Marketing Management Chapter 22

Marketing Management Text and Cases
Competition Analysis and Strategic Options Across PLC Stages
22 Chapter
Competition
Analysis and
Strategic Options
Across PLC Stages © SHH Kazmi, 2007
22-1 Marketing Management Text and Cases, S H H Kazmi

22-1 Excel
ExcelBooks
Books
Industries are classified according to the number of firms selling similar

products and the degree of product differentiation. The industries have been
divided into four types according to economists view of competition: Pure
Monopoly, Oligopoly, Monopolistic competition, and Perfect competition.
© SHH Kazmi, 2007
22-2 Marketing Management Text and Cases, S H H Kazmi Excel Books

Competitive Forces
Michael Porter has identified five interactive competitive forces that
determine an industry’s long-term attractiveness:
 Present competitors.
 Potential competitors.
 The Bargaining power of suppliers.
 The bargaining power of buyers.
 The threat of substitute products.
© SHH Kazmi, 2007

Rivalry among Present Competitors

Rivalry takes place among companies that produce close substitute products
and when competitors try to improve or maintain their position. As the
intensity of rivalry increases, generally the profitability starts decreasing.
© SHH Kazmi, 2007

The
Determinants Threat of New
of Industry Entrants
Attractiveness
Bargaining Power Rivalry

Among Existing Bargaining Power
of Suppliers
Industry Firms
Threat of Substitute
Products
© SHH Kazmi, 2007

Threat of New Entrants

New entrants can become a source of competition, particularly when they
are bigger. The degree of attractiveness of an industry varies according to
its entry and exit barriers.
© SHH Kazmi, 2007

Bargaining Power of Suppliers

Suppliers exercise bargaining power through higher prices, or reduced supply.
The effect could be quite significant, particularly when the number of suppliers
in the industry is limited, when the supplied product is an important input,
switching costs and prices of substitutes are high, or when the suppliers are
organised and can realistically threaten forward integration.
© SHH Kazmi, 2007

Entry and Entry Barriers

Exit High Low
Barriers
High Returns Returns
High but Risky Low and Risky
Exit
Returns Returns
Barriers
Low High and Stable Low but Stable
© SHH Kazmi, 2007

Bargaining Power of Buyers

The success of buyers bargaining power grows when
1. the number of large buyers is quite limited, they are concentrated, or
organised,
2. switching costs are favourably low,
3. threat of backward integration,
4. when the product represents just a small part of buyer’s cost, and
5. buyers earn low profits and the product involved product cost is an important
part of their costs, then buyers will bargain more determinedly.
© SHH Kazmi, 2007

Threat of Substitute Products

Those alternative product types that perform essentially the same function
are called the substitutes, such as different cooking oils, laundry products,
headache remedies, or postal and courier services. Availability of substitutes
puts a limit on prices companies can charge and the profit margins are
restricted, more so when supply position is such that it exceeds the demand.
© SHH Kazmi, 2007

Competitive Strategies and PLC Stages

The three basic performance objectives, companies choose keeping in view
the competition include
 share position,
 sales growth, and
 profit performance.
© SHH Kazmi, 2007

Market Attractiveness:
The factors that make a market attractive include market size, market
growth; competitive intensity, profit potential, accessibility to market, and fit
with company’s core competencies.
© SHH Kazmi, 2007

Market Forces Market size Growth

rate Buyer power
Elements
Shaping
Market No. of Competitors
Market Competitive
Attractiveness Price rivalry Ease of
Attractiveness Intensity entry
Customer familiarity
Market Access Channel access Sales
requirements
© SHH Kazmi, 2007

Competitive Advantage:
There are various elements that determine competitive advantage of a
business and include differentiation advantage, cost advantage, and
marketing advantage.
© SHH Kazmi, 2007

Factors
Influencing
Competitive
Advantage Product quality
Differentiation Service quality
Advantage Brand image
Competitive Unit cost

Cost Advantage Transaction cost
Advantage
Marketing costs
Market share
Marketing Brand awareness
Advantage Distribution
© SHH Kazmi, 2007

Offensive strategies are most likely to be adopted by competing

businesses during growth stage of product-market life cycle (early growth and
rapid growth stages) and aim at sales growth and increase market share, and
improve profit position in future.
© SHH Kazmi, 2007

Offensive Strategy Basic Strategy Basic Strategy Basic Strategy

Strategies (A) (B) (C)
Invest to Grow Sales Invest to Improve Invest to Enter New
In Existing Markets Competitive Position Markets
Objective Grow in Existing Improve Diversify to
Market Revenues Grow
Grow market Improve customer Enter related
share loyalty and retention new markets
Different Grow revenue Improve differential Enter unrelated
Strategies per customer advantage new markets
to
Enter new market Improve marketing Enter new
Implement
segment productivity emerging markets
Central
Strategies Expand market Build marketing Develop new
demand advantage markets
© SHH Kazmi, 2007

Defensive Strategies
Generally businesses with high market share in growing or mature markets
opt to adopt defensive strategies with the objective of maintaining cash flow
and short-term profitability.
© SHH Kazmi, 2007

Defensive
Strategies
Strategies Basic Strategy Basic Strategy Basic Strategy

(A) (B) (C)
Protect Position Optimise Position Increase Cash Flow
Harvest, or Divest
Objective Maintain Profit Maximise Profits Cash Flow
Different Protect market Maximise net profits Manage for cash flow
Strategies share
To Implement Develop customer Reduce market focus Harvest or Divest
Central retention for cash flow
Strategies
Enter new market Improve marketing Enter new
segment productivity emerging markets
© SHH Kazmi, 2007

Choosing Competitors
Four types of competitors in an industry, including the company itself.
 Market Leader
 Market Follower
 Market Challenger
 Niche Marketer
© SHH Kazmi, 2007

Strategic Options for Growth Markets

Market Leader Strategies
Market leader is either a pioneer or at least one of the first few entrants who first
developed the product-market. Generally, the leader’s objective is to maintain its
leading share position despite the entry of new players.
Market Share Expansion:

A business should consider four major factors:
1. Possibility of Competition Act 2002, or similar laws such as Anti-trust Action in
USA.
2. The cost involved in market share gain may rise and exceed the revenues.
3. Selecting and using an inappropriate marketing mix strategy.
4. Increased number of customers may put a strain on the company’s resources
and hurt service delivery and product value. © SHH Kazmi, 2007

Depending on the situation a market leader faces, the strategic move options
include:
 Position Defence Strategy
 Flanker Strategy
 Confrontation Strategy
 Pre-emptive Strategy
 Market Expansion Strategy
 Contraction or Withdrawal Strategy
© SHH Kazmi, 2007

Market Follower Strategies

Market-share followers try to retain their customer base, try to acquire new
customers but avoid any moves that might attract retaliation from
competitors. Some commonly adopted strategies are:
 Counterfeit Strategy
 Adapter Strategy
© SHH Kazmi, 2007

Market Challenger Strategies

A challenger visualises capturing the market-share leadership in an industry.
There are five major competitive strategies for a challenger that may be used
singly or in combination and include
 frontal attack strategy,
 leapfrog strategy,
 flanking attack strategy,
 encirclement strategy, and
 guerrilla attack strategy.
Most of these strategies seem similar to share maintenance strategies.
© SHH Kazmi, 2007

Whom to Attack?
It is necessary for a challenger to decide which competitor to attack. There are
several options to choose from. Choosing whom to attack requires careful analysis
and comparison of strengths and weaknesses of different competitors:
 Attack the market-share leader
 Attack another follower
 Attack one or more smaller competitors
 Avoid direct attacks on any established competitor
Frontal Attack Strategy
Leapfrog Strategy
Flanking Attack Strategy
Encirclement Strategy
Guerrilla Attack Strategy © SHH Kazmi, 2007

Strategic Option for Mature and Declining

Markets
A business should always consider that all market segments and all the
available brands do not mature at the same time. A product-share leader in a
mature market might adopt strategies to gain sales volume by promoting new
uses for its old product and/or encourage customer to use it more often, or use
more of the product per use occasion. Most strategies attempt to follow the
following equation:
Sales Volume = Number of Users × Usage Rate
© SHH Kazmi, 2007

Strategic Traps During Shakeout Period

The ability of a firm to survive the shakeout period or transition from growth
stage to maturity depends to a large extent on its ability to avoid strategic
traps. Common traps are:
 Failure to anticipate transition or shakeout from growth to maturity.
 Business not having any clear competitive advantage as growth slows.
 Assuming that an early advantage will insulate the business from price
or service differentiation.
 Sacrificing market share in favour of short-term profits.
© SHH Kazmi, 2007

Mature Markets
Current Market Share Maintenance Strategies: Maturity stage of
markets can continue for prolonged periods of time. In early stage of
maturity, a business should aim to maximise profit flow over the remaining
period of product-market. The most important goal is to maintain and
protect market share.
© SHH Kazmi, 2007

Volume Growth Strategies

A business has choice of several strategies that can be adopted singly or in
combination to gain additional volume in a market that is viewed as mature.
These volume growth strategies include greater penetration strategy,
prolonged use strategy, and market expansion strategy.
© SHH Kazmi, 2007

Declining Markets
Most product-markets enter a decline phase in their life cycle, but not all
markets decline at the same time.
Attractiveness of declining markets depends on a set of three factors:
(1) conditions of demand including the rate and reliability of forecasted future
decrease in volume,
(2) exit barriers (ease with which weaker competitors can leave the
market), and
(3) rivalry and intensity of future competition within the market.
© SHH Kazmi, 2007

Marketing Strategies for Competitors Who

Stay in Declining Market
Strategies for declining markets include harvesting strategy, maintenance
strategy, survival with profits strategy, and niche strategy.
© SHH Kazmi, 2007

Marketing Management Chapter 22

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Marketing Management Chapter 22

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Marketing Management Text and Cases

Competition Analysis and Strategic Options Across PLC Stages

22-1 Marketing Management Text and Cases, S H H Kazmi

Industries are classified according to the number of firms selling similar

© SHH Kazmi, 2007

22-2 Marketing Management Text and Cases, S H H Kazmi Excel Books

© SHH Kazmi, 2007

22-3 Marketing Management Text and Cases, S H H Kazmi Excel Books

Rivalry among Present Competitors

© SHH Kazmi, 2007

22-4 Marketing Management Text and Cases, S H H Kazmi Excel Books

Bargaining Power Rivalry

© SHH Kazmi, 2007

22-5 Marketing Management Text and Cases, S H H Kazmi Excel Books

Threat of New Entrants

© SHH Kazmi, 2007

22-6 Marketing Management Text and Cases, S H H Kazmi Excel Books

Bargaining Power of Suppliers

© SHH Kazmi, 2007

22-7 Marketing Management Text and Cases, S H H Kazmi Excel Books

Entry and Entry Barriers

High Returns Returns

High but Risky Low and Risky

Low High and Stable Low but Stable

© SHH Kazmi, 2007

22-8 Marketing Management Text and Cases, S H H Kazmi Excel Books

Bargaining Power of Buyers

© SHH Kazmi, 2007

22-9 Marketing Management Text and Cases, S H H Kazmi Excel Books

Threat of Substitute Products

© SHH Kazmi, 2007

22-10 Marketing Management Text and Cases, S H H Kazmi Excel Books

Competitive Strategies and PLC Stages

 sales growth, and

© SHH Kazmi, 2007

22-11 Marketing Management Text and Cases, S H H Kazmi Excel Books

© SHH Kazmi, 2007

22-12 Marketing Management Text and Cases, S H H Kazmi Excel Books

Market Forces Market size Growth

© SHH Kazmi, 2007

22-13 Marketing Management Text and Cases, S H H Kazmi Excel Books

© SHH Kazmi, 2007

22-14 Marketing Management Text and Cases, S H H Kazmi Excel Books

Competitive Unit cost

© SHH Kazmi, 2007

22-15 Marketing Management Text and Cases, S H H Kazmi Excel Books

Offensive strategies are most likely to be adopted by competing

© SHH Kazmi, 2007

22-16 Marketing Management Text and Cases, S H H Kazmi Excel Books

Offensive Strategy Basic Strategy Basic Strategy Basic Strategy

© SHH Kazmi, 2007

22-17 Marketing Management Text and Cases, S H H Kazmi Excel Books

© SHH Kazmi, 2007

22-18 Marketing Management Text and Cases, S H H Kazmi Excel Books

Strategies Basic Strategy Basic Strategy Basic Strategy

© SHH Kazmi, 2007

22-19 Marketing Management Text and Cases, S H H Kazmi Excel Books

© SHH Kazmi, 2007

22-20 Marketing Management Text and Cases, S H H Kazmi Excel Books

Strategic Options for Growth Markets

Market Share Expansion:

22-21 Marketing Management Text and Cases, S H H Kazmi Excel Books

© SHH Kazmi, 2007

22-22 Marketing Management Text and Cases, S H H Kazmi Excel Books