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Competitor Analysis

Competitor Analysis

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COMPETITOR ANALYSIS

Learning Objectives 
Understand

how a company identifies its primary competitors and ascertains their strategies.  Review how companies design competitive intelligence systems.

³Poor firms ignore their competitors ; average firms copy their competitors ; winning firms lead their competitors.´

Definitions 
Competitive 

Advantage An advantage over competitors gained by offering consumers greater value than competitors offer. offer.

Competitive Analysis  The process of identifying key competitors; competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting patterns; which competitors to attack or avoid. avoid.

scarce location.  Entry . etc.  Mobility barriers. barrierslow asset-salvage assetvalue due to obsolescence.Entry.legal or moral obligations. Mobility and Exit Barrier barrier. patents and licensing. etc.when it tries to enter barriersmore attractive market segments  Exit barriers. barriereconomies of scale. lack of alternative opportunities etc. raw material etc.high capital requirement.

Porter¶s five forces model of competition Potential Entrants (Threat of New Entrants) Suppliers (Bargaining Power of Suppliers) Industry Competitors (Segment Rivalry) Rivalry Among Existing Firms Buyers (Bargaining Power of Buyers) Substitutes (Threat of Substitute Products or Services .

strong or aggressive competitors. .Threat of Intense Segment Rivalry A segment is unattractive  if it already contains numerous. segment. compete. competitors. These will lead to frequent price wars. advertising battles and new product introductions and will make it expensive to compete.  If it is stable or declining  If plant capacity additions are done in large increments  If fixed costs are high  If exit barriers are high  If competitors have high stakes in staying in the segment.

stable Returns e.g. retail. stable High Entry Barriers Worst Case e. energy High Those markets Returns e. ecommerce High. risky Returns e.g. . Those markets with a low exit barrier are stable and self-regulated. education with high entry barriers have few players and thus high profit margins.g.g. Hotels High. so the profit margins do not fluctuate selfalong time. Those markets with low entry barriers have lots of players and thus low profit margins.Threat of new entrants Exit Barriers Low Low Low. so the profit margins fluctuate very much along time. Those markets with high exit barriers are unstable and not selfselfregulated.

fall. .Threat of Substitute Products A segment is unattractive when there are actual or potential substitutes for the product. product.  Substitutes place a limit on prices and on profits  If technology advances or competition increases in these substitute industries. prices and profits in the segment are likely to fall.

Threat of buyers¶ Growing Bargaining Power Buyers¶ bargaining power grows  when they become more concentrated or organised.  When the product is undifferentiated  When the buyers¶ switching costs are low  When buyers¶ are price sensitive .

Threat of Suppliers¶ growing Bargaining Power A segment is unattractive if the company¶s suppliers are able to raise prices or reduce quantity supplied. Suppliers¶ tend to be powerful  when they are concentrated  When there are few substitutes  When the suppliers¶ product is an important input  When the cost of switching suppliers¶ are high  .

Identifying Competitors Firms face a wide range of competition  Be careful to avoid ³competitor myopia´ (Competitor myopia refers to a firm focusing on what it considers to be its direct competition and not being aware of indirect or new competitors  Methods of identifying competitors: competitors: Industry point of view refers to competitors within the same industry Market point of view refers to competitors trying to satisfy the same customer need or build relationships with the same customer group  .Competitor Analysis 1.

Competitor Analysis  Competitor map highlights both competitive opportunities and challenges facing the firm  ‡ Center is the list of consumer activities  ‡ First outer ring lists main competitors  ‡ Second outer ring lists indirect competitors  A competitor Map of Eastman  Kodak in the digital imaging business) .

.

Identifying Competitor¶s Strategies            Companies need to understand the competitor¶s ability to deliver value to its customers ‡ Product quality ‡ Product features ‡ Customer service ‡ Pricing policy ‡ Distribution coverage ‡ Sales force strategy ‡ Promotion programs ‡ Financial strategies ‡ R&D .

Assessing Competitor¶s Strengths and Weaknesses  Primary data  ‡ Secondary data  ‡ Personal experience  ‡ Word of mouth  ‡ Benchmarking is the comparison of the company¶s products or services to competitors or leaders in other industries to find ways to improve quality and performance .

and way of doing business to anticipate how the competitor will react to the company¶s marketing strategies . culture. values.Estimating Competitor¶s Reactions  Marketing managers need to develop an understanding of a given competitor¶s mentality.

 ‡ Identification of major attributes that customers value and the importance of  these values  ‡ Assessment of the company¶s and competitors¶ performance on the valued attributes .Selecting Competitors to Attack and Avoid  Customer value analysis determines the benefits that target customers value and how customers rate the relative value of various competitor¶s offers.

Analyzing Competitors A company should monitor three variables when analysing competitors:  Share of market  Share of mind  Share of heart .

Competitor Analysis Selecting Competitors to Attack or Avoid  Strong or weak competitors  Customer value analysis (Customers identify and rate attributes important in the purchase decision for the company and competition) Most companies compete against close competitors   Close or distant competitors  ³Good´ or ³Bad´ competitors .

 Competitive intelligence needs to be collected. managers can more easily formulate their strategies. With good competitive intelligence.DESIGNING COMPETITIVE STRATEGIES  To prepare an effective marketing strategy. need. continuously. and disseminated continuously.  A company should also pay attention to latent competitors. customers. interpreted. strategies. . who may offer new or other ways to satisfy the same need. a company must study its competitors as well as its actual and potential customers.

niching. Further funds. niching. others will be strapped for funds.  Some competitors will be large. small. others small. Some will have great resources.DESIGNING COMPETITIVE STRATEGIES A marketer should thoroughly examine the problem of designing marketing strategies that take into account competitors¶ strategy. following or leading. insight can be gained by classifying firms by the role they play in the target market. strategy. challenging. challenging. . that of leading.

DESIGNING COMPETITIVE STRATEGIES  Market leader 40%  Market Challenger 30%  Market Follower 20%  Market nicher 10% .

DESIGNING COMPETITIVE STRATEGIES     Market Leader : the firm with the largest market share Market Challenger : a runner-up firm that is runnerfighting hard for an increased market share Market Follower : another runner-up firm that runneris willing to maintain its market share and not rock the boat Market Nicher : firms that serve small market segments not being served by larger firms .

This calls for action on three fronts :  (1) The firm must find ways to expand its total market demand. even if market size remains constant. one. demand.  (3) The firm can try to increase its market share further.  (2) The firm must protect its current market share through good defensive and offensive actions. .MARKET LEADER STRATEGIES Dominant firms want to remain number one. constant. actions.

Leaders Defense Strategy .

MARKET LEADER STRATEGIES  Market leader strategies  The company can search for new users  Market penetration strategy ( who might use it but do not )  New market segment strategy ( those who have never used it  Geographical expansion strategy ( those who live somewhere else) .

Nescafe Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus. Lexus.g. attacks. or divert the attacks. Sony.  Position defense: building superior brand defense: power e. HUL  .MARKET LEADER STRATEGIES The market leader has to use defensive strategy to reduce the probability of attack.  Flank defense: build outposts to protect a defense: weak front .g.( bring out new products or products with less price ) e.

all price types and categories eg Seiko has over 2. ( have products of offense.MARKET LEADER STRATEGIES PrePre-emptive defense: attack before the defense: enemy starts its offense.g. Toyota launched the Lexus to respond to Mercedes attack  Mobile defense: leader stretches his domain defense: over new territories it spreads through market broadening and market diversification  . e.000 models)  Counteroffensive defense: defense: attack the competitor with same strategy as the competitor. competitor.

companies. power.  Eg : Petroleum companies sought to recast themselves into energy companies.MARKET LEADER STRATEGIES  Market broadning: Company shifts its broadning: focus from current product to the underlying generic need. need.  They are into coal. oil. and chemical industries . nuclear.

g.MARKET LEADER STRATEGIES  Market diversification : Diversification into unrelated industries. Give up weaker territories and reassign resources to stronger territories Market leaders can improve their profitability by expanding their market share . India¶s TATA Group sold its soaps and detergents business units to Unilever in 1993  . e. Contraction defense : It is strategic withdrawal.

Presumably. . so that buyers do not switch to the price cutter.MARKET LEADER STRATEGIES Expanding Market Share  Co. increase their product quality relative to Co. rivals may meet the price cuts partly. competitors¶  Increases in sales force expenditures  Increased advertising may also produce share gains  Co. enough generally. cutter. that cut their prices more deeply than Co. and others may offer other values to the buyers. competitors do not achieve significant marketmarketshare gains generally.

third and lower ranks in an industry can be called runner-up firms.firms. These runner.MARKET CHALLENGER STRATEGIES Firms that occupy second. runnerrunner-up firms can adopt one of the two postures :   they can attack the leader and other competitors in an aggressive bid for further market share (market challengers) OR they can play ball and not ³rock the boat´ (market followers) .

decisive and attainable objective).MARKET CHALLENGER STRATEGIES Strategic Objectives and Opponent(s) : Opponent(s)  It can attack the market leader  It can attack firms of its own size that are not doing the job and are under-financed under It can attack small local and regional firms that are not doing the job and are underunderfinanced (it should follow the military principle of objective. which holds that every military operation must be directed toward a clearly defined. objective). .

and we can show five attack strategies in the following way«) 4. Flanking Attack 1.MARKET CHALLENGER STRATEGIES (We can imagine an opponent who occupies a certain market territory. Frontal Attack DEFENDER 3. Bypass Attack A T T A C K E R 2. Encirclement Attack .

Frontal Attack : Head on attack. attack strategy against Coke in China by locating its bottling plants in the interior provinces 5. 3. e. Encirclement Attack : Attempt to capture a wide slice of the enemy¶s territory through a comprehensive µBlitz¶ attack. 4. .g. weaknesses. opponents strengths rather than its weaknesses. attack.Choosing an attack strategy      1. Attacks the attack. weaknesses. 2. Bypass Attack : Bypassing the main enemy and attacking easier markets (diversifying into unrelated products. Flanking Attack : Concentration of strengths against weaknesses. new technologies). Pepsi use a bypass technologies). new geographical markets. opponent. Guerrilla Attack : Attacking on different territories of the opponent. with the aim of harassing and demoralize the opponent.

MARKET CHALLENGER STRATEGIES (ATTACK STRATEGIES AVAILABLE TO CHALLENGERS)  Price discount strategy  Cheaper goods strategy  Prestige goods strategy  Product proliferation strategy (launching a large product variety)  Product innovation strategy  Improved service strategy  Distribution innovation strategy  Manufacturing cost reduction strategy  Intensive advertising promotion .

etc. markets as they open up. The follower is a major target of attack by challengers.MARKET FOLLOWER STRATEGIES    A strategy of product imitation might be as profitable as a strategy of product innovation (Innovative Imitation) Imitation) A market follower must know how to hold current customers and win a fair share of new customers. up. services. Each follower tries to bring distinctive advantages to its target market ± location. . the market follower must keep its manufacturing costs low and its product quality and services high. Therefore. financing etc. customers. challengers. It must also enter new high.

 Adapter ± takes the leader¶s products and adapts and often improves them. advertising.MARKET FOLLOWER STRATEGIES Three broad followership strategies can be distinguished :  Cloner ± emulates the leaders¶ products. advertising and so on.  Imitator ± copies some things from the leader but maintains differentiation in terms of packing. (it doesn¶t originate anything). . pricing and so on. distribution.

But increasingly. firms are setting up business units. or companies. .MARKET NICHER STRATEGIES  An alternative to being a follower in a large market is to be a leader in a small market or niche. even large firms. niches. competing with larger firms by targeting small markets of little or no interest to the larger firms. Smaller firms normally avoid niche. to serve niches.

.  Niching is profitable. As a result. niching.  The nicher achieves high margin. the nicher can charge a substantial markmarkup over costs because of the added value.MARKET NICHER STRATEGIES  The main point is. whereas the mass marketer achieves high volume. because the market nicher ends up knowing the the target customer group so well that it meets their needs better than other firms that are casually selling to this niche. that firms with low shares of the total market can be highly profitable through smart niching.

MARKET NICHER STRATEGIES An ideal market niche would have the following characteristics :  The niche is of sufficient size and purchasing power to be profitable  The niche has growth potential  The niche is of negligible interest to major competitors  The firm has the required skills and resources to serve the niche in a superior fashion  The firm can defend itself against an attacking major competitor through the customer goodwill it has built up .

g.MARKET NICHER STRATEGIES Nichers have three tasks :  Creating niches (e. shoe manufacturers)  Expanding niches  Protecting niches (Multiple niching is preferable to single niching) niching) . Nike. the athletic (e.

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