11.dealing With The Competition

COMPETITIVE ADVANTAGE COMPETITOR ANALYSIS DESIGNING COMPETITOR STRATEGIES
COMPETITIVE ADVANTAGE
Critical Advantage of a Firm over its competitor MP : Cost Advantage Same value, lower cost Differentiation Advantage superior value Focus
COMPETITIVE ADVANTAGE
Porters Five Forces that Determine Market Attractiveness:
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
Figure 9.1 Five Forces Determining Segment Structural Attractiveness
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
Barriers to Entry
Economies of Scale - Reliance Access to inputs - Tea gardens Government Policies - Defence Proprietary Products- Patents held by Pharma industry
Intensity of Rivalry among Firms
Few firms with large market share Large no. of firms has market share
: less rivalry
: high rivalry because = in size Results in price wars, increased customer services & warranties Differentiation is absent then rivalry is high Switching costs are low, rivalry is high
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
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 get supplies from different suppliers at one time If product is undifferentiated
Bargaining Power of Suppliers

If few suppliers & many buyers, suppliers can dictate price (Intel,Opec) If product has few substitutes and is important for purchasing company (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)
Identifying Competitors
Do it early, mobile phones vis a vis watches
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
Competitive Markets
Competitive Markets
A few firms produce essentially identical commodities and little differentiation exists Lower costs are the key to higher profits Example: oil
Competitive Markets
A few firms produce partially differentiated items Differentiation is by key attributes Premium price may be charged Example: Luxury autos
Competitive Markets
Many firms differentiate items in whole or part Appropriate market segmentation is key to success Example: beer, restaurants
Competitive Markets
Many competitors offer the same product Price is the same due to lack of differentiation Example: farmers selling milk, crops
Competitor Analysis
Key characteristics of the competition must be identified:
Strategies Objectives Strengths and Weaknesses Effect a firms competitive position in the target market Reaction Patterns
COMPETITOR ANALYSIS Any product fills a need so analyse different ways for 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?
COMPETITOR ANALYSIS
Objective : A Competitors Expansion Plans
COMPETITOR ANALYSIS
Strengths and Weaknesses Customer Ratings of Competitors on Key Success Factors
COMPETITOR ANALYSIS
Strengths and Weaknesses

Share of market Share of mind : Salience 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.
COMPETITOR ANALYSIS
Reaction Pattern Slow reactor : Mosquito repellants Selective competitor : React to only certain elements of competitors strategy Tough competitor : retaliates to any move; Coke/Pepsi, Airtel/Hutch, (b) on price not commn. Unpredictable competitor : may or may not respond to competition strategies Must assess reaction patterns, no point reducing price if you feel competition will do the same
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-inclass companies
Steps in Benchmarking (cont.)

Measure the companys performance Specify programs and actions to close the gap Implement and monitor results
Classes of Competition
Generic : Companies competing for the same disposable income; 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
Fake brands in Rural Markets

Look-alike Spell-alike Duplicates
DESIGNING COMPETITOR STRATEGIES
Designing Competitive Strategies

Major Characteristics
Market Share Significant presence in market Acknowledged as leader by other firms Constantly guard itself from firms in its vulnerable spots Can keep its leadership by extending the market, new products, extending usage eg.: Hero Honda, Ujala, All Out
Market-Leader Market-Challenger Market-Follower Market-Nicher

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

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

Defending Market Share Position defense Flank defense Preemptive defense Counteroffensive defense Mobile defense Contraction defense
Six Types of Defense Strategies
Optimal Market Share
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

Firms with 2, 3, 4 position Can adapt strategy of offensive attack; Coke in India, P & G Should have the power to sustain the attack Enter markets where the competitors dont have a presence Attack in a vulnerable spot, Nirma in rural markets, Ujala before it became market leaders

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
In Sri Lanka, Tapal has challenged Unilever to emerge as a serious competitor
General Attack Strategies
Frontal Attack Encirclement Attack
Flank Attack
Bypass Attack
Guerrilla Warfare

General Attack Strategies:
Frontal attacks match competition Flank attacks serve unmet market needs or underserved areas Encirclement blitzes opponent Bypassing opponent and attacking easier markets is also an option
Pepsi buys Gatorade in a Bypass Strategy

Major Characteristics Follow the leader rather than attack it IIM vs IISWBM Leverage on product innovations through market research Does not want to risk retaliation

Major Strategies
Imitation may be more profitable than innovation Four broad strategies:
Counterfeiter Cloner Imitator Adapter
Market Nicher Strategies

Operate in a small segment in which the leader is not interested (IIT-MBA vs IIM/Other MBA) Focuses all energy to efficiently serve a small segment and earn loyalty
Niche Specialist Roles

End-User Specialist Vertical-Level Specialist Customer-Size Specialist Specific-Customer Specialist Geographic Specialist Product-Line Specialist Job-Shop Specialist Quality-Price Specialist Service-Specialist Channel Specialist
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

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COMPETITIVE ADVANTAGE COMPETITOR ANALYSIS DESIGNING COMPETITOR STRATEGIES

Figure 9.1 Five Forces Determining Segment Structural Attractiveness

Threat of New Entrants

Intensity of Rivalry among Firms

Bargaining Power of Buyers

Bargaining Power of Suppliers

Do it early, mobile phones vis a vis watches

Number of sellers and degree of differentiation Cost structure

Entry, mobility and exit barriers Degree of vertical integration

Objective : A Competitors Expansion Plans

Strengths and Weaknesses Customer Ratings of Competitors on Key Success Factors

Strengths and Weaknesses

Benchmarking against Competitors

Steps in Benchmarking (cont.)

Fake brands in Rural Markets

DESIGNING COMPETITOR STRATEGIES

Designing Competitive Strategies

Market-Leader Market-Challenger Market-Follower Market-Nicher

Designing Competitive Strategies

Designing Competitive Strategies

Designing Competitive Strategies

Six Types of Defense Strategies

Optimal Market Share

Factors Relevant to Pursuing Increased Market Share

Other Competitive Strategies

Market Challengers Market Followers Market Nichers

Designing Competitive Strategies

Market-Leader Market-Challenger Market-Follower Market-Nicher

Designing Competitive Strategies

In Sri Lanka, Tapal has challenged Unilever to emerge as a serious competitor

General Attack Strategies

Frontal Attack Encirclement Attack

Designing Competitive Strategies

Pepsi buys Gatorade in a Bypass Strategy

Designing Competitive Strategies

Market-Leader Market-Challenger Market-Follower Market-Nicher

Designing Competitive Strategies

Market Nicher Strategies

Designing Competitive Strategies

Market-Leader Market-Challenger Market-Follower Market-Nicher

Niche Specialist Roles

Balancing Customer and Competitor Orientations

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