Chapter 7

Dealing Dealing with the with the

CompetitionCompetition

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 ofMobility)

Potential Entrants(Threat ofMobility)

Buyers(Buyer power)

Substitutes(Threats ofsubstitutes)

Suppliers(Supplier power)

Suppliers(Supplier power)

IndustryCompetitors

(Segment rivalry)

Competitive Markets

Figure 8-1: Five Forces that Determine

Market Attractiveness

Barriers and Profitability

Low, stablereturnsLowLow

High, stablereturnsHighHigh

LowLow

Low, riskyreturns

High, riskyreturns

HighHigh

En

try

Bar

rier

sE

ntr

y B

arri

ers

Exit barriersExit 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 Industry CharacteristicsCharacteristics

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 WeaknessesStrengths and WeaknessesEffect a firm’s competitive positionEffect a firm’s competitive position

Reactive PatternsReactive Patterns

ObjectivesObjectives

StrategiesStrategies

HighHigh

LowHigh

LowLow

Qu

alit

yQ

ual

ity

Vertical IntegrationVertical 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

CompetitorCompetitorActionsActions

ObjectivesObjectives

Strengths &Strengths &WeaknessesWeaknesses

ReactionReactionPatternsPatterns

StrategiesStrategies

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 Designing the systemsystem

Collecting Collecting the datathe data

Evaluating and Evaluating and analyzing the dataanalyzing the data

Disseminating information and Disseminating information and responding to queriesresponding 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

Pro

duct

s

IndividualUsers

Commercial & Industrial Educational

PersonalComputers

HardwareAccessories

Software

Dell

Hypothetical Market Structure & Strategies

40%

Marketleader

30%

Marketchallenger

20%

Marketfollower

Expand MarketDefend Market Share

Expand Market Share

Attack leaderStatus quo

Imitate

10%

Marketnicher

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

Productproliferation

Prestige goods Price-discount

Product innovation

Distribution innovation

Improved services

Manufacturing cost reduction

Specific Specific Attack Attack

StrategiesStrategies

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

Pro

duct

s

IndividualUsers

Commercial & Industrial Educational

PersonalComputers

HardwareAccessories

Software

Dell

Hypothetical Market Structure & Strategies

40%

Marketleader

30%

Marketchallenger

20%

Marketfollower

Expand MarketDefend Market Share

Expand Market Share

Attack leaderStatus quo

Imitate

10%

Marketnicher

Special-ize

Defense Strategies

AttackerAttacker

(3)(3) PreemptivePreemptivedefensedefense

(4)(4) Counter-Counter-offensiveoffensivedefensedefense Defender

(1)(1)PositionPositiondefensedefense

(5)Mobile

defense

(2) Flank defense(2) Flank defense

(6) Contraction(6) Contractiondefensedefense

Optimal Market SharePro

fita

bili

ty

Market share0% 25% 50% 75% 100%

Optimal market share

Attack Strategies

AttackerDefender

(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

CompetitionCustomer

+ Fighter orientation+ Alert+ Exploit weaknesses- Reactive

+ ID opportunities+ Long-run profit+ Emerging needs & groups