JUDO IN ACTION

FACING THE COMPETITION

GROUP 8 PGDM SECTION B

SUBMITTED BY:

ANKIT GUPTA 070

ANURAG BADONI 071

ANURAG KAMANDULA 085

PALLAVI SRIVASTAVA 093

VIJEESH RAJAGOPALAN 118

INTRODUCTION

Competition:

Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services. Merriam-Webster defines competition in business as "the effort of two or more parties acting independently to secure the business of a third party by offering the most favourable terms." It was described by Adam Smith in The Wealth of Nations (1776) and later economists as allocating productive resources to their most highly-valued uses and encouraging efficiency. Later microeconomic theory distinguished between perfect competition and imperfect competition, concluding that with the no system of resource allocation is more efficient than perfect competition. Competition, according to the theory, causes commercial firms to develop new products, services and technologies, which would give consumers greater selection and better products. The greater selection typically causes lower prices for the products, compared to what the price would be if there was no competition (monopoly) or little competition (oligopoly).

Competitive Advantage – A competitive advantage is an advantage over competitors gained by offering consumers greater value either by means of lower prices or by providing greater benefits and service that justifies higher prices.

According to Michael Porter, the three methods for creating a sustainable competitive advantage are through:

1. Cost leadership - Cost advantage occurs when a firm delivers the same services as its competitors but at a lower cost

2. Differentiation - Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost

3. Focus (economics) - A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage. There are cost focus seekers, who aim to obtain a local cost advantage over competition and differentiation focuser, who are looking for a local difference.

Many forms of competitive advantage cannot be sustained indefinitely because the promise of economic rents invites competitors to duplicate the competitive advantage held by any one firm.

HOWS EXISTING MARKET PLAYERS GAIN COMPETETIVE ADVANTAGE OVER NEW PLAYERS ENTERING THE MARKET

Erecting Barriers to Entry

Economies of scale

Proprietary product / service differences

Proprietary technologies / processes

Synergistic strategic alliances with owners of complementary competences

Brand  identity

Switching costs

Capital requirements

Access to distribution / marketing / selling channels

Government policies / regulations

Expected retaliation

Absolute cost advantages

o Proprietary low-cost product design / processes

o Preferential access to necessary inputs

o Proprietary learning curve

Sustainable growth, the cornerstone of a successful enterprise, requires the constant erection of barriers to entry to keep your competitors at bay. Barriers to entry have the effect of making a market less contestable. They are designed to block potential entrants from entering a market profitably. They seek to protect the monopoly power of existing (incumbent) firms in an industry and therefore maintain supernormal profits in the long run.

The most prominent barriers to entry are market share, competition, strategic alliances and intellectual property protection.

Building market leadership and developing consumer loyalty by establishing branded products can make successful entry into the market by new firms much more expensive.

Incumbent firms may also adopt predatory pricing policies by lowering prices to a level that would force any new entrants to operate at a loss. They may function as barriers to entry when they prevent some lower cost producers from entering the market by negotiating long-term contracts with buyers.

Effective strategic alliances will save time and resources by allowing you and your partners to focus on your core competencies and provide you with the competitive advantage crucial to the success of your company.

Heavy spending on research and development can act deterrent to potential entrants to an industry. R&D spending goes on developing new products and allows also firms to improve their production processes and reduce unit costs. This makes the existing firms more competitive in the market and gives them a structural advantage over potential rival firms.

Both incumbent firms and new entrants may use various intellectual rights protection methods to protect their inventions under the law and thus erect a formidable barrier to entry against their competitors. Three kinds of intellectual property rights exist and can be used in different combinations: copyright, patents, and trademarks. Patents, for example, offer a 20-year barrier to entry for any new product disclosed to the public. Once a product is patented, no other person or company can profit from the idea. Inventors can use their barrier to entry as a competitive advantage, therefore receiving payment for innovation.

HOWS CAN NEW MARKET PLAYERS GAIN COMPETETIVE ADVANTAGE OVER EXISTING PLAYERS

PRINCIPLES OF JUDO STRATEGY

1. Movement: Don’t Invite Attack, Define the Competitive Space, and Follow Through Fast

2. Balance: Grip Your Opponent, Avoid Tit-for-Tat, and Push When Pulled

3. Leverage: Leverage Your Opponent’s Assets, Partners, and Competitors

"[Judo] depends for success upon the skill of using an opponent’s own weight and strength against him, thus enabling a weak or light individual to overcome a physically superior opponent."

--Columbia Encyclopaedia, 6thedition

The roots of judo strategy lie in "judo economics," a term coined by economists Judith Gelman and Steven Salop to describe a simple strategy for entering a market dominated by a large opponent.

JUDO ECONOMICS & JUDO STRATEGY

The basic model makes a few important assumptions: the incumbent faces a single challenger, the challenger has no cost advantage, and the incumbent must charge all customers the same price (i.e., price discrimination is impossible). Based on these assumptions, the logic works like this: Assume that the incumbent supplies ten customers with widgets for $50. If you offer to supply the entire market at $40, the incumbent will be forced to match your price or lose all of its sales. By contrast, if you only have enough capacity to sell to one customer, the incumbent will find it more profitable to accommodate your entry by sticking to his original price and selling to the remaining nine.

The idea behind judo economics—turning your opponent’s size into a disadvantage—has a lot of intuitive appeal. But judo economics has important limitations as well. First, it is very difficult to implement. It’s one thing to say that you won’t threaten bigger competitors. It’s quite another to convince them that you mean what you say. Moreover, judo economics looks far less promising once the assumptions behind the original model are relaxed.

But the greatest weakness of judo economics is that it sets its sights too low. Judo economics may allow you to survive, but only at the cost of staying small. For most managers and companies, this is not enough. You don’t want to skulk around the sidelines; you want to get out there and win. Consequently, judo strategy picks up where judo economics leaves off.

Judo strategy provides a set of tools that allow you to do more than just survive in the face of daunting competition; they show you how to thrive and grow. It believes that companies can win against larger or stronger competitors by mastering three core principles: movement,

balance and leverage. Judo strategy is an approach to competition that emphasises skill, rather than size or strength.

Below we discuss 10 techniques that companies have put to work. Depending on the nature of their competition, firms can combine and implement these techniques:

1. The “puppy dog ploy”: Here the challengers keep a low profile and avoid head-to-head battles when they are too weak to win.

2. Define the competitive space: Here you seize the initiative by defining a competitive space where u can take the lead. Every champion has areas where he is weak. Take advantage of these weak points to define a game you can win.

3. Follow-through fast: Next you need to strengthen your position through continuous attack. Soon your competitors will see through the puppy dog ploy and seek to bring the advantage of superior size and strength into play. By following-through fast, you can postpone this day of reckoning and make most of your early lead.

4. Grip your opponent: By gripping on opponent early, you may succeed in pre-empting competition: securing victory. Partnership, JV or equity deals are some of the ways.

5. Avoid tit-for-tat: As a judo strategist, the last thing you want is to get into a war of attrition, as tit-for-tat often becomes. Study your opponents carefully and figure out the moves you can match without getting dragged out of your depth, and craft counter attacks that play to your strength.

6. Push when pulled: Use your opponent’s force or momentum to your advantage. By incorporating your competitor’s products, services or technology into your attack, you can throw him off-balance and confront him with a painful choice: whether to abandon his initial strategy or to watch it fail.

7. Practice Ukemi: Ukemi is the technique of falling safely with minimal loss of advantage in order to return more effectively to fight. By beating a strategic, you can conserve your resources and regroup in better position for the confrontations ahead.

8. Leverage your opponent’s assets: a company’s greatest assets can often become its greatest liabilities. Anything which represents a significant investment can become barrier to change and exploiting these, you can find the leverage you need to win.

9. Leverage your opponent’s partner: You can turn a rival’s partners into false friends by exploiting the differences among them. Set old allies at odds by creating situations where their interests are no longer aligned.

10. Leverage your opponent’s competitors: compared to the earlier two, it could be easier and more natural to allow your competitor’s competitors to wear him down. You can add value on top of his competitor’s products, build coalitions with his competitors or you can serve as a distributor for his competitors.

Now we take four different cases where small competitors exploit the size and incumbency of a larger firm to find opportunities to make inroads against large firms without effective retaliation.

Softsoap

Softsoap is the trade name of Colgate-Palmolive's liquid hand soap and body wash. In

1987, Colgate-Palmolive purchased the liquid soap business from Minnetonka Corporation.

History of liquid soap:

William Shepphard of New York, New York, was granted patent number 49,561 for his

"Improved Liquid Soap" on August 22, 1865, for his discovery that a small amount of

conventional soap could be mixed with large amounts of hart shorn to create soap with a

consistency of molasses. His invention became common in public areas, but could generally

not be found in homes.

Entry of Minnetonka Corporation in liquid soap business:

Sometimes later, the Minnetonka Corporation began to offer Crème Soap on Tap in attractive ceramic dispensers through boutique distributors.The product was a success, and the corporation followed up in 1980 with a similar product designed for mass retail sale. Test marketing had shown that the demand for the product would be high and would grow rapidly. They created the Softsoap brand name and designed a package that included a distinctive custom pump bottle with a cap that obviated the need for a secondary carton to enclose the product. It launched its $1.49 liquid soap with a $7 million national advertising campaign.The prospect of such booming success had Minnetonka founder Robert Taylor very, very worried. Despite the pictures of cuddly bears and smiling children in its advertising, the hand-soap industry is a highly competitive, big-money market dominated by giants such as Armour-Dial, Procter & Gamble, and Colgate-Palmolive. Because the size of the market is relatively stable, participants will fight to hold on to every customer they have and successful products are almost always imitated. Taylor had seen the destructive power of such imitation before when he had introduced fruit shampoos. Clairol had quickly countered with its own branded line that knocked Minnetonka's off the shelves. Taylor did not want Softsoap to be a repeat of that experience.

Armed with an aggressive $7 million advertising campaign (which was really quite large for this particular market), Softsoap was launched nationally with the expected success, reaching first-year sales of between $35 and $40 million. Although this was great news for the company, Taylor's excitement was controlled by his earlier fears and the knowledge that Minnetonka now had the attention of the major brands.

Competitive Advantage enjoyed by Softsoap when it entered the market in 1980

Product differentiation: Minnetonka Corporation has launched for the first time

liquid soap in a pump operated plastic bottle which was different from the existing

bar soap. This was a way to crack the mass market for bar soap, which was

dominated by few large players like Armour Dial, P&G, Lever Brothers, and Colgate

Palmolive.

Certain advantages of liquid soap over the bar soap were: 1. Many consumers find liquid soap more convenient to use since there is no messy bar

to deal with.2. It was more sanitary and hygienic to use.3. Liquid soap has a lower PH level than bar soaps and therefore are milder to the skin.4. It came in recyclable pump bottle.

The package made it very easy to spot on store shelves when nearly all other soaps were in bar form.

Initial reaction of major competitors:The big soap manufacturers decided to conduct private trials of liquid soap products rather than go ahead with public launches. In fact, they decided to market product under different names than that of their flagship bar soap products. P&G, for example, was marketing its liquid soap product under the name of “Rejoice”.Possible reasons for not fighting back aggressively initially:

1. Major soap brands in the market were unsure of consumer’s enthusiasm for liquid soap from pump gun dispenser.

2. The US bar soap industry in 1977 had experienced little growth for innovation for years, which is likely to brew inflexibility or rigidity – structure-wise or culture-wise inertia – that hinders a firm’s ability to respond to environmental changes, even when it does notice the need to change.

As the larger corporations began their own test marketing, Taylor considered his situation. He knew that once the financially stronger companies entered, there was little chance he could beat them in a price war. But he also knew that if he did not fight their entry, he would have to settle for whatever tiny sliver of the market remained, if, in fact, any did remain (which was not likely).

If Softsoap was to have any chance of long-term success, Taylor knew that he would need more time to build brand loyalty so he chose to fight in a rather clever way. What made liquid soap so convenient was the way in which it was delivered – the pump. Without the pump, liquid soap became a sloppy, unmanageable mess. Realising that there were only two pump manufacturers capable of serving the demand, Taylor risked everything and bought up both manufacturers' total annual production – 100 million pumps!

But Taylor's gamble paid off. The move kept the major brands out of the market long enough to allow Softsoap to build the brand loyalty it desperately needed. When competition finally arrived, the Softsoap brand was firmly in place and remained the market leader.

Had the major incumbents imitated the product immediately, Softsoap would not have had the competitive advantage of product differentiation. It would not have been able to compete against major players who enjoyed the economies of large scale production and could have spent more money on aggressive advertising and promotion.

Although Minnetonka could have threatened to enter a price war with any entrant, the larger corporations would have ignored the threat since it would not have been credible. Therefore, it had to adopt another strategy (i.e., buying the pump manufacturers' full supply) to commit to fighting the entry of the larger corporations.

In 1981, Yardley launched its second liquid soap product and spent $5 million on its launch. In 1983, P&G launched a liquid soap product under the Ivory brand name. It used aggressive pricing, trade promotion, advertising, couponing to capture 30% market share. Armour-Dial failed to successfully launch its ‘Liqua 4’ liquid soap but re-entered the market in 1987 with Liquid Dial which overtook Softsoap as the market leader. By 1987, the segment has grown to $200 million market. Minnetonka was purchased by Colgate-Palmolive for $61 million in 1987. Hence we can see that though Minnetonka estimated this segment to grow to a $400 million market and that it would be able to retain half the market share despite competition, it failed to do so. The major competitors introduced products offering similar features and they had the advantage of economies of large scale production, better R&D, aggressive advertising and promotion, and more developed distribution network.

In the business arena, this plays out again and again. Tom Siebel   left Oracle in 1993 to found his eponymous company, Siebel Systems, selling customer relationship management (CRM) software that improves a business’s abilities to manage sales programs. Software giant SAP initially missed the CRM market, entered late, overtook Siebel Systems and become the leader. Indeed, Siebel has already begun to feel the arrow’s sting: its stock dropped by 94% between 2000 and 2003 and has been flat ever sinceEntrants need to be careful not to assume that initial disinterest automatically means an incumbent is disruptable. If an entrant introduces an innovation that looks sustaining through the eyes of well-resourced competitors, once the entrant proves a market exists, the incumbent can marshal its resources to fight back. Generally, incumbents are motivated to fight rather than flee when sizable up-front expenditures need to be amortized over a large number of users and the marginal cost of serving an additional customer is low.

RED BULL- gives you wings!!!!!!

Energy drinks are soft drinks advertised as providing energy to improve physical activity of the drinker. Rather than providing food energy (as measured in calories), these increase the mental alertness and physical performance by the addition of caffeine, vitamins, and herbal supplements which may interact to provide a stimulant effect over and above that obtained from caffeine alone. Red Bull was introduced by Dietrich Mateschitz and is derived from an energy drink from Thailand called Krating Daeng.

Barriers to entry/Initial ChallengesThere was an absence of a defined market for such functional drinks. It has high input costs, hence is sold at premium prices. No enthusiasm was shown by restaurants and bars and there were strict government regulations. There were perceptual barriers too regarding dietary information and rumours about use of controversial ingredients. 3 Swedes died after its consumption, two after mixing it with vodka and one after over consumption, which created lot of fuss in the media.

Red Ocean Vs Blue OceanRed Oceans are all the industries in existence today—the known market space. In the red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Here companies try to outperform their rivals to grab a greater share of product or service demand. As the market space gets crowded, prospects for profits and growth are reduced. Products become commodities or niche, and cutthroat competition turns the ocean bloody. Hence, the term red ocean is used. Blue oceans, in contrast, denote all the industries not in existence today—the unknown market space, untainted by competition. In blue oceans, demand is created rather than fought over. There is ample opportunity for growth that is both profitable and rapid. In blue oceans, the rules of the game are waiting to be set. Blue Ocean is an analogy to describe the wider, deeper potential of market space that is not yet explored.

Competitive Strategy adopted:The puppy dog ploy- Initially sold in alcohol free discos which cater to a lot of youngsters, retail outlets and then filling stations instead of targeting high end restaurants/bars and hotels. Even inside the retail stores, the sleek shining silver blue cans were strategically placed on the shelves to give the first on lookers a sense of curiosity. Targeted “in crowd” places. They connected with colourful “deejays”. Consumer education teams to nullify the rumours. Aggressive advertising was done. They used logo carrying vans. Free distribution of samples sports. They had a unique and focused distribution strategy.

Bringing the customer base closer:“We don’t bring the product to the consumer; we bring consumers to the product.” This is done by herding customers to exciting events that get high media coverage. “Buzz Marketing” is the word. The student marketing buzz – in 2000, helped to raise the sales to 200 Million cans. Objections were raised by French government and hence it waited for the right opportunity. It invited athletes to Red Bull sporting events. Special adventure sporting events were held. It got huge TV attention and hosted most of the events with deejays, appetizers, photogenic women and plenty of red bull. In US, promo vans were sent to colleges, gyms, office buildings and beaches. It also associated with famous bars and pubs. Certain RB drinks topped the popularity charts. It introduced the Taurus awards (promoted by Arnold Schwarzenegger) for best stunt people in the film industry.

Stiff CompetitionSoft Drink market was dominated by carbonated cola giants. Red Bull defined their competitive space- Energy drink segment, which was a small part of huge $50 Billion soft drink market. This market never got sufficient attention from the established soft drinks players; hence it was their weak link. For Red Bull, it was a matter of identifying this weak spot and then attack instead of going after their bastion. Cola giants introduced their variants of energy drinks. It was backed by huge financial support for advertising and promotion. Red Bull served the market at double the price of its competitors but gave more efficiency with its high caffeine content.Avoiding tit for tat- at the time when the competitors, especially the big soft drink players were coming up with their energy drinks, Red Bull kept its focus on its core product. It did not try to come up with any cola variant to counter attack Coke or Pepsi. However, in 2008 it launched its Red Bull cola.

Current scenario:The market for sports/energy drinks has been buoyant despite the effects of the recession – and in 2008 it accounted for a combined £941 million, up 10% on 2007. In volume terms, the market achieved some 484 million litres, also up 10% on 2007. For 2009, the market is estimated to reach 525 million litres for a value of just over £1 billion.In terms of value, the sports and energy market pales in comparison to its main competitors. For example, Mintel estimates soft drinks to be worth £6 billion in 2008, with bottled water at £1.9 billion.Energy drinks market is doubling every year. Red Bull sales in the U.S. took off shortly after 1998 and have continued to soar. Buoyed by a solid base of early adopters and an army of trend-conscious followers, the sweet, neon yellow beverage is just now hitting the mainstream.

Sales of energy drinks, a category Red Bull has owned with a commanding 65% share last year, hit $130 million in wholesale dollars in 2000, per consultancy Beverage Marketing Corp., New York. That figure is all the more remarkable as it has virtually doubled in each of the past five years: $75 million in 1999, $42 million in 1998 and $12 million in 1997.

During the first five months of this year, the brand pulled in $29.9 million from 658,000 cases sold in convenience stores and supermarkets, per Beverage Digest, Bedford Hills, N.Y. However, those channels only account for 30-40% of the brand's sales, as it still largely lives in bars and dance clubs where it is frequently mixed with vodka as a buzz-building cocktail. Red Bull controlling 2/3rd of the whole market alone in US. In over 100 countries worldwide, it has 70-90% market share. Growth of Red bull is huge in comparison to dull growth in overall soft drink market. Market shares of Coke and Pepsi goes down in the soft drink market. But this all did not happen in one night’s time. There’s was a well planned strategy, a beautiful mix of judo strategies which when fused proved fruitful to Red Bull.

Drink Share of Energy Drink Market(based on dollar sales)

Red Bull 42.6

Monster 14.4

Rockstar 11.4

Full Throttle 6.9

Sobe No Fear 5.4

Amp 3.6

Sobe Adrenaline Rush 2.9

Tab Energy 2.3

Monster XXL 0.9

Private Label 0.9

Rip It 0.8

Sobe Lean 0.7

BooKoo 0.5

Sobe Superman 0.4

Von Dutch 0.4

(Bevnet have published this annual review of the energy drink industry. Here are the 15 biggest sellers for the year ended 31 December 2006).

UK Price wars

IntroductionIn the 1980’s three types of companies owned retail gasoline stations in the United Kingdom: Vertically integrated oil companies, supermarkets and independent retailers .Each group had their own distinctive market niche. By the early 1990’s supermarkets lowered their gasoline

prices which resulted in their market share rising from 6% in 1991 to 20% in 1995.In the meanwhile the largest player in the market Esso’s share had dropped from 21% to 16%. In such a scenario there were only two options left with Esso, either to continue the way it has of been or to slash down its prices which would eventually even start a price war among the oil companies. In August 1995 Esso responded by launching a program (that was dubbed as Pricewatch) in the northeast England and in Scotland. It was extended to all of its 2100 filling stations in January. This triggered the UK petrol price war.

Supermarkets ExpansionPlanning policies in the 1980's were favourable to out of town development and these policies, together with high profits in the food retailing industry lead to a massive expansion of hypermarkets throughout the Country. As the stores became more sophisticated, so did the petrol forecourts and the majority of these later developments were placed so as to have a high degree of prominence to the main road. The Hypermarket operators also introduced substantial discounting against conventional oil company prices. For a number of years in the late 1980's and the early 1990's savings of between 2p and 4p per litre could be achieved by filling up at a hypermarket service station. These savings soon resulted in hypermarkets increasing their market share quite significantly. Whilst accurate figures are hard to obtain because of the confidentiality surrounding the disclosure of site volumes, it was estimated that hypermarkets approximately had 25% share of the UK retail petroleum market by 1995. In the UK, at the end of 1990 there were 434 hypermarket sites with petrol facilities, and at the end of 1995 there were 776 hypermarket sites.

EssoEsso, being the largest player in the market with 21% market share, had to decide whether to accommodate the expansion of the supermarkets or to fight them. Esso knew that by fighting it could prevent its market share from falling below 18%, but fighting the supermarkets might inadvertently cause a price war within the group of integrated oil companies. Esso commenced trials of its "Price Watch" scheme in the north east of England and Scotland in autumn 1995, where they undertook to match hypermarket prices within three miles of their sites. In January 1996, Esso went nationwide on "Price Watch" with a public undertaking to check prices daily and be amongst the very lowest in the country. This was followed up with a significant television and radio advertising campaign, the basic criteria being that Esso would match the lowest price within a three mile radius. The Pricewatch program was estimated to have costed Esso 200 million pounds in profit in 1996 alone. Esso did claim that it was able, however, to recapture about 1 million customers.

Esso brought its long-running Pricewatch campaign to an end by March 2004. The promotion had caused chaos and outrage in the industry, sparking intense price wars as the major oil companies battled it out with the supermarkets and small retailers got caught in the cross-fire. Eight years later, Esso believes it has achieved what it set out to do – establish a long-term shift in pricing policy, which will continue despite the removal of the Pricewatch banners from its forecourts. Other promotions will follow, but have yet to be revealed. However, as in 1995, the supermarkets remain the main challenge in the market.Gordon Munro, Esso Petroleum’s marketing manager, said: “In 1985 the supermarkets had less than five per cent market share, and that has grown to around 26-27 per cent and we foresee that continuing to grow. We have therefore put good plans in place to respond to the challenge. We have spent a lot of time and effort doing a full strategic review of the UK

market and have come up with assessment of our customer demands. We know that the customer expects competitive prices wherever he goes – and at Esso we believe we have built up a reputation over the years as a company that will give the customer a competitive pump price. We intend to maintain our reputation and continue to do that. However, we also believe the customer is looking for more than a competitive pump price. Pricewatch was a promotion – it was a brand. We now believe it’s time to move on to something new.”When Pricewatch was launched it was a very different retail environment, and it was introduced as a reaction to market forces at the time. It was a commitment to the customer about competitive pump price. Research shows that while motorists expect competitive pump prices, they don’t really know what Pricewatch means.

Reaction to Pricewatch by competitors In October 1995 Shell announced its intention to undercut or match Esso in its "Price Watch" areas. Shell announced an overnight price cut of 4p/l. BP and Total responded with marketing and price-cutting strategies.While Esso was admired in some quarters for its stand against the supermarkets, what was much harder to swallow was the fate of independent operators caught in the crossfire as the industry giants fought it out. Pricewatch or Doomwatch ran the headlines as flabbergasted retailers in those areas struggled for air in their shock at the situation. They shuddered at the thought that this could be rolled out as a national scheme.The situation could only end in tears, and was the sign of a company desperate to buy back market share. Normal prices were around 54ppl, but prices in the trial areas began to plummet to less than 49ppl. They need 2ppl margin just to break even. Unable to withstand the price competition, independents started closing at a rate of 1000 per year.The roll-out of Pricewatch came as a body blow to many retailers around the country although a straw poll of Esso retailers at the time showed they were grateful to the oil giant for its support. One Esso licensee said the Pricewatch scheme had been tremendous for bringing in business and he claimed fuel sales were up by as much as 35 per cent.

Supermarkets Expectation and were they justifiedSupermarkets knew that if they had to increase their market share they could do it only by attracting new customers which they did by lowering the petrol price. They knew for sure that none of the oil companies would be considering them as a serious competitor in the initial years as in a business with low margins, big players were expected to keep the margins stable by an implicit understanding.Slowly and steadily Consumers were made to believe that petrol at hypermarkets cost less than anywhere else. Once the image was built, in the next 5 years the no. of hypermarket sites with petrol facilities had doubled and the market share rose from 6% to 25% eating away the market share of the integrated oil companies. By the time the Integrated oil companies responded and got into a price war they were stable enough not to let their market share erode .Even after 8 years when the Pricewatch was scraped by Esso, supermarkets held on to their share.

The Present SituationFresh petrol price war looms as supermarkets cut cost at the pumps.Supermarket chain Asda has sparked a pump-price war when it slashed its fuel prices to 99.9p per litre - with more cuts expected to follow.BP followed suit, cutting prices at its 1,200 sites - 300 company owned - by up to 1p.

The AA said that other supermarkets and oil giants would be forced to follow - predicting a further 2p a litre cut within days and up to 5p a litre within month, provided oil prices stayed low.BP reviews pump prices at all its company owned sites on a daily basis and is committed to passing on competitive prices to the customers.Morrisons is the latest supermarket chain to follow Asda. It has pledged to drop its petrol and diesel prices to below £1 a litre - representing a cut of up to 3p a litre - at about a quarter of its sites. Sainsbury's, whose cheapest price today was 100.9p, was more cautious on announcing a price reduction

AOL

History of AOL

America Online LLC (AOL) is an American global internet and media company operated by Times Warner. It was founded in 1983 as Quantum Computer Services; it has franchised its services to companies in several nations around the world or set up international versions of its services. AOL is best known for its online software suite, also called "AOL” that allowed millions of customers around the world to access the world's largest "walled garden" online community and eventually reach out to the internet as a whole. At its zenith, AOL's membership was over 30 million members worldwide, most of whom accessed the AOL service through the AOL software suite.

AOL’s offering’s included offering interactive news, entertainment, information, shopping, buddy lists, e-mail services, electronic chat abilities, and parental control – all of these at $30 per month.

In the mid 1990’s AOL decide to venture into the international scene. Europe and especially the British market was a largely untapped market and provided huge opportunities for AOL to exploit. By the fall of 1998, AOL Europe which was a joint venture between America Online and German media group Bertelsmann, had become the biggest player in Britain’s Internet Service Providers market. Along with Compuserve, its British subsidiary, AOL had around 8, 00,000 subscribers.

History of FreeServe

Freeserve was a UK based Internet Service Provider, founded in 1998 in a project between Dixon Group plc and Leeds-based hosting provider Planet Online. It was initially set up with the idea of providing free internet access to customers buying new P.C.’s from Dixon’s store. Freeserve was one of the first of the UK's ISPs to dispense with the usual monthly subscription fee for Internet access, and instead to collect a proportion of the standard telephone line charges. Further revenue was obtained from advertisements on Freeserve's homepage, which was set as the default page in the customers' web browsers upon installing the Freeserve connection software.

Freeserve offered consumers unlimited internet access, an unlimited number of e-mail addresses, and 5 MB of Web page capacity. Freeserve also launched its own home page, which initially contained news content, along with search features and other content from Lycos and retailing from shopping channel Scoot.

Difference between USA and UK internet users

In contrast to the United States, local phone service in the United Kingdom was metered, which means phone calls were billed on a per-minute basis. Thus, the longer someone stayed online, the more expensive the phone bill. U.S. callers paid a flat monthly rate for local calls, so users paid only $21.95 for unlimited Internet access via AOL. Hence, most European users spent only a fraction of the time online that U.S. users did.

Business model of AOL vs Freeserve

Membership fees represented well over two-thirds of AOL’s revenue as it only collected $4 to $5 per user in advertising and e-commerce revenues, a sum that would not even cover the $5 to $9 AOL spent in direct network costs per users each month.

Freeserve on the other hand, exploited British Telecom regulations that required a company that originated a call to share a portion of the revenue with the company that terminated the call. Freeserve made an agreement with a firm called Energis, which terminated telephone connections, to transfer a portion of Energis’s revenue back to Freeserve on account of the increase in traffic expected from Freeserve’s customer dialling up to the internet.

Freeserve also charged its customers for providing technical support.

Change in U.K. ISP market share with the launch of Freeserve

By the fall of 1998, AOL, along with its subsidiary compuserve had around 8, 00,000 subscribers.

Freeserve was launched in September 1998. By January 1999, Freeserve had 1 million customers and 8000 new subscribers were

signing up each day. By mid 1999 Freeserve had around 1.3 subscribers.

AOL’s response to Freeserve

AOL publicly ridiculed the competition offered by AOL. It attacked Freeserve’s definition of “free” saying that it masked the high charges that Freeserve users used to pay for telephone technical support, which was included as part of AOL’s membership fee. It also tried to highlight the fact that AOL provided more value added features.

In June 1999, AOL responded by cutting its British monthly fee from $ 27 to $16.25.In September, AOL launched a free ISP service, Netscape Online, to compete head-to-head with Freeserve at the lower end of the market. Netscape Online was targeted at younger Internet users who are technically adept and did not require much support. It was very careful not to affect the user base of its paid services. They designed Netscape Online in such way that the rate of switching from AOL to Netscape Online was very low. By February 2000, 4, 00,000 users signed up for Netscape Online. Over the same period, AOL U.K. added 2, 00,000 accounts. While Freeserve grew by around 3, 70,000 subscribers.

In September 2000, AOL began offering unlimited online access via a toll-free number for a fixed monthly fee.

Which consumers of AOL are readily switching to Freeserve?

Low volume internet users who found AOL’s scheme of paying fixed monthly cost, irrespective of their internet usage, as uneconomical.

Consumers who used internet mainly for surfing purposes and did not use the value added services offered by AOL.

How can AOL retain these consumers?

Improve its services even further and capture subscribers who value quality and value added services.

They should give their users more flexibility in choosing the services they require They should try and restructure their revenue generation model so that they can make

more money from advertisements and servicing online shopping, so that they can reduce their membership cost even more.

AOL could challenge free ISP’s by partnering with global backbone providers like UUNet.

CONCLUSION

“To defeat the rivals’ forces without engaging in fighting is the supreme among all strategies”, observed by Sun Tzu in his masterpiece on strategy The Art of War. 

To win without fighting and to win by fighting

 The Schumpeterian perspective focuses on a firm’s innovation in its rent seeking process. It emphasizes the firm’s internal capability in creating new technology, new products, or new ways of organization. The perspective is that firms should not compete when they do not have competitive advantage, at least they should not compete with strong incumbent leaders directly. Playing industry leaders’ games is often competitive suicide. And creating new games through innovation or selective commitment should help challenger firms win without fighting.

The Schumpeterian perspective is the challenger’s perspective because it centres on creating advantages anew and destroying the old equilibrium, instead of sustaining an existing order. It is a strategy of “to win without fighting” precisely because the innovating firms refuse to play the existing game. Instead of fighting with the entrenched incumbents, they dislocate them, making their games obsolete, irrelevant, or insignificant.

Selective commitment decisions help a firm avoid premature frontal battle with strong rivals. Irreversible commitment, once made, could turn into entry and mobility barriers that deter later rivals. Finally, with innovation and creative construction as its key constructs (Christensen, 2000; Foster and Kaplan, 2001), the Schumpeterian perspective advocates its teaching as to innovate and create new games instead of fighting an uphill battle against strong incumbent players who set the current industry standard and the rules of the game.

Leaders are entrenched incumbent firms that possess strong market power. Challengers are firms aspiring to create their own dominance in their business markets. The incumbent leaders strive to win without fighting by virtue of their endowment or position. The challengers strive to win without fighting by careful plotting or innovating.That is, it is possible for market leaders to assume a certain position, be it a strong market position protected by entry barriers or a unique resource position shielded from imitation by isolating mechanisms. Such a position, will, while it lasts, afford the firm the luxury of “to win without fighting”. It provides some cushions for the leaders to take a breath as well as a higher margin for error.

 Opportunities for product market innovation are limited. In a business where smaller firms do not have much latitude to change the game using substitute products or adopting new ways of manufacturing and marketing, incumbent leaders would win automatically due to their stronger positions. For instance, De Beers had manipulated the supply of the diamond industry for a century or so. There are basically no substitutable products in this business and no major rivals.

Finally, reputation should matter in the leaders’ business markets. This ensures that the incumbent leaders win over rivals in customer good will. Consider the luxurious goods

dealers like Cartier or Tiffany’s. They have consistently and consciously focused on effectively positioning themselves in the customer’s mind as the industry leaders. When consumers think of luxury, they automatically think of these respectable and trusted names; small and unknown firms do not even show up in the map.

As such, firms with superior resource endowments or market positions, with the once and for all mentality, are not expected to be sharp at competitive rivalry. They run the danger of competitive elimination in the long run, for every firm in the capitalist economy is eventually subject to the Schumpeterian shock. The danger and the side effect of the “to win without fighting” mentality are at least three-fold. First, shielded from competitive rivalry, a firm is likely to be plagued by complacency and arrogance, e.g. the Icarus paradox (Miller, 1994). Second, it is possible that a winning firm ignores the advent of new rounds of Schumpeterian competition and suffers from a blind spot in its competitor analysis. Third, winning without fighting is likely to brew inflexibility or rigidity – structure-wise or culture-wise inertia – that hinders a firm’s ability to respond to environmental changes, even when it does notice the need to change.

Dominant firms’ tendency to turn complacent and rigid has been well documented (Miller, 1994). For instance, the Honda entry into the US motorcycle industry (Ghemawat, 1991) was largely ignored by the major incumbents initially, who would experience much difficulty later in putting their acts together when facing the then much more formidable Honda. Similarly, K-Mart was complacent about its dominance in the urban areas in the 1970s and did not treat the Wal-Mart aggression seriously. When K-Mart had to fight a much stronger and more efficient Wal-Mart in the 1980s and 1990s, it simply lacked what it takes to succeed in head-to-head rivalry.

The above discussion naturally leads to the following question: which is more superior, to win by fighting or to win without fighting? As strategy is the art of matching firm competence with changing opportunities, the appropriate choice of strategy style depends on the competitive context, the stage of competition, and the speed of change in the environment. In hypercompetitive environments with nowhere to run and nowhere to hide, a firm has to re-create competitive advantage on a daily basis, then fighting, the willingness to fight, and the skills and tactics in fighting become critical. In situations where sustainable advantage is possible, to win without fighting could be a desirable strategy. “To win without fighting” may brew complacency due to lack of rivalry; “to win by fighting” could disintegrate a firm due to lack of cushion to accommodate competitive blunders.