11.Dealing With the Competition

7/31/2019 11.Dealing With the Competition

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COMPETITIVE ADVANTAGE

COMPETITOR ANALYSIS

DESIGNING COMPETITORSTRATEGIES


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Critical Advantage of a Firm over its competitor

MP : Cost Advantage Same value, lowercost

Differentiation Advantage superior

valueFocus


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Porters Five Forces that Determine MarketAttractiveness:

Threat of intense segment rivalry

Threat of new entrants

Threat of substitute products

Threat of buyers growing bargaining power

Threat of suppliers growing bargaining power


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Figure 9.1 Five Forces Determining

Segment Structural Attractiveness


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Threat of New Entrants

Entry Barrier High, Exit Barrier Low : Most attractive

Entry Barrier High, Exit Barrier High: Profit Potential High but

Risk factor becoz low performing firms can't exit

Entry Barrier Low, Exit Barrier Low : Returns are stable and low

Entry Barrier Low, Exit Barrier High : Worst Case


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Barriers to Entry

Economies of Scale - Reliance

Access to inputs - Tea gardensGovernment Policies - Defence

Proprietary Products- Patents held by Pharma industry


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Intensity of Rivalry among Firms

Few firms with large market share : less rivalry

Large no. of firms has market share : high rivalry because= in size

Results in price wars, increased customer services &warrantiesDifferentiation is absent then rivalry is high

Switching costs are low, rivalry is high


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Threat of substitutes

Switching costs

Price performance of substitutes

Customer propensity to move to substitutes

eg:

Cold drinks vs tea,

Pepsi in cups (Rs. 2),Chota Pepsi


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Bargaining Power of Buyers

If buyers are organized / concentrated Buyer Volume : Industry with lots of suppliers & few buyers

buyers influence price :

eg.Calcutta Market for MR

Wall - Mart

Backward integration of buyers

If buyers buy in large volumes, can influence price When buyer can switch between suppliers at low cost, it can

force down prices, or if it s worthwhile for the buyer to getsupplies from different suppliers at one time

If product is undifferentiated


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Bargaining Power of Suppliers

If few suppliers & many buyers, suppliers can dictate price(Intel,Opec)

If product has few substitutes and is important for purchasingcompany (medical equipment, industrial machinery)

No single industry is important to suppliers Vertical integration by supplier, thereby directing competing

with company while buyers cant threat to integrate backwardly

Impact on input on total profit product cost (if neglible doesnt

matter, if high, supplier power)


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Identifying Competitors

Do it early, mobile phones vis a vis

watches


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Competitive Markets

Number of sellersand degree of

differentiation

Cost structure

Entry, mobility and exitbarriers

Degree of vertical

integration

Degree of globalization

Industries Can Be Classified By:


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Competitive Markets


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Competitive Markets

A few firms produce

essentially identical

commodities and littledifferentiation exists

Lower costs are the

key to higher profits

Example: oil


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Competitive Markets

A few firms producepartially differentiateditems

Differentiation is bykey attributes

Premium price may

be charged Example: Luxury

autos


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Competitive Markets

Many firms

differentiate items in

whole or part Appropriate market

segmentation is key

to success

Example: beer,

restaurants


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Competitive Markets

Many competitors

offer the same

product Price is the same due

to lack of

differentiation

Example: farmers

selling milk, crops


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Competitor Analysis

Key characteristics of the competitionmust be identified: Strategies

Objectives Strengths and Weaknesses

Effect a firms competitive position in thetarget market

Reaction Patterns


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COMPETITOR ANALYSIS

Any product fills a need so analyse different waysfor filling need : thirst : water, Pepsi, tea, coffee,

coconut

All are competitors : Pagers didnt realize mobiles

were competitors : radio vs TV

A group of firms following the same strategy in a

given target market is called a strategic group.

Determine competitors objectives : profits? Sales

growth? Market Share? Technological Leadership?

Cash flow? Service Leadership?


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COMPETITOR ANALYSIS

Strengths and Weaknesses

Customer Ratings of Competitors on Key

Success Factors


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COMPETITOR ANALYSIS

Strengths and Weaknesses

Share of marketShare of market

Share of mind : SalienceShare of mind : Salience

Share of heart : First

Choice of purchase

Share of heart : First

Choice of purchase

Companies that make steady gains in mind share and heart

share will inevitably make gains in market share and profitability.


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Reaction Pattern

Slow reactor : Mosquito repellants

Selective competitor : React to only certainelements of competitors strategy

Tough competitor : retaliates to any move;Coke/Pepsi, Airtel/Hutch, (b) on price notcommn.

Unpredictable competitor : may or may not

respond to competition strategiesMust assess reaction patterns, no point reducing

price if you feel competition will do the same

COMPETITOR ANALYSIS


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Benchmarking against Competitors

Determine which functions or

processes to benchmark

Identify the key performance variables

to measure

Identify the best-in-class companies

Measure the performance of best-in-class companies


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Steps in Benchmarking (cont.)

Measure the companys performance

Specify programs and actions to close

the gap

Implement and monitor results


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Classes of Competition

Generic : Companies competing for the same disposableincome; want to make their products essential to the customer

Form : Company competes with all other companies offering

same benefit : Coke Industry : Company competes with same kind of product

manufactures by other firm

Brand : Similar products to similar consumer segments


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Fake brands in Rural Markets

Look-alike

Spell-alike

Duplicates


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DESIGNING COMPETITOR

STRATEGIES


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Designing Competitive

Strategies

Major Characteristics

Market-Leader Market-Challenger

Market-Follower

Market-Nicher

Market Share

Significant presence inmarket

Acknowledged as leader byother firmsConstantly guard itself fromfirms in its vulnerable spots

Can keep its leadership by

extending the market, newproducts, extending usageeg.: Hero Honda, Ujala, AllOut


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Strategies

Major Strategies


Market-Follower

Market-Nicher

Expanding the

total market

Defending market

share

Expanding

market share


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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


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Strategies

Positiondefense

Flank defense

Preemptivedefense

Counteroffensive

defense

Mobile defense

Contraction

defense

Defending Market Share


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Six Types of Defense Strategies


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Optimal Market Share


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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


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Other Competitive Strategies

Market

Challengers

Market

Nichers

Market

Followers


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Strategies



Market-Follower

Market-Nicher

Firms with 2, 3, 4 position Can adapt strategy of

offensive attack; Coke in

India, P & G

Should have the power tosustain the attack

Enter markets where the

competitors dont have a

presenceAttack in a vulnerable spot,

Nirma in rural markets, Ujala

before it became market

leaders


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Strategies

Major Strategies


Market-Follower

Market-Nicher

First define the

strategic goals

and opponent(s)

Choose general

attack strategy

Choose specific

attack strategy

In Sri Lanka Tapal has challenged


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In Sri Lanka, Tapal has challenged

Unilever to emerge as a serious

competitor


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General Attack Strategies

Frontal Attack

Encirclement

AttackBypass Attack

Flank Attack

Guerrilla Warfare


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Strategies

General Attack Strategies:

Frontal attacks match competition

Flank attacks serve unmet market needs orunderserved areas

Encirclement blitzes opponent

Bypassing opponent and attacking easiermarkets is also an option


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Pepsi buys Gatorade in a

Bypass Strategy


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Strategies


Market-Leader

Market-Challenger

Market-Follower

Market-Nicher

Follow the leader

rather than attack it

IIM vs IISWBM

Leverage on productinnovations through

market research

Does not want to risk

retaliation


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Strategies

Major Strategies


Market-Follower

Market-Nicher

Imitation may bemore profitable thaninnovation

Four broadstrategies: Counterfeiter

Cloner

Imitator

Adapter


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Market Nicher Strategies

C


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Strategies


Market-Leader

Market-Challenger

Market-Follower

Market-Nicher

Operate in a small

segment in which the

leader is not interested

(IIT-MBA vs IIM/OtherMBA)

Focuses all energy to

efficiently serve a smallsegment and earn loyalty


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Niche Specialist Roles

End-User Specialist

Vertical-Level

Specialist

Customer-SizeSpecialist

Specific-Customer

Specialist

Geographic

Specialist

Product-Line

Specialist

Job-Shop Specialist

Quality-PriceSpecialist

Service-Specialist

Channel Specialist


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11.Dealing With the Competition

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