Chapter 9

Dealing with the Competition

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Kotler on Marketing
Poor firms ignore their competitors; average firms copy their competitors; winning firms lead their competitors.

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Chapter Objectives
In this chapter, we focus on five things companies need to know about their competition:
Who their primary competitors are How to ascertain their strategies, objectives, strengths and weaknesses, and reaction patterns How to design a competitive intelligence system Whether to position as market leader, challenger, follower, or nicher. How to balance a customer versus competitor orientation
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Competitive Forces
Five Forces Determining Segment Structural Attractiveness

Threat of:
1. intense segment rivalry 2. new entrants 3. substitute products buyers growing bargaining power suppliers growing bargaining power
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Barriers and Profitability

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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

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Industry Concept of Competition (Cont)

Number of sellers and degree of differentiation
Pure monopoly: Only one firm provides a certain product or service in a certain country or area. (KESC). Oligopoly: A small number of usually large firms produce products that range from highly differentiated to standardized.
Pure oligopoly: Consists of few companies producing essentially the same commodity (Oil, Steel). Differentiated oligopoly: (Autos, cameras)

Monopolistic competition: Many competitors are able to

differentiate their offers in whole or in part (restaurants, beauty shops)

Pure competition: Many competitors offer the same product &

service(Commodity market).
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Industry Concept of Competition (Cont)

Entry, Mobility, Exit Barriers
Entry barriers Mobility barriers Exit barriers

Cost Structure
Degree of Vertical Integration
Vertical integration (Forward or backward)

Degree of Globalization
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Market Concept of Competition

Profiling a companys direct & indirect competitors by mapping the buyers steps in obtaining & using the product.

This type of analysis highlights both the opportunities & the challenges a company faces.

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Competitor Map Eastman Kodak

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Analyzing Competitors Objectives

A Competitors Expansion Plans

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Analyzing Competitors (Cont)

Strengths and Weaknesses
Dominant: Firm controls the behavior of other competitors & has a wide
choice of strategic options.

Strong: Firm can take independent action without endangering its long
term position & can maintain it regardless of competitors actions.

Favorable: Firm has an exploitable strength & a more than average

opportunity to improve its position.

Tenable: Firm is performing at a sufficiently satisfactory level to warrant

continuing its business & has a less than average opportunity to improve its position.

Weak: Firm has unsatisfactory performance but opportunity for

improvement.

Nonviable: Firm has unsatisfactory performance & no opportunity for

improvement .
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Customers Ratings of Competitors on Key Success Factors

Customer Awareness
Competitor A Competitor B Competitor C E G F

Product Quality
E G P

Product Availability
P E G

Technical Assistance
P G F

Selling Staff
G E F

Note: E = excellent, G = good, F = fair, P = poor.

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Analyzing Competitors (Cont)

Three Variables to Monitor when Analyzing Competitors:
Share of market: The competitors share of the target
market.

Share of mind: The percentage of customers who named

the competitor in responding to the statement, Name the first company that comes to mind in this industry.

Share of heart: The percentage of customers who named

the competitor in responding to the statement, Name the company from which you prefer to buy the product .
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Market Share, Mind Share, and Heart Share

Market Share
2000 Competitor A Competitor B Competitor C 50% 30 20 2001 47% 34 19 2002 44% 37 19

Mind Share
2000 60% 30 10 2001 58% 31 11 54% 35 11

Heart Share
2001 2002 42% 47 11 39% 53 8 45% 44 11

2002 2000

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Analyzing Competitors (Cont)

Reaction Patterns
1. If competitors are nearly identical and make their living the same way, then their competitive equilibrium is unstable. (Where differentiation is hard to maintain , E.g. Steel) 2. If a single major factor is the critical factor, then the competitive equilibrium is unstable. (Where cost differentiation opportunities exist through economies of scale) 3. If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differentially attractive to some customers. The more factors that may provide an advantage, the more competitors who can coexist. Competitors all have their segment, defined by the preference for the factor trade-offs they offer.
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Analyzing Competitors (Cont)

4. The fewer the number of critical competitive variables, the fewer the number of competitors. 5. A ratio of 2 to 1 in market share between any two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for either competitor to increase or decrease share. ( Where the cost of extra promotion or distribution would outweigh the gains in market share)

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Designing the Competitive Intelligence System

Four main steps
Setting up the System Types of vital Information Identifying the best source of information Assigning who will manage the system & its services Collecting the Data From field sales force, channels, suppliers, market research firms, trade associations. Evaluating and Analyzing the Data Checking the data for validity, reliability, interpreted & organized. Disseminating Information and Responding
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Designing the Competitive Intelligence System

Selecting Competitors
Customer Value Analysis (CVA)
Customer Value = Customer Benefits Customer Costs Customer Benefits = product benefits, service benefits, personnel benefits, image benefits

Customer Costs = purchase price, acquisition costs, usage costs, maintenance costs, ownership costs, disposal costs
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Customer Cost of Three Brands

A Price Acquisition costs Usage costs Maintenance costs Ownership costs Disposal costs Total costs $100 15 4 2 3 6 $130 B $ 90 25 7 3 3 5 $135 C $ 80 30 10 7 5 8 $140

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Designing the Competitive Intelligence System Major Steps in Customer Value Analysis:
1. Identify the major attributes customers value. 2. Assess the quantitative importance of the different attributes.

3. Assess the companies and competitors performances on the different customer values against their rated importance.
4. Examine how customers in a specific segment rate the companys performance against a specific major competitor on an attribute-by-attribute basis. 5. Monitor customer values over time.
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Designing the Competitive Intelligence System

Classes of Competitors
Strong versus Weak
Most companies aim their shots at weak competitors, because it requires fewer resources, yet firm will achieve little in terms of improved capabilities.

Close versus Distant

Most companies compete with competitors who resemble them the most. Yet companies should also recognize distant competitors. E.g. Chevrolet with ford, U.S steel worries more about plastic & aluminum.

Good versus Bad

Company should support good ones & attack bad ones, good ones play by industry rules, make realistic assumptions about industry growth, they set prices in reasonable relation to cost. 9-22
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Designing Competitive Strategies

Hypothetical Market Structure

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Designing Competitive Strategies (Cont) Market-Leader Strategies:

Remaining number one calls for action on three fronts,
Expanding the total market Protecting current market share through defensive & offensive actions

Try to increase market share even market size remains constant

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Designing Competitive Strategies (Cont)

Expanding the total market
New Users -Market-penetration strategy
-New-market segment strategy

Geographical-expansion strategy
New Uses More Usage

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Designing Competitive Strategies (Cont)

Protecting current market share through defensive & offensive actions
Defense Strategies Position defense: Involves building superior brand power, making the brand almost impregnable. Flank defense: Also protect a weak front possibly serve as an invasion base.

Preemptive defense: A more aggressive maneuver is to attack before the enemy starts its offense.
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Designing Competitive Strategies (Cont)

Counteroffensive defense: When attacked, most will respond with a
counterattack, in this case a leader can meet the attacker frontally or hits its flank.

Mobile defense: The leader stretches its domain over new territories
that can serve as future centers for defense & offense.

Contraction Defense: Some times companies recognize that they can

no longer defend all of their territory, then best course of action is planned contraction also called strategic withdrawal which means giving up weaker territories & reassigning resources to strong ones.

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Designing Competitive Strategies (Cont)

Market-Challenger Strategies
Firms that occupy second, third or lower ranks in an industry are often called runner-up or trailing firms. These firms can adopt one of two postures,
Either attack the leader & other competitors in an aggressive bid for further market share (Market challengers) Or they can play ball & not rock the boat (Market followers).

Defining the Strategic Objective and Opponent(s)

It can attack the market leader It can attack firms of its own size that are not doing the job and are underfinanced It can attack small local and regional firms
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Designing Competitive Strategies (Cont)

Choosing a General Attack Strategy
Frontal Attack: Attacker matches its opponents product, advertising, price & distribution. Flank Attack: Concentration of own strength against competitors weakness.

Encirclement Attack: An attempt to capture a wide slice of the enemys territory through an attack.
Bypass Attack: Bypassing the enemy & attacking easier markets to broaden ones resource base. Guerrilla warfare: Small, intermittent attacks to harass & demoralize the opponent & eventually secure permanent 9-29 footholds.
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Attack Strategies

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Designing Competitive Strategies (Cont)

Choosing a Specific Attack Strategy
Price-discount(Comparable product at a lower price) Lower price goods(Offer average or lower quality product) Prestige goods (Launch higher quality product & charge higher than
leader)

Product proliferation (Launching larger product variety) Product innovation Improved services Distribution innovation Manufacturing cost reduction Intensive advertising promotion
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Designing Competitive Strategies (Cont)

Market-Follower Strategies
Innovative imitation Product innovation Four Broad Strategies:
Counterfeiter: Duplicates the leaders product & package & sells it on the black market or through disreputable dealers. Cloner: Emulates the leaders products, name, & packaging with slight variations. Imitator: Copies some things from the leader but maintains differentiation in terms of packaging, advertising , pricing or location. Adapter: Takes the leaders products & adapts or improves them. 9-32
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Designing Competitive Strategies (Cont)

Market-Nicher Strategies
An alternative to being a follower in large market is to be a leader in a small market, or niche.

Smaller firms normally avoid competing with larger firms, they target small markets of little or no interest to the larger firms. High margin versus high volume

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Balancing Customer and Competitor Orientations Competitor-centered company

Customer-centered company

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