Analyzing Competition

Lesson objectives

Understand and analyze competition

Michael Porter’s Five forces model
Book Review
Corporate examples – Hero Honda , P&G ,
Reliance,Maruti True Value outlets, Kodak ………….
 Competition

An Industry is a group of firms that offer a product

or class of products that are close substitutes for each
other
Competitors are companies that satisfy the same
customer need
It opens up a broader vista of actual and potential
competitors
 Classes of competitors

Generic: companies competing for the same

disposable income of the consumer e.g. Hero
Honda and LG
Form competition: same kind of benefit e.g. cars
,buses Vs Hero Honda
Industry Competition: similar kind of products e.g.
Two wheeler mfgg-Hero Honda ,Bajaj, Kinetic
Brand competition: similar products targeting
same consumer segments
e.g. Splendor Vs Caliber, CD Dawn Vs CT100
 Classification of Industry

On the basis of the following parameters

 No of sellers and degree of differentiation
 Entry , exit and mobility barriers
 Cost structure
 Degree of vertical integration
 No of sellers and degree of differentiation

Monopoly
Oligopoly
Monopolistic
Pure competition
 Entry ,exit ,mobility barriers

Entry barriers : high capital reqt ,scarce raw

material,economiesof scale, reputation
Mobility barriers: when business tries to enter more
attractive segments ,e.g : coke to Diet coke
Exit barriers : legal , moral obligations, law of the
land,Govt policies
 Cost structure

Total Manufacturing ,distribution, and promotional

costs
Firms will strategize to reduce these costs
 Degree of vertical integration

Backward :HPCL has its own oil exploration ,

drilling , refining facilities. Integrating
backwards helps an organization eliminate
suppliers , control quality very closely.
Forward integration : own petrol pumps to
get closer to the end consumer .
Vertical integration lowers costs
 Degree of globalisation

‘Glocal’ firms: think global ,act local

Rate of change of technology ,catering to the global
customer
 Analyzing Competition

On the basis of
Strategies of the competitors
Objectives
Strengths and weaknesses
Reaction patterns
 Analyzing competition …..

Strategies
A company must monitor its competitor’s strategies
Resourceful competitors revise their strategies with
time
A group of firms that follow the same strategy –
strategic group e.g. : Sinhgad , Aditya Birla Group
 Analyzing Competition….strategies

Japanese automobile firms compete on sensory

quality like the speed of power window, turn signal
that doesn't wobble
 Analyzing competition …..

 On the basis of objectives

1. What is each competitor seeking in the market
place?
2. What drives a competitor’s behaviour ?-current
profitability ,service leadership, technical
leadership, market share growth
3. Objectives are shaped by –history, resource
capability and management of the competitor
 Analyzing competition …..

On the basis of strengths and weaknesses

Whether competitors can pursue their strategies and
reach their goals depends on resources and
capabilities
While analyzing competitor’s share of market , it is
important to study share of mind & share of heart
 Analyzing competition …..

Share of mind : % of customers who named

competitor in response to : “name the first company
that comes to your mind in the industry?”
Share of heart: % of customers who named
competitor in response to : “name the company from
whom you would prefer to buy the product or service
?”
 Reaction patterns

Laid back/slow competitor

 Does not react quickly or strongly
 Lacks funds to react
 Thinks customers are loyal
 Must be milking its business
 E.g. . Iodex green pain reliever was a late move
against ‘Moov’
 Reaction patterns

Selective competitor
 Only reacts to certain type of strategies
 E.g. may only react to price cuts not ad expenditures
 Reaction patterns

Tiger competitor
 Reacts swiftly and strongly to any assault
 P&G does not allow any new detergent to enter into
the market easily in the ultra segment Vs Surf
 Pepsi and Coke
 Reaction patterns

Stochastic /unpredictable competitor

No predictable reaction pattern
Small firms exhibit such reaction pattern
Reaction is determined by history ,economic
situation or anything
 Porter’s five forces model

Barriers to entry : high capital costs, govt policies,

economies of scale, access to distribution channels
Eg: Reliance –Jamnagar Plant -27MTpa-economies
of scale and high capital cost
Threat of Substitutes: Coke faces threat from
Coffee , tea, juices ,soft drinks
 Porter’s five forces model

Rivalry among firms:

price wars, advertising wars, differentiation, use of
innovative distribution channels, slotting allowances
to get shelf space HLL & P&G, Ambush Marketing
(Pepsi 1996 World cup)
 Porter’s Five Force Model

Bargaining power of buyers

Few buyers but large, buy in bulk
Buyers may integrate backward
E.g. Automobile mfgg may integrate backwards to
mfgg subassemblies and components.
 Bargaining power of suppliers

Few suppliers, few sst for products

Expensive to switch suppliers
Threat of forward integration
If Buying companies cannot go backward
Intel –powerful supplier-microprocessors
 Porter’s generic competitive strategies

Cost leadership: offering products at lower

prices by keeping cost of production low.
It envisages higher profits as margins increase due
to lowered costs
Economies of scale , and increasing production
efficiency would help
Arvind eye hospital ,performs cataract surgery at
$10 vis –a –vis $1650 in US, Given the fact that
70%patients pay close to nothing .It enjoys 40%
margin.
 Porter’s generic competitive strategies

Differentiation strategies
Differentiation on the basis of design ,brand image
Coca Cola), features (Santro) ,technology (Intel),
customer service (Oberoi), quality
HLL –Modern Brand to Biscuits –differentiated on
the basis of ingredients-Soya –health conscious
customers
 Porter’s generic competitive strategies

Focus strategy
Only a specific segment
Special group of customers or a geographical area
Customers are loyal
Can price products higher
Entry of competitor- difficult
E.g: Dosa Diners
 Competitive strategies(VVIP que)

 Market leader:
 A market leader has a considerable market share .
 It is acknowledged as a leader by other firms
 Strategies: enter new markets or introduce new products
 Increase usage of its products :Colgate –brush twice daily
 Hero Honda-continuously innovates adds new features and
introduces new models
 It has made tie ups with Chinese like quigqui and jialing
 Market Challenger :strategies

2nd ,3rd or 4th position

Attacks weak spots of the leader
Attacks firms of its own capacity
Enter into markets where competitors do not have
presence
Against HLL ,Nirma low cost washing powder has
deep penetration
 Market follower strategies

Prefer to follow the leader than to attack it

Manufacturing products leveraging on product
innovations of leaders
Unless market follower has strong armour it will not
dare to attack the leader
 Market Nicher

Operates in small niches, where leader is not

interested
Win customer loyalty
Increased focus and attention
 Book Review: Al Ries,Trout,Marketing Warfare, Plume
publishers,U.S.A

DEFENSIVE WAR
A market leader engages in defensive war
It strengthens its position by introducing new
products or services that obsolete the existing
one
E.g.: Splendor Standard , NXG …,super blue
blade replaced by its Twin trac II blade
 Marketing warfare

OFFENSIVE WAR
For the no 2 or no .3 ,Trout and Ries advocate
‘offensive warfare’
What a no 2 or no 3 should do is position itself
with reference to the leader
“find a weakness in the leader’s strength and attack
at that point ,launching the attack on as narrow
front as possible
 Marketing warfare

Flanking warfare
Occupy a segment or category that the leader has
neglected
E.g. Complan :health proposition, Complete planned
food
 Marketing warfare
Guerilla Warfare
Smaller companies
Go for vacant positions in market too small to
attract the Market leader’s attention
Dog Biscuits neglected by major bakery and
confectionary mfgg
E.g. regional pockets
Niches or specific positions where their
Brands will hold competitive advantage