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Learning Objectives
Understand how a company identifies its

primary competitors and ascertains their strategies. Review how companies design competitive intelligence systems.

Poor firms ignore their competitors ; average firms copy their competitors ; winning firms lead their competitors.

Competitive Advantage


An advantage over competitors gained by offering consumers greater value than competitors offer.

Competitive Analysis The process of identifying key competitors; assessing their objectives, strategies, strengths and weaknesses, and reaction patterns; and selecting which competitors to attack or avoid.

Competitive Markets
Failing to identify competitors can lead to

extinction Internet businesses have led to disintermediation of middlemen Competition can be identified using the industry or market approach

Competitive Markets
Industries Can Be Classified By: Number of sellers and degree of differentiation Cost structure Entry, mobility and exit barriers Degree of vertical integration

Degree of globalization

Industry Structures
Pure Monopoly Pure Oligopoly Differentiated

Oligopoly Monopolistic Competition Pure Competition

Only one firm offers an undifferentiated product or service in an area Unregulated Regulated Example: Most utility companies

Competitive Markets
Pure Oligopoly A few firms produce essentially identical commodities and little differentiation exists Lower costs are the key to higher profits Example: oil Differentiated Oligopoly few firms produce partially differentiated items Differentiation is by key attributes Premium price may be charged Example: camera, washing m/c etc.

Competitive Markets
Monopolistic competition Many firms differentiate items in whole or part Appropriate market segmentation is key to success Example: beauty clinics, restaurants Pure Competition Many competitors offer the same product Price is the same due to lack of differentiation Example: farmers selling milk, commodity market etc.

Cost Structure
Each industry has a certain cost burden

that shapes much of its strategic conduct. E.g. Steel making- heavy manufacturing and raw material costs Toy manufacturing heavy distribution and marketing costs

Entry, Mobility and Exit Barrier

Entry barrier- high capital requirement,

economies of scale, patents and licensing, scarce location, raw material etc. Mobility barriers- when it tries to enter more attractive market segments Exit barriers- legal or moral obligations, low asset-salvage value due to obsolescence, lack of alternative opportunities etc.

Porters five forces model of competition

Potential Entrants (Threat of New Entrants) Suppliers (Bargaining Power of Suppliers)
Industry Competitors (Segment Rivalry)

Rivalry Among Existing Firms

Buyers (Bargaining Power of Buyers)

Substitutes (Threat of Substitute Products or Services

Threat of Intense Segment Rivalry

A segment is unattractive if it already contains numerous, strong or aggressive competitors. If it is stable or declining If plant capacity additions are done in large increments If fixed costs are high If exit barriers are high If competitors have high stakes in staying in the segment. These will lead to frequent price wars, advertising battles and new product introductions and will make it expensive to compete.

Threat of new entrants

Exit Barriers Low Low
Low, stable Returns e.g. retail, ecommerce High, stable


Entry Barriers

Worst Case e.g. Hotels

High, risky Returns e.g. energy


Returns e.g. education

Those markets with high entry barriers have few

players and thus high profit margins. Those markets with low entry barriers have lots of players and thus low profit margins. Those markets with high exit barriers are unstable and not selfregulated, so the profit margins fluctuate very much along time. Those markets with a low exit barrier are stable and self-regulated, so the profit margins do not fluctuate along time.

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 in the segment are likely to fall.

Threat of buyers Growing Bargaining Power

Buyers bargaining power grows when they become more concentrated or organised. When the product is undifferentiated When the buyers switching costs are low When buyers are price sensitive

Threat of Suppliers growing Bargaining Power

A segment is unattractive if the companys suppliers are able to raise prices or reduce quantity supplied. Suppliers tend to be powerful when they are concentrated When there are few substitutes When the suppliers product is an important input When the cost of switching suppliers are high

Competitor Analysis
1.Identifying Competitors

Firms face a wide range of competition Be careful to avoid competitor myopia Methods of identifying competitors:
Industry point-of-view Market point-of-view

Competitor maps can help

Competitor Map

Analyzing Competitors

Determining competitors objectives Identifying competitors strategies Strategic groups (A group of firms following the same strategy in a given target market is called a strategic group). Assessing competitors strengths and weaknesses Benchmarking Estimating competitors reactions

Analyzing Competitors
A company should monitor three variables when analysing competitors: Share of market Share of mind Share of heart

Competitor Analysis
3.Selecting Competitors to Attack or Avoid

Strong or weak competitors

Customer value analysis (Customers identify and rate attributes important in the purchase decision for the company and competition) Most companies compete against close competitors

Close or distant competitors

Good or Bad competitors

Competitive Intelligence Systems

Designing the system involves:

Setting up the system Collecting the data Evaluating and analyzing the data Disseminating information and responding to queries

Value analysis helps firms to select competitors to attack and to avoid

Customers identify and rate attributes important in the purchase decision for the company and competition

Attacking strong, close, and bad competitors will be most beneficial


To prepare an effective marketing strategy, a company must study its competitors as well as its actual and potential customers. A company should also pay attention to latent competitors, who may offer new or other ways to satisfy the same need. Competitive intelligence needs to be collected, interpreted, and disseminated continuously. With good competitive intelligence, managers can more easily formulate their strategies.


A marketer should thoroughly examine the problem of designing marketing strategies that take into account competitors strategy. Some competitors will be large, others small. Some will have great resources, others will be strapped for funds. Further insight can be gained by classifying firms by the role they play in the target market, that of leading, challenging, following or niching.


Market leader

40% Market Challenger 30% Market Follower 20% Market nicher 10%


Market Leader : the firm with the largest market share Market Challenger : a runner-up firm that is fighting hard for an increased market share Market Follower : another runner-up firm that is willing to maintain its market share and not rock the boat Market Nicher : firms that serve small market segments not being served by larger firms


Dominant firms want to remain number one. This calls for action on three fronts : (1) The firm must find ways to expand its total market demand. (2) The firm must protect its current market share through good defensive and offensive actions. (3) The firm can try to increase its market share further, even if market size remains constant.

Leaders Defense Strategy


Market leader strategies The company can search for new

users Market penetration strategy ( who might use it but do not ) New market segment strategy ( those who have never used it Geographical expansion strategy ( those who live somewhere else)


The market leader has to use defensive

strategy to reduce the probability of attack, or divert the attacks. Position defense: building superior brand power Flank defense: build outposts to protect a weak front .( bring out new products or products with less price )


Pre emtive defense: attack before the enemy starts its offense. ( have products of all price types and categories eg Seiko) Counteroffensive defense: attack the competetor with same strategy as the competetor. Mobile defense: leader stretches his domain over new territories it spreads through market broadening and market diversification


Market broadning: Company shifts its

focus from current product to the underlying generic need. Eg : Petrolium companies sought to recast themselves into energy companies. They are into coal, power, oil, nuclear, and chemical industris


Market diversification : Diversification into unrelated industries. Contraction defense : It is strategic withdrawal. Give up weaker territories and reassign resources to stronger territories Market leaders can improve their profitability by expanding their market share .


3) Expanding Market Share : Identify the most important variables affecting profits (pursue new marketing strategies) Higher shares tend to produce higher profits under two conditions : (a) unit costs fall with increased market share (b) company offers a superior quality product and charges a premium price, that more than covers the cost of offering higher quality Share gaining companies typically develop and add more new products to their line


(Expanding Market Share) Co. increase their product quality relative to competitors Increases in sales force expenditures Increased advertising may also produce share gains Co. that cut their prices more deeply than competitors do not achieve significant market-share gains generally. Presumably, enough rivals may meet the price cuts partly, and others may offer other values to the buyers, so that buyers do not switch to the price cutter.


Firms that occupy second, third and lower ranks in an industry can be called runner-up firms. These runner-up firms can adopt one of the two postures : they can attack the leader and other competitors in an aggressive bid for further market share (market challengers) OR they can play ball and not rock the boat (market followers)


Strategic Objectives and Opponent(s) : It can attack the market leader It can attack firms of its own size that are not doing the job and are under-financed It can attack small local and regional firms that are not doing the job and are underfinanced (it should follow the military principle of objective, which holds that every military operation must be directed toward a clearly defined, decisive and attainable objective).


(We can imagine an opponent who occupies a certain market territory; and we can show five attack strategies in the following way)


2. Flanking Attack

4. Bypass Attack

1. Frontal Attack 3. Encirclement Attack


Choosing an attack strategy

1. Frontal Attack : Head on attack. Attacks the opponents strengths rather than its weaknesses. 2. Flanking Attack : Concentration of strengths against weaknesses. 3. Encirclement Attack : Attempt to capture a wide slice of the enemys territory through a comprehensive Blitz attack. 4. Bypass Attack : Bypassing the main enemy and attacking easier markets (diversifying into unrelated products, new geographical markets, new technologies). 5. Guerrilla Attack : Attacking on different territories of the opponent, with the aim of harassing and demoralize the opponent.



Price discount strategy Cheaper goods strategy Prestige goods strategy Product proliferation strategy (launching a large product variety) Product innovation strategy Improved service strategy Distribution innovation strategy Manufacturing cost reduction strategy Intensive advertising promotion


A strategy of product imitation might be as profitable as a strategy of product innovation (Innovative Imitation) A market follower must know how to hold current customers and win a fair share of new customers. Each follower tries to bring distinctive advantages to its target market location, services, financing etc. The follower is a major target of attack by challengers. Therefore, the market follower must keep its manufacturing costs low and its product quality and services high. It must also enter new markets as they open up.


Three broad followership strategies can be distinguished : Cloner emulates the leaders products, distribution, advertising and so on; (it doesnt originate anything). Imitator copies some things from the leader but maintains differentiation in terms of packing, advertising, pricing and so on. Adapter takes the leaders products and adapts and often improves them.


An alternative to being a follower in a

large market is to be a leader in a small market or niche. Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms. But increasingly, even large firms are setting up business units, or companies, to serve niches.


The main point is, that firms with low shares of the total market can be highly profitable through smart niching. Niching is profitable, because the market nicher ends up knowing the the target customer group so well that it meets their needs better than other firms that are casually selling to this niche. As a result, the nicher can charge a substantial mark-up over costs because of the added value. The nicher achieves high margin, whereas the mass marketer achieves high volume.


An ideal market niche would have the following characteristics : The niche is of sufficient size and purchasing power to be profitable The niche has growth potential The niche is of negligible interest to major competitors The firm has the required skills and resources to serve the niche in a superior fashion The firm can defend itself against an attacking major competitor through the customer goodwill it has built up


Nichers have three tasks : Creating niches (e.g. Nike, the athletic shoe

Expanding niches Protecting niches

(Multiple niching is preferable to single niching)

Balancing Customer and Competitor Orientations

Competitor-centered companies evaluate

what competitors are doing, then formulate competitive reactions Customer-centered companies focus on customer developments when formulating strategy