competition analysis - new

7/31/2019 Competition Analysis - New

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Creating

CompetitiveAdvantage


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18- 1

Two Major Goals ofMarketing*

1. Design and Manage a SuperiorValue-Delivery System to Reach

and Satisfy Target CustomerSegments.

2. Gain and Sustain CompetitiveAdvantage.


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-=

Total CustomerBenefit

Total Customer

Cost

(Product, Service,Personnel, &

Image Values)

(Monetary, Time,

Energy, &Psychic Costs)

CustomerDelivered Value

(Profit to theConsumer)

Defining Customer Value


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Value Chain Analysis**

Firm InfrastructureHuman Resource Management

Technology Development

Procurement

InboundLogistics

OperationsOutboundLogistics

Marketingand

SalesService

Support Activities

Primary Activities


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Definition

Competitive Advantage

An advantageover competitorsgained by offeringconsumers greater

value thancompetitors offer.


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Benefits of Competitor Analysis

Understanding current competitors strategicstrengths and weaknesses can suggestopportunities and threats that will merit aresponse.

Insights into future competitor strategies may helppredict future opportunities and threats.

Decisions about strategic alternatives might hingeon the ability to forecast likely reaction of keycompetitors.

May help identify strategic uncertainties that willbe worth monitoring over time.


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Identifying Competitors

Assessing Competitors

Determining Objectives

Selecting Competitors toAttack and to Avoid

Competitor Analysis

Identifying Strategies

Assessing Strengths andWeaknesses

Estimating ReactionPatterns


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Competitor Analysis

Firms face a widerange of competition

Be careful to avoidcompetitor myopia

Methods ofidentifying

competitors: Industry point-of-view

Market point-of-view

IdentifyingCompetitors

Assessing

CompetitorsSelectingCompetitors toAttack or Avoid

Steps in theProcess:


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Industry Concept of Competition

An industry is a group of firmsthat offers a product or class ofproducts that are closesubstitutes for one another.


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Market Concept of Competition

The market concept ofcompetition reveals a broader setof actual and potentialcompetitors. According to thisconcept, competitors are

companies that satisfy the samecustomer need.


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Levels of Competition

Diet

lemon

limes

Baseball

cards

Fruit

flavore

d colas

Coffee

Diet

Coke

Diet

Pepsi

Diet-Rite

cola

Bottledwater

Lemon

limes

Regular

colas

Beer

Juices

Wine

Fast food

Tea

Video

rentals

Ice

cream

Product form

competition:

Diet colas

Product

category

competition:Soft drinks

Generic

competition:

BeveragesBudget

competition:

Food and

entertainment


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230-year-oldEncyclopedia

Britannicaviewed itself ascompeting withother publishersof printedencyclopedias.Big mistake! Its

real competitorswere softwareencyclopedias

and the Internet.


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Competitor Analysis

Potential Competitors Market expansion

Product expansion

Backward integration competitivecustomers

Forward integration competitivesuppliers

Export assets or competenciesmergers/acquisitions

Retaliatory or defensive strategies


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Competitor Analysis

Determiningcompetitors objectives

Identifying competitors

strategies Strategic groups

Assessing competitorsstrengths andweaknesses Benchmarking

Estimating competitorsreactions


Assessing




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AnalyzingCompetitors

Competitor

Actions

Objectives

Strengths &

Weaknesses

Reaction

Patterns

Strategies


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Competitor Analysis

Successful strategists take great pains in scoutingcompetitors

Understanding their strategies

Watching their actionsEvaluating their vulnerability to driving forces

and competitive pressures

Sizing up their resource strengths andweaknesses and their capabilities

Trying to anticipate rivals next moves


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Customer Value Analysis (forCompetition)

Identify Attributes Customers Value

Assess Attribute Importance

Assess Company and CompetitorPerformance

Examine Segments on Attribute-by-Attribute Basis

Monitor Customer Values Over Time


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Six competitive positions in thetarget market

1. Dominant- Controls the behavior of other competitors

2. Strong- The firm can take independent action withoutendangering its long-term position

3. Favorable- has exploitable strength and more than averageopportunity to improve its position

4. Tenable- performing at a satisfactory level

5. Weak- unsatisfactory performance but opportunity exists forimprovement

6. Nonviable- unsatisfactory performance but no opportunity

for improvement


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Reaction Patterns

1. The laid-back competitor- that does notreact quickly

2. The selective competitor- that reacts toonly certain type of attacks

3. The tiger competitor- that react swiftly andstrongly to any assault

4. The stochastic competitor- that does notexhibit a predictable reaction pattern


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Competitor Analysis

Strong or weakcompetitors Customer value analysis

Close or distantcompetitors Most companies compete

against close competitors

Good or Bad

competitors The existence of

competitors offers severalstrategic benefits


Assessing




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Developing Competitive MarketingStrategies

Overall CostLeadership

Differentiation

Focus

Middle ofthe Road

Basic Competitive Strategies


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Basic Winning CompetitiveStrategies: Michael Porter

Overall cost leadership Lowest production and

distribution costs Differentiation

Creating a highlydifferentiated product lineand marketing program

Focus Effort is focused on serving

a few market segments

Competitive Strategies*


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Potential Entrants(Threat ofMobility)

Buyers(Buyer power)

Substitutes(Threats of

substitutes)

Suppliers(Supplier power)

IndustryCompetitors

(Segment rivalry)

Five Forces Determining SegmentStructural Attractiveness


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Threat ofNew

Entrants

Threat of

New Entrants

Porters Five Forces

Model of Competition


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Threat of New Entrants

Barriers to

Entry

Government Policy

Economies of Scale

Product Differentiation

Capital Requirements

Access to Distribution Channels

Cost Disadvantages Independent

of Scale


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Exit Barriers

Legal or moral obligations.

Government restrictions.

Low asset salvage value. Lack of alternative opportunities.

High vertical integration.

Emotional barriers.


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Low, stablereturns

Low

High, stablereturnsHigh

Low

Low, riskyreturns

High, riskyreturns

High

Entr

yBarriers

Exit barriers

Barriers and Profitability


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Bargaining

Power of

Suppliers

Threat ofNew

Entrants

Threat of

New Entrants

Porters Five Forces



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Bargaining Power of Suppliers

Suppliers exert power

in the industry by:

* Threatening to raise

prices or to reduce quality

Powerful suppliers

can squeeze industry

profitability if firms

are unable to recover

cost increases

Suppliers are likely to be powerful if:

Supplier industry is dominated by afew firms

Suppliers products have few substitutes

Buyer is not an important customer tosupplier

Suppliers product is an importantinput to buyers product

Suppliers products are differentiatedSuppliers products have highswitching costs

Supplier poses credible threat of

forward integration

P Fi F


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Bargaining

Power of

Buyers

Threat ofNew

Entrants

Threat of

New Entrants

Bargaining

Power of

Suppliers

Porters Five Forces



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Bargaining Power of Buyers

Buyers compete

with the supplying

industry by:

* Bargaining down prices

* Forcing higher quality

* Playing firms off of

each other

Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases

are large relative to sellers sales

Purchase accounts for a significantfraction of suppliers sales

Products are undifferentiated

Buyers face few switching costs

Buyers earns low profits

Buyer presents a credible threat ofbackward integration

Product unimportant to quality

Buyer has full information

P t Fi F


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Threat of

Substitute

Products

Threat ofNew

Entrants

Threat ofNew Entrants

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Porters Five Forces



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Threat of Substitute Products

Products with

similar

function limitthe prices

firms can

charge

Keys to evaluate substitute products:

Products with improving

price/performance tradeoffs

relative to present industryproducts

Example:

Electronic security systems inplace of security guards

Fax machines in place of

overnight mail delivery

P t Fi F


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Threat of

Substitute

Products

Threat ofNew

Entrants

Threat of

New Entrants

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Porters Five Forces



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Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:

Using price competition

Staging advertising battles

Making new product introductions

Increasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse offAdvertising battles may increase total industry demand, but

may be costly to smaller competitors


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Cutthroat competition is more likely to occur when:

Rivalry Among Existing Competitors

Numerous or equally balanced competitors

Slow growth industry

High fixed costs

Lack of differentiation or switching costs

High storage costs

Capacity added in large incrementsHigh exit barriers


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Hypothetical

Market Structure


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Competitive Strategy

Expanding the totaldemand Finding new users Discovering and

promoting new productuses

Encouraging greaterproduct usage

Protecting market share

Many considerations Continuous innovation

Expanding market share Profitability rises with

market share

Market Leader

MarketChallenger

MarketFollower

Market Nicher

CompetitivePositions


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Expanding the Total Market

The dominant firm normally gains the most when thetotal market expands.

Every product class has the potential of attracting buyerswho are unaware of the product or who are resisting itbecause of price or lack of certain features.

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 segmentstrategy).

Those who live elsewhere (geographical-expansionstrategy).


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Expanding the Total Market

New Users Converting potential customers

New-market segment strategy (e.g. Ruralsegments by banks)

Geographical-expansion strategy (E.g., North-eastern markets, B-class towns by MercedesBenz)

New Uses (e.g., Vaseline petroleum jelly)

More Usage (More Cricket, More Pepsi, Sundayke Sunday, Medikar)


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More Usage

Usage can be increased by increasing the level ofquantity of consumption or increasing the frequency ofconsumption.

Increasing the amount of consumption can sometimes bedone through packaging or product design.

Increasing frequency of use involves identifyingadditional opportunities to use the brand in the samebasic way or identifying completely new and differentways to use the brand.


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Expanding Market Share

Market leaders can improve their profitability byincreasing market share.

Gaining increased share in the served market does not

automatically produce higher profits. A company should consider four factors before pursuing

increased market share:

The possibility of provoking antitrust action.

Economic cost.Pursuing the wrong marketing-mix strategy.

The effect of increased market share on actual andperceived quality.


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Defending Market Share

Dominant firm must continuously defend its currentbusiness.

What can the market leader do to defend its terrain? continuous innovation developing new product and customer services, distribution effectiveness, and cost cutting

it keeps its competitive strength and value to customers.

D f di M k Sh


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Defending Market Share

In satisfying customer needs, distinguishbetween

Responsive marketer > find a stated

need and fill it;

Anticipative marketer > discoverlatent needs;

Creative marketer > creates totallynew markets


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Defense Strategies

Position Defense > occupy the most desirable marketspace, make the brand unconquerableNescafe,Maggi

This involves setting up fortifications such as barriersto market entry around a product, brand, product line,market, or market segment. This could includeincreasing brand equity, customer satisfaction,

customer loyalty, or repeat purchase rate. It could alsoinclude exclusive distribution contracts, patentprotection, market monopoly, or government protectedmonopoly status.

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Defense Strategies

Flank Defense > Guard the weak fronts by erectingoutposts and use them for invasion also.

Wheel, Coke

Preemptive Defense > attack beforeenemys offence,preannounce and introduce new products, expanddistribution rapidly and widely

Jet airways

-Times of India

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Defense Strategies


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Counteroffensive Defense

counterattack when attacked, Attack the front or the flank Jet Vs King fisher on

routes

Pincer attack from two sides Invade competitors main territory and force him to be

defensive

Subsidized product under attack by profits from other

products Preannounce product upgrades to make customers

wait than switch over

Lobby with legislatures

Defense Strategies

D f St t i


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Mobile Defense

market broadening shifts focus from current product tounderlying generic need

market diversification

This involves constantly shifting resources and developing new

strategies and tactics. A mobile defense is intended to create amoving target that is hard to successfully attack, whilesimultaneously, equipping the defender with a flexible responsemechanism should an attack occur.

This would entail introducing new products, introducing replacementproducts, modifying existing products, changing market segments,changing target markets, repositioning products, or changingpromotional focus. This defense requires a very flexible organizationwith strong marketing, entrepreneurial, product development, andmarketing research skills.

Defense Strategies

D f St t i


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Contraction Defense

Strategic withdrawal TOMCO, LAKME

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Defense Strategies


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OTHER COMPETITIVE STRATEGIES

Firms that occupy second, third, and lower ranks inan industry are often called runner-up, or trailingfirms. These firms can adopt one of two postures.

Each can attack the leader and others in anaggressive bid for further market share (marketchallengers), or they can play ball and not rocktheboat (market followers).


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Option 1:challenge themarket leader High-risk but high-gain

Sustainable competitiveadvantage over the leaderis key to success

Option 2:challenge firmsof the same size, smaller

size or challengeregional or local firms

Full frontal vs. indirectattacks

Market Leader

MarketChallenger

MarketFollower

Market Nicher


Market Challenger Strategies


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Market-Challenger Strategies

Many market challengers have gained ground oreven overtaken the leader.

A market challenger must first define its strategicobjective. The challenger must decide whom toattack:

It can attack the market leader.

It can attack firms of its own size that are not doingthe job and are underfinanced.

It can attack small local and regional firms.


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Market Challenger Strategies

Must define strategic objective andopponents(s)

Must choose a general attack strategy frontal or headon

flank or blindside

encirclement or blitz

bypass or attacking easier markets tobroaden resource base

guerrilla or small, intermittent attacks

C i S ifi A S


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Choosing a Specific Attack Strategy

Price discount. Lower price goods.

Prestige goods.

Product proliferation. Product innovation.

Improved services.

Distribution innovation. Manufacturing-cost reduction.

Intensive advertising promotion.


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Pepsi is anexample ofmarket

challenger thathas chosen touse a full

frontal attack


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Follow the marketleader Focus is on improving

profit instead ofmarket share

Many advantages:

Learn from themarket leadersexperience

Copy or improve onthe leaders offerings

Strong profitability

Market Leader

MarketChallenger

MarketFollower

Market Nicher



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Market Follower Strategies

Counterfeiter duplicates leader

Cloner

emulates leader

Imitator copies some features

Adapter improves on leader

M k t F ll St t i


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Market-Follower Strategies

A market follower must know how to hold currentcustomers and win a fair share of new customers.

Each follower tries to bring distinctive advantages to

its target marketlocation, services, and/or financing.


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Serving marketniches meanstargeting

subsegmentsGood strategy forsmall firms withlimited resourcesOffers high marginsSpecialization is key By market, customer,

product, or marketingmix lines

Market Leader

MarketChallenger

MarketFollower

Market Nicher


Market Nicher Strategies


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Market-Nicher Strategies

Firms with low shares of the total market can behighly profitable through smart niching.

Such companies tend to offer high value, charge a

premium price, achieve lower manufacturing costs,and shape a strong corporate culture and vision.

The market nicher ends up knowing the targetcustomers so well that it meets their needs better thanother firms selling to this niche. The nicher achieveshigh margin, whereas, the mass marketer achieveshigher volume.


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Market Niche Strategies

Niche specializations include: end user

vertical-level

customer size specific customer

geographic

product/product line/product feature quality/price

service/channel

Competitor Centered Companies


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Competitor-Centered Companies

A competitor-centered companysets its course based onreactions to its competitors.

This kind of planning has some pluses and minuses.

On the positive side, the company develops a fighterorientation.

On the negative side, the company is too reactive.

Rather than formulating and executing a consistent,

customer-orientated strategy, it determines its movesbased on competitors moves.

Customer Centered


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Customer-CenteredCompanies

A customer-centered company focuses more oncustomer developments in formulating itsstrategies.

The customer-centered company is in a betterposition to identify new opportunities and set a

course that promises to deliver long-run profits.


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18- 65

Companies can become so competitor

centered that theylose their customer focus.

Types of companies:

Competitor-centered companies Customer-centered companies

Market-centered companies

Balancing Customer and

Competitor Orientations


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Evolving Company

Orientations

Latest thinking on


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Monopolist

Cooperative

Approach

Competitive

Approach

Co-opetition

Latest thinking onCompetition

Balancing Customer and


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Competitor Orientations

Product

Orientation

CompetitorOrientation

Customer

Orientation

MarketOrientation

Co

mpetition-C

entered

No Yes

Customer-Centered

No

Yes

competition analysis - new

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