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Dealing With Competition
Companies are facing increased competition – from
global competitors, emerging online competitors,
private-label and store brands, and brand
extensions by mega-brands. No brand, unless it is a
monopoly, can rest on its laurels.

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Competitive Forces

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 …Competitive Forces
Michael Porter has identified five forces that
determine the intrinsic long-run
attractiveness of a market or market segment:
1. Threat of intense segment rivalry:
A segment is unattractive if it already contains
numerous, strong, or aggressive competitors.
competitors
It’s even more unattractive if it’s stable or
declining, if plant capacity must be added in large
increments, if fixed costs or exit barriers are high,
or if competitors have high stakes in staying in the
segment.
These conditions will lead to frequent price wars,
advertising battles, and new-product introductions
and will make it expensive to compete.
compete
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 …Competitive Forces
2. Threat of new entrants:
The most attractive segment is one in which entry barriers
are high and exit barriers are low.
low Few new firms can enter
the industry, and poorly performing firms can easily exit.
When both entry and exit barriers are high, profit
potential is high, but firms face more risk because poorer-
performing firms stay in and fight it out.
When both entry and exit barriers are low, firms easily
enter and leave the industry, and the returns are stable
and low.
The worst case is when entry barriers are low and exit
barriers are high: Here firms enter during good times but
find it hard to leave during bad times. The result is chronic
overcapacity and depressed earning for all. 5
 …Competitive Forces
3. Threat of substitute products:
A segment is unattractive when there are
actual or potential substitutes for the
product. Substitutes place a limit on
prices and on profits. If technology
advances or competition increases in
these substitute industries, prices and
profits are likely to fall.

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 …Competitive Forces
4. Threat of buyers’ growing bargaining power:
A segment is unattractive if buyers possess strong
or growing bargaining power.
Buyers’ bargaining power grows whey they
become more concentrated or organized, when the
product represents a significant fraction of the
buyers’ costs, when the product is
undifferentiated, when buyers’ switching costs are
low, when buyers are price sensitive because of low
profits, or when they can integrate upstream.
To protect themselves, sellers might select
buyers who have the least power to negotiate
or switch suppliers. A better defense consists
of developing superior offers that strong
buyers cannot refuse. 7
 …Competitive Forces
5. 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 or organized, when there are few
substitutes, when the supplied product is an
important input, when the costs of switching
suppliers are high, and when the suppliers can
integrate downstream.
The best defenses are to build win-win
relationships with suppliers or use multiple
supply sources.
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 Identifying Competitors
 Competitors can include:
 All firms making the same product or class of
products
 All firms making products that supply the same
service
 All firms competing for the same consumer
dollars
 The range of a company’s actual and potential
competitors can be much broader than the obvious.
 A company is more likely to be hurt by emerging
competitors or new technologies than by current
competitors.
 Competition can be direct or indirect.
indirect
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 …Identifying Competitors
Competitors can be examine from both an industry point
of view and a market point of view.
view
Industry point of view refers to competitors within the
same industry. Here, marketers classify industries
according to--
 Number of sellers
 Degree of product differentiation
 Presence or absence of entry, mobility, and exit barriers
 Cost structure
 Degree of vertical integration
 Degree of globalization
Market point of view refers to competitors trying to
satisfy the same customer need or build relationships with
the same customer group. 10
 Marketing Myopia
The concept of marketing myopia was discussed in an
article (titled "Marketing Myopia," in July-August 1960
issue of the Harvard Business Review) by Harvard Business
School emeritus professor of marketing, Theodore C. Levitt
(1925-2006).
Marketing myopia is a short-sighted and inward looking
approach to marketing that focuses on the needs of the
company instead of defining the company and its products
in terms of the customers’ needs and wants. It results in
the failure to see and adjust to the rapid changes in their
markets.
markets
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.
Coca-Cola focused on its soft-drink business, but the
market for coffee bars and fresh-fruit-juice bars also
impinged on its soft-drink business. 11
 Analyzing Competitors
After identifying its primary competitors, a company must
ascertain competitor’s strategies, objectives, strengths and
weaknesses.
Strategies:
 In order to understand and out-maneuver competitors, it is
required to analyze their current and future strategies and
activities.
 The two main sources of information about a competitor’s
strategy is what the competitor says and what it does.
does
 What a competitor is saying about its strategy is revealed
in its annual shareholder reports, interview with analysts,
statements by managers, press releases.
 What the competitor is doing is evident in where its cash
flow is directed, such as hiring activity, R&D projects,
capital investments, promotional campaigns, strategic
partnerships, mergers and acquisition.
 A strategic group is a group of firms in an industry following
the same or similar strategy in a given target market. 12
 …Analyzing Competitors
Objectives:
 Once a company has identified its main competitors
and their strategies, it must ask: what is each
competitor seeking in the marketplace? What drives
each competitor’s behavior?
 Competitor’s objectives include:
 Maximize profits
 Sales growth (volume, revenue)
 Market share
 Cash flow
 Technological leadership
 Service leadership
 Competitor’s objectives shaped by many factors,
such as size, history, current management, financial
situation. 13
 …Analyzing Competitors
Strengths and Weakness:
 A company needs to gather information about each
competitor’s strengths and weaknesses. After that it could
attack in the weak areas of its competitors.
 In general, a company should monitor three variables
when analyzing competitors:
1. Share of market: The competitor’s share of the market.
2. Share of mind: The percentage of customers who named
the competitor in responding to the statement, “Name the
first company that comes to mind in this industry”
3. Share of heart: The percentage of customers who named
the competitor in responding to the statement, “Name the
company from which you would prefer to buy the product”
 Companies that make steady gains in mind share and
heart share will inevitably make gains in market share
and profitability. 14
 Selecting Competitors
After the company has conducted customer value
analysis and examined its competitors carefully, it
can focus its attack on one of the following classes of
competitors:
1. Strong versus Weak: Most companies aim their
shots at weak competitors. Even strong competitors
have some weaknesses.
2. Close versus Distant: Coca-Cola’s close competitor
is Pepsi, distant competitor is tap-water.
3. Good versus Bad: Good competitors play by the
industry’s rules; set prices in reasonable relationship
to costs; favor a healthy industry. Bad Competitors
try to buy share rather than earn it; take large risks;
invest in overcapacity; upset industrial equilibrium.15
 Selecting Customers
As part of the competitive analysis, firms must evaluate
its customer base and think about which customers it’s
willing to lose and which it wants to retain. One way to
divide up the customer base is in terms of whether a
customer is valuable and vulnerable,
vulnerable creating a grid of
four segments as a result, see the following table.
Customer Selection Grid:

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 Market Members
Market
Leader
Market
Challenger

Market
Follower
Market
Nichers

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 Market Members
Market leaders have the higher market share and
usually base-line in terms of price. Leaders also
lead the market in new-product introductions,
distribution coverage, and promotional intensity.
Historic market leaders include: McDonald’s,
Microsoft, Intel, Gillette, LG, and Visa.
Other market members include challengers,challengers
followers,
followers and niche players. Other firms enter
and exit the markets, primarily during the
maturity and decline stage of the product life
cycle.
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Hypothetical Market Structure

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 Staying the number-one firm calls for
action on three fronts:
1. Expand total market demand
2. Protect current market share
3. Increase market share

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1. New Customers

2. More Usage

3. Replacement rate

4. New product uses

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 …Expanding Total Market Demand
New customers:
Every product class has the potential to attract buyers
who are unaware of the product or who are resisting it
because of price or lack of certain features.
A company can search for new users among three
groups:
 Those who might use it but do not (market-
penetration strategy)
 Those who have never used it (new-market segment
strategy)
 Those who live elsewhere (geographical-expansion
strategy)
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 …Expanding Total Market Demand
More usage: Marketers can try to increase the amount,
level, or frequency of consumption.
The amount of consumption can sometimes be
increased through packaging or product redesign.
Larger package sizes have been shown to increase the
amount of product that consumers use at one time.
The usage of impulse consumption products such as
soft drinks and snacks increases when the product is
made more available.
Increasing frequency of consumption requires either
(1) identifying additional opportunities to use the
brand in the same basic way or (2) identifying
completely new and different ways to use the brand.
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 …Expanding Total Market Demand
To generate additional opportunities to use the brand in
the same basic way, a marketing program can
communicate the appropriateness and advantages of
using the brand more frequently in new or existing
situations or remind consumers to actually use the brand
as close as possible to those situations.
Replacement rate:
Another opportunity arises when consumers’ perceptions
of their usage differs from the reality. Consumers may fail
to replace a short-lived product when they should,
because they overestimate how long it stays fresh.
Gillette razor cartridges feature colored stripes that
slowly fade with repeated use, signaling the user to move
on to the next cartridge.
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 …Expanding Total Market Demand
New product uses:
After discovering that consumers used ‘Arm &
Hammer’ baking soda brand as a refrigerator
deodorant, company launched a heavy promotion
campaign focusing on this single use and encourage
consumers to place an open box of baking soda in
the refrigerator.
Product development can also spur new uses.
Chewing gum manufacturers are producing
“nutraceutical” products to strengthen or whiten
teeth.

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Offensive Strategy Defensive Strategy
Proactive
Marketing

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 …Protect Current Market Share
While trying to expand total market size, the dominant
firm must continuously and actively defend its current
business.
What can the market leader do to defend its terrain?
The most constructive response is continuous
innovation.
innovation The leader should lead the industry in
developing new products and customer services,
distribution effectiveness, and cost cutting. It keeps
increasing its competitive strength and value to
customers by providing comprehensive solutions.
The aim of defensive strategy is to reduce the
probability of attack, divert attacks to less-threatening
areas, and lessen their intensity.
intensity
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…Protect Current Market Share

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 …Protect Current Market Share
A dominant firm can use the following six defense
strategies:
1. Position defense is one of the marketing warfare strategies
wherein the brand or company occupies the most desirable
space in the minds of the customer and in no case intends to
divert from that position thus making the brand impregnable.
2. Flank defense is a competitive marketing strategy in which
the market leader attempts to identify and strengthen its own
weak points, commonly geographic areas or market segments
in which it is under-performing, before a smaller rival can
mount an attack against it.
3. Preemptive defense is an aggressive defense strategy in
which, the market leader attacks the challenger before it
attacks.
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 …Protect Current Market Share
4. Counteroffensive defense is a business strategy
adopted by a market leader when attacked by another
company. This involves that the market leader will
attack the attacker in its main territories so that the
attacker will have to put back some resources for the
attacked territories and will have to divert its attention
from launching attack on the market leader.
5. Mobile defense is a strategy where market leader
stretches its domain over new territories that can serve
as future centers for defense and offense through
market broadening and market diversification.
6. Contraction defense is a strategy where the market
leader withdraws from one segment of the market
where it is not strong or profitable enough.
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 Antitrust action

Decreased profitability
Lower overall quality

“Actual” quality
Pursue wrong “Perceived” quality
marketing
activity

2014 2015
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 …Increase Market Share
If the size of the market remains constant, market
leaders often look to increase share. The payoffs can be
rewarding. For example, the Carbonated Soft Drink
(CSD) market has about $70 billion in annual sales. A 1%
point market share increase by Coke or Pepsi is worth
around $700 million.
However, firms must exercise caution. Marketers must
consider the cost needed to gain share.
Market leaders can face issues such as:
 Antitrust actions:
actions
 Higher economic costs:
costs
 Loss of focus:
focus
 Impact on actual and perceived quality:
quality By serving too
many customers, actual quality can decrease. This may
result in lower market share over time as customers switch
to competitors.
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Optimal Market Share

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 …Optimal Market Share
The figure in previous slide outlines that profitability
may decline with an increase in market share. This
occurs if the firms expense related to gaining market
share above the optimal point exceeded the value that
new customers brought to the company.
Increasing market share may require the firm to
pursue customers that are loyal to competitors
(switched due to price promotion) or that have
unique needs (with higher costs).
Firms have actually increased profits by
decreasing market share through the elimination
of unprofitable customers.
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Market-challenger

Market-nicher

Market-follower
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Define objectives and opponent(s)

Choose general attack strategy

Choose Specific attack strategy

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Objectives and Opponents
General attack strategies
1. Frontal attack
2. Flank attack
3. Encirclement attack
4. Bypass attack
5. Guerrilla attack

Attack:
•Market leader
•Weaker, similar size firms
•Smaller local or regional firms
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 …Market-Challenger Strategies
Defining the strategic objective and
opponent(s): A market challenger must first
define its strategic objective. Next, the challenger
must decide whom to attack.
A typical objective for challengers is to increase
market share.
share
The decision on whom to attack is determined by
who the competitors are:
 It can attack the market leader:
leader Attacking market
leaders is typically a high-risk, high-reward strategy, if
successful.
 It can attack firms of its own size that are not doing the
job and are underfinanced.
 It can attack small local and regional firms: Smaller
firms can be the focus of the attack through expansion
or acquisition. 38
 …Market-Challenger Strategies
Choosing a general attack strategies: There are five
available attack strategies:
 Frontal attack: Attacking the opponent head on in
terms of product, price, advertising, and
distribution.
 Flank attack: An enemy’s weak spots are natural
targets. The challenger spots areas where the
opponent is underperforming. The challenger also
serve uncovered market needs.
 Encirclement attack: The encirclement maneuver
is an attempt to capture a wide slice of the enemy’s
territory through a blitz. It means launching a grand
offensive attack on several fronts. 39
 …Market-Challenger Strategies
Bypass attack: The most indirect assault
strategy is bypassing the enemy altogether
and attacking easier, smaller markets that the
leader does not bother with.
Guerilla attack: Are small attacks, both
conventional and unconventional, that are
used to harass and demoralize the opponent.
These include selective price cuts, intense
promotional blitzes, and occasional legal
action.
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 …Market-Challenger Strategies
Choosing a specific attack strategy:
strategy The
challenger must go beyond the five broad strategies
and develop more specific strategies.
Any aspects of the marketing program can serve as
the basis for attack, such as--
Lower-priced or discounted products
New or improved products and services
A wider variety of offerings
Innovative distribution strategies
A challenger’s success depends on combining
several strategies to improve its position over time.
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 Counterfeiter
Adapter

Imitator
Cloner
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 Market-Follower Strategies
Followers can achieve success by taking advantage of the
groundwork that market leaders laid. They can hold an
advantage over competitors through its location or service
offerings, and keeping manufacturing costs low. Followers can
use a variety of strategies including:
including
 Counterfeiter: Duplicate the leaders products and package
and sell on the black market or through disreputable dealers.
 Cloner: Emulate the leader’s products, name, and packaging,
but with slight variations.
 Imitator: Copies some things from the leader but
differentiates on packaging, advertising, pricing, or location.
Leaders do not protest too much unless the imitator seeks to
attack aggressively.
 Adapter: Takes the leaders products and improves them.
May select a different market than the leader but if left
uncheck may grow into a formidable opponent.
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Nichers Task
•Create niches
•Expand niches
•Protect niches

Target small, profitable segments

Achieve higher margins

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 …Market-Nicher Strategies
Nicher can be successful by focusing on
smaller, highly profitable segments of the
market. These segments are typically
underserved by larger competitors who are
focused on high volume.
The risk comes if the niche become so
profitable that competitors (such as
challengers) take notice and attack.

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 Balancing Customer and
Competitor Orientations
The main point here is that despite all of the previous
discussion being concerned with focusing on competitors,
there is a danger that this can lead the company to ignore
its customers.
A constant focus on competitors, without a balance, can
lead to the organization reacting to competitor moves as
opposed to being innovative and making its own decisions.
Comparing to competitor-centered company, customer-
centered company is in a better position to identify new
opportunities and set a course that promises to deliver
long-run profits. By monitoring customer needs, it can
decide which customer groups and emerging needs are the
most important to serve, given its resources and objectives.
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