain cost burden
that shapes much of its strategic conduct. E.g. Steel making- heavy manufacturing and raw material costs Toy manufacturing heavy distribution and marketing costs
economies of scale, patents and licensing, scarce location, raw material etc. Mobility barriers- when it tries to enter more attractive market segments Exit barriers- legal or moral obligations, low asset-salvage value due to obsolescence, lack of alternative opportunities etc.
High
Entry Barriers
High
players and thus high profit margins. Those markets with low entry barriers have lots of players and thus low profit margins. Those markets with high exit barriers are unstable and not selfregulated, so the profit margins fluctuate very much along time. Those markets with a low exit barrier are stable and self-regulated, so the profit margins do not fluctuate along time.
are actual or potential substitutes for the product. Substitutes place a limit on prices and on profits If technology advances or competition increases in these substitute industries, prices and profits in the segment are likely to fall.
Competitor Analysis
1.Identifying Competitors
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
Competitor Map
Analyzing Competitors
Determining competitors objectives Identifying competitors strategies Strategic groups (A group of firms following the same strategy in a given target market is called a strategic group). Assessing competitors strengths and weaknesses Benchmarking Estimating competitors reactions
Analyzing Competitors
A company should monitor three variables when analysing competitors: Share of market Share of mind Share of heart
Competitor Analysis
3.Selecting Competitors to Attack or Avoid
Customer value analysis (Customers identify and rate attributes important in the purchase decision for the company and competition) Most companies compete against close competitors
Setting up the system Collecting the data Evaluating and analyzing the data Disseminating information and responding to queries
Customers identify and rate attributes important in the purchase decision for the company and competition
To prepare an effective marketing strategy, a company must study its competitors as well as its actual and potential customers. A company should also pay attention to latent competitors, who may offer new or other ways to satisfy the same need. Competitive intelligence needs to be collected, interpreted, and disseminated continuously. With good competitive intelligence, managers can more easily formulate their strategies.
A marketer should thoroughly examine the problem of designing marketing strategies that take into account competitors strategy. Some competitors will be large, others small. Some will have great resources, others will be strapped for funds. Further insight can be gained by classifying firms by the role they play in the target market, that of leading, challenging, following or niching.
40% Market Challenger 30% Market Follower 20% Market nicher 10%
Market Leader : the firm with the largest market share Market Challenger : a runner-up firm that is fighting hard for an increased market share Market Follower : another runner-up firm that is willing to maintain its market share and not rock the boat Market Nicher : firms that serve small market segments not being served by larger firms
users Market penetration strategy ( who might use it but do not ) New market segment strategy ( those who have never used it Geographical expansion strategy ( those who live somewhere else)
strategy to reduce the probability of attack, or divert the attacks. Position defense: building superior brand power Flank defense: build outposts to protect a weak front .( bring out new products or products with less price )
Pre emtive defense: attack before the enemy starts its offense. ( have products of all price types and categories eg Seiko) Counteroffensive defense: attack the competetor with same strategy as the competetor. Mobile defense: leader stretches his domain over new territories it spreads through market broadening and market diversification
focus from current product to the underlying generic need. Eg : Petrolium companies sought to recast themselves into energy companies. They are into coal, power, oil, nuclear, and chemical industris
Market diversification : Diversification into unrelated industries. Contraction defense : It is strategic withdrawal. Give up weaker territories and reassign resources to stronger territories Market leaders can improve their profitability by expanding their market share .
A T T A C K E R
2. Flanking Attack
4. Bypass Attack
DEFENDER
1. Frontal Attack : Head on attack. Attacks the opponents strengths rather than its weaknesses. 2. Flanking Attack : Concentration of strengths against weaknesses. 3. Encirclement Attack : Attempt to capture a wide slice of the enemys territory through a comprehensive Blitz attack. 4. Bypass Attack : Bypassing the main enemy and attacking easier markets (diversifying into unrelated products, new geographical markets, new technologies). 5. Guerrilla Attack : Attacking on different territories of the opponent, with the aim of harassing and demoralize the opponent.
Price discount strategy Cheaper goods strategy Prestige goods strategy Product proliferation strategy (launching a large product variety) Product innovation strategy Improved service strategy Distribution innovation strategy Manufacturing cost reduction strategy Intensive advertising promotion
A strategy of product imitation might be as profitable as a strategy of product innovation (Innovative Imitation) A market follower must know how to hold current customers and win a fair share of new customers. Each follower tries to bring distinctive advantages to its target market location, services, financing etc. The follower is a major target of attack by challengers. Therefore, the market follower must keep its manufacturing costs low and its product quality and services high. It must also enter new markets as they open up.
large market is to be a leader in a small market or niche. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms. But increasingly, even large firms are setting up business units, or companies, to serve niches.
The main point is, that firms with low shares of the total market can be highly profitable through smart niching. Niching is profitable, because the market nicher ends up knowing the the target customer group so well that it meets their needs better than other firms that are casually selling to this niche. As a result, the nicher can charge a substantial mark-up over costs because of the added value. The nicher achieves high margin, whereas the mass marketer achieves high volume.
what competitors are doing, then formulate competitive reactions Customer-centered companies focus on customer developments when formulating strategy