Five Forces Determining Segment Structural Attractiveness
•Number of sellers and degree of differentiation •Entry, mobility, and exit barriers •Cost structure •Degree of vertical integration •Degree of globalization
Barriers and Profitability
Low, stable returns
Low, risky returns
High, stable returns
High, risky returns
reducing threat of substitutes. Ability to offer lower price to powerful buyers. Specialized products & core competency protect against substitutes.
. Customer's become attached to differentiating attributes.Competitive Strategy
Entry Barriers Buyer Power Supplier Power Threat of Substitutes
Ability to cut price in retaliation deters potential entrants. Brand loyalty to keep customers from rivals.
Better able to pass on Better insulated from supplier price increases to powerful suppliers. Rivals cannot meet differentiationfocused customer needs. Suppliers have power because of low volumes.
Focusing develops core competencies that can act as an entry barrier. customers. Large buyers have less power to negotiate because of few close alternatives.
Large buyers have less power to negotiate because of few alternatives. Can use low price to defend against substitutes. Better able to compete on price.
Customer loyalty can discourage potential entrants. but a differentiation-focused firm is better able to pass on supplier price increases.
Strengths & Weaknesses
Strengths and Weaknesses
Share of market
(The competitor’s share of the target market)
Share of mind
(The first company that comes to mind)
Share of heart
(The company from which you would prefer to buy)
Competitive Strategies for Market Leaders
Market leader Market challenger Market nicher Market follower
Expand Market Defend Market Share Expand Market Share
Attack leader Status quo
Expanding the Total Market
(Penetration/new market segmentation/geographical-expansion)
Mercedes was using a position defense strategy until Toyota launched a frontal attack with its Lexus.g.
By market broadening and diversification (airtel) Secondary markets (flanks) are the weaker areas and prone to being attacked Withdraw from the most vulnerable segments and redirect resources to those that are more defendable
Detect potential attacks and attack the enemies first
Responding to competitors’ head-on attack by identifying the attacker’s weakness and then launch a counter attack e.g.Defense Strategy. Toyota launched the Lexus to respond to Mercedes attack
A market leader should generally adopt a defense strategy Six commonly used defense strategies Position Defense
Market Challenger Strategies
The market challengers’ strategic objective is to gain market share and to become the leader eventually How? By attacking the market leader By attacking other firms of the same size By attacking smaller firms
Market Challenger Strategies (cont’d)
Types of Attack Strategies
Frontal attack Flank attack Encirclement attack Bypass attack Guerrilla attack
g. and The challenger has clear distinctive advantage(s)
Seldom work unless
The challenger has sufficient fire-power (a 3:1 advantage) and staying power. price and low cost Surf Vs Ariel
. Japanese and Korean firms launched frontal attacks in various ASPAC countries through quality.
Google v/s Wikipedia
.g. its flanks Ideal for challenger who does not have sufficient resources e.Flank attack
Attack the enemy at its weak points or blind spots i.e.
Seiko attacked on fashion. user preferences and anything that might interest the consumer
. features.g.Encirclement attack
Attack the enemy at many fronts at the same time Ideal for challenger having superior resources e.
the carbonated drinks
By diversifying into unrelated products or markets neglected by the leader Could overtake the leader by using new technologies
e. Pepsi used a bypass attack strategy against Coke by acquiring Tropicana Vs. Minute Maid Instead of launching carbonated drinks Nestle brought pure juices vs.g.
multinational water brands
. airlines use short promotions to attack the national carriers especially when passenger loads in certain routes are low local water brands vs.g. intermittent hit-andrun attacks to harass and destabilize the leader Usually use to precede a stronger attack
By launching small.
Which Attack Strategy should a Challenger Choose?
Use a combination of several strategies to improve market share over time
g. “Innovative Imitation” argued that a product imitation strategy might be just as profitable as a product innovation strategy e. Product innovation--Sony Product-imitation--Panasonic
Theodore Levitt in his article.
services.g.g. many Japanese firms are excellent adapters initially before developing into challengers and eventually leaders
. name & package) e. financing Four broad follower strategies:
Counterfeiter (which is illegal) Cloner (emulation of leader’s product. china iphone Imitator e. car manufacturers imitate the style of one another Adapter e.g.Market-Follower Strategies (cont’d)
Each follower tries to bring distinctive advantages to its target market--location.
Zippo Bullet-Proof Cars
Smaller firms can avoid larger firms by targeting smaller markets or niches that are of little or no interest to the larger firms e.
walking. etc Market niche may be attacked by larger firms once they notice the niches are successful
What is the major risk faced by nichers?
. expand the niches and protect them
e. hiking. Nike constantly creates new niches-cycling. cheerleading.g.Market-Nicher Strategies (cont’d)
Nichers must create niches.