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Strategies to Win in Hostile Markets

A ship in the harbor is safe. But thats


not what ships are built for.

Hostile Markets - Meaning


Hostile
Markets

Definition:
Markets with:
i)
Overcapacity
ii)
Low margin
iii)
Immense
competition
iv)
Management
disarray

in

CAUSES:
1. Decline
in
demand
2. Competitive
expansion
3. Excess Output

FEW EXAMPLES:
1. Airline Industry due to
overcapacity
2. Telecom industry due to
intense competition
3. Smartphone manufacturer
due to low margins
4. E-Retail due to low margins

Even growing industries can become hostile such as Smartphone


manufacturers which proves that Most industries are either hostile or
in danger of becoming hostile.

Hostile Markets - Phases

Strategies That Win in Hostile Markets

Focus on large customers

Differentiate on reliability

Cover broad spectrum of price points

Turn price into a commodity

Have an effective cost structure

Strategies in Hostile Markets


Market leader
Market challenger
Market follower
Market nicher

Hypothetical Market Structure &


Strategies
Market
Leader

40%
Expand Market
Defend Market Share
Expand Market Share

Market Leader Facts

Many industries contain one firm that is the


acknowledged market leader. This firm has the largest
market share in the relevant product market, and usually
leads the other firms in price changes, new-product
introductions, distribution coverage, and promotional
intensity.

Some well-known market leaders are Microsoft


(computer software), Intel (microprocessors),
Gatorade (sports drinks), Best Buy (retail
electronics), McDonald's (fast food), Gillette (razor
blades), UnitedHealth (health insurance), and Visa
(credit cards).

Leader Threats
Ries and Trout argue: that well-known products generally
hold a distinctive position in consumers' minds.
Nevertheless, unless a dominant firm enjoys a legal
monopoly, its life is not altogether easy. It must maintain
constant vigilance.

A product innovation: may come along and hurt the


leader.

Spending: The leader might spend conservatively whereas


a challenger spends liberally.

Misjudging Competition: The leader might misjudge its


competition and find itself left behind . The dominant firm
might look old-fashioned against new and peppier rivals.

Costs: The dominant firm's costs might rise excessively


and hurt its profits, or a discount competitor can undercut
prices. "Marketing Insight: When Your Competitor Delivers

Leader Actions
Remaining number one calls for action on three fronts.

First, the firm must find ways to expand total market demand.
The dominant firm normally gains the most when the total market
expands.
Example Maggi Noodles from Children to adults & health noodles

A.

B.

Second, the firm must protect its current market share through
good defensive and offensive actions.
While trying to expand total market size, the dominant firm must
continuously defend its current business.
For a market leader do to defend its terrain. The most constructive
response is continuous innovation. The leader leads the industry in
developing new product and customer services, distribution
effectiveness, and cost cutting. It keeps increasing its competitive
strength and value to customers.
Example Apple from IPod, MAC to Ipod

Third, the firm can try to increase its market share, even if market
size remains constant.

Defense Strategies
(2) Flank Defence

Attacker

(3)Preemptive
Defense
(4)CounterOffensive
Defense

(1)
Position (6) Contraction
Defense
Defense
Defender
(5)
Mobile
Defense

Defense Strategies

Position defense - Position defense involves occupying the


most desirable market space in the minds of the consumers,
making the brand almost impregnable. Thus building superior
brand strength- Colgate Toothpaste in various varieties, Tide
laundry detergent with cleaning and Pampers diapers with
dryness.
Flank position - the market leader should also erect outposts to
protect a weak front or possibly serve as an invasion base for
counterattack. When Heublein's brand Smirnoff, which had 23
percent of the U.S. vodka market, was attacked by low-priced
competitor Wolfschmidt, Heublein actually raised the price and
put the increased revenue into advertising. At the same time,
Heublein introduced another brand, Kelska, to compete with
Wolfschmidt and still another, Popov, to sell for less than
Wolfschmidt. This strategy effectively bracketed Wolfschmidt and
protected Smirnoff's flanks.

Defence Strategies

Preemptive Defence: A more aggressive maneuver is to attack


before the enemy starts its offense.
A company can launch a preemptive defense in several ways. It can
wage guerrilla action across the markethitting one competitor here,
another there and keep everyone off balance; or it can try to achieve
a grand market envelopment.

Bank of America's 13,000 ATMs and 4,500 branches nationwide now


provide steep competition to local and regional banks. It can send out
market signals to dissuade competitors from attacking. It can
introduce a stream of new products, making sure to precede them
with preannouncementsdeliberate communications regarding future
actions. Preannouncements can signal to competitors that they will
have to fight to gain market share.31

SBI

If Microsoft announces plans for a new-product development, smaller


firms may choose to concentrate their development efforts in other

Teaser home loan.

Defense Strategies
Counteroffensive Defense: When attacked, most market leaders will
respond with a counterattack. Counterattacks can take many forms.
A.
In a counteroffensive, the leader can meet the attacker frontally or hit
its flank or launch a pincer movement.
B. An effective counterattack is to invade the attacker's main territory
so that it will have to pull back to defend the territory.
After FedEx watched UPS successfully invade its airborne delivery
system, FedEx invested heavily in ground delivery service through a series
of acquisitions to challenge UPS on its home turf.
C
Another common form of counteroffensive is the exercise of
economic or political clout. The leader may try to crush a competitor by
subsidizing lower prices for the vulnerable product with revenue from its
more profitable products;
D
The leader may prematurely announce that a product upgrade will be
available, to prevent customers from buying the competitor's product; or the
leader may lobby legislators to take political action to inhibit the
competition.

Defense Strategies

Mobile Defense: In mobile defense, the leader stretches its


domain over new territories that can serve as future centers for
defense and offense through market broadening and market
diversification.

Market broadening involves shifting focus from the current


product to the underlying generic need. The company gets
involved in R&D across the whole range of technology
associated with that need.

Thus "petroleum" companies sought to recast themselves into


"energy" companies. Implicitly, this change demanded that
they dip their research fingers into the oil, coal, nuclear,
hydroelectric, and chemical industries. Market diversification
involves shifting into unrelated industries.

When U.S. tobacco companies like Reynolds and Philip Morris


acknowledged the growing curbs on cigarette smoking, they
were not content with position defense or even with looking for

Defense Strategies

Contradiction Defense: Large companies sometimes recognize


that they can no longer defend all of their territory. The best course
of action then appears to be planned contraction (also called
strategic withdrawal): giving up weaker territories and reassigning
resources to stronger territories.

Voltas AC business sold to Tatas, Careffour Cash & Carry business


sold to Walmart.

Hypothetical Market Structure &


Strategies
Market
Leader

40%
Expand Market
Defend Market Share
Expand Market Share

Market
Challenger

30%
Attack Leader
Status Quo

Challenger Strategies
A market challenger must first define its strategic objective. Most aim to
increase
market share. The challenger must decide whom to attack:
A.

B.

C.

It can attack the market leader. This is a high-risk but potentially


high-payoff strategy and makes good sense if the leader is not serving
the market well. The alternative strategy is to out-innovate the leader
across the whole segment. Xerox wrested the copy market from 3M by
developing a better copying process. Later, Canon grabbed a large
chunk of Xerox's market by introducing desk copiers.
It can attack firms of its own size that are not doing the job
and are underfinanced. These firms have aging products, are
charging excessive prices, or are not satisfying customers in other
ways.
It can attack small local and regional firms. Several major banks
grew to their present size by gobbling up smaller regional banks, or
"guppies."

Many market challengers have gained ground or even overtaken the leader.

Choosing a General Attack


Strategy
(4) Bypass Attack
(2) Flank Attack
(1) Frontal Attack
Attacker

Defender
(3) Encirclement Attack

(5) Guerilla Attack

Attack Strategies

I.

II.

III.

Frontal Attack:
In a pure frontal attack, the attacker matches its opponent's
product, advertising, price, and distribution.
The principle of force says that the side with the greater
manpower (resources) will win.
A modified frontal attack, such as cutting price visa-vis the
opponent's, can work if the market leader does not retaliate and
if the competitor convinces the market that its product is equal to
the leader's.

Helene Curtis is a master at convincing the market that


its brandssuch as Suave and Finesseare equal in
quality but a better value than higher-priced brands.
Capital foods Smith & Jones range

Attack Strategies
Flank Attack : An enemy's weak spots are natural targets. A flank
attack can be directed along two strategic dimensionsgeographic and
segmental.
A. In a geographic attack, the challenger spots areas where the opponent
is underperforming. For example, some of IBM's former mainframe
rivals, such as Honeywell, chose to set up strong sales branches in
medium- and smaller-sized cities that were relatively neglected by IBM.
B. The other flanking strategy is to serve uncovered market needs, as
Japanese automakers did when they developed more fuel-efficient
cars.
C. Flanking is in the best tradition of modern marketing, which holds that
the purpose of marketing is to discover needs and satisfy them.
D. Flank attacks are particularly attractive to a challenger with fewer
resources than its opponent and are much more likely to be successful
than frontal attacks.

Attack Strategy

Encirclement Attack: It involves encircling the target competitor.


It involves launching a grand offensive on several fronts. Encirclement makes
sense when the challenger commands superior resources and believes a swift
encirclement will break the opponent's will.
This can be done in two ways
You could introduce a range of products that are similar to the target product.
Each product will liberate some market share from the target competitors
product, leaving it weakened, demoralized, and in a state of siege. If it is
done stealthily, a full scale confrontation can be avoided.
Alternatively, the encirclement can be based on market niches rather than
products. The attacker expands the market niches that surround and
encroach on the target competitors market. This encroachment liberates
market share from the target.

In making a stand against arch rival Microsoft, Sun Microsystems licensed


its Java software to hundreds of companies and millions of software
developers for all sorts of consumer devices. As consumer electronics
products began to go digital, Java started appearing in a wide range of
gadgets.
Erstwhile LG in consumer goods segment expansion a decade back with formidable

Attack Strategy

Bypass Attack : The most indirect assault strategy is the


bypass. It means bypassing the enemy and attacking easier
markets to broaden one's resource base. This strategy offers
three lines of approach:
Diversifying

into unrelated products,


Diversifying into new geographical markets,
Leapfrogging into new technologies to supplant existing products.

Pepsi used a bypass strategy against Coke by purchasing:


(1) orange juice giant Tropicana for S3.3 billion in 1998,
which owned almost twice the market share of Coca-Cola's
Minute Maid(2) The Quaker Oats Company for $14 billion in
2000. (The Quaker Oats Company owns Gatorade Thirst
Quenchers, which boasts a huge market share lead over the
Coca-Cola Company's Powerade.

Attack Strategy

Technological leapfrogging: is a
bypass strategy practiced in high-tech
industries. The challenger patiently
researches and develops the next
technology and launches an attack,
shifting the battleground to its territory,
where it has an advantage.
Challenger Google used technological
leapfrogging to overtake Yahoo! and
become the market leader in search.

Attack Strategy

Guerrilla Warfare: consists of waging small,


intermittent attacks to harass and demoralize the
opponent and eventually secure permanent footholds.
The guerrilla challenger uses both conventional
and unconventional means of attack. These include
selective price cuts, intense promotional blitzes, and
occasional legal action.
Normally, guerrilla warfare is practiced by a
smaller firm against a larger one. The smaller firm
launches a barrage of attacks in random corners of the
larger opponent's market in a manner calculated to
weaken the opponent's market power.

Specific Attack Strategies

Price-discount
Cheaper goods
Prestige goods
Product proliferation
Product innovation
Improved services
Distribution innovation
Manufacturing cost reduction
Intensive advertising promotion

Hypothetical Market Structure &


Strategies
Market
Leader

40%
Expand Market
Defend Market Share
Expand Market Share

Market
Challenger

30%
Attack Leader
Status Quo

Market
Follower

20%
Imitate

Market Followers

The innovator bears the expense of developing the new


product, getting it into distribution, and informing and
educating the market.
The reward for all this work and risk is normally market
leadership.
However, another firm can come along and copy or
improve on the new product.
Although it probably will not overtake the leader, the
follower can achieve high profits because it did not bear
any of the innovation expense.
Market Followers

Follow closely
Follow at a distance

Market Followers.
S& S

S&S Cycle is the biggest supplier of complete


engines and major motor parts to more than 15
companies that build several thousand Harleylike cruiser bikes each year. These donors charge
as much as $30,000 for their customized
creations. S&S has built its name by improving on
Harley-Davidson's handiwork. Its customers are
often would-be Harley buyers frustrated by long
waiting lines at the dealers. Other customers
simply want the incredibly powerful S&S engines.
S&S stays abreast of its evolving market by
ordering a new Harley bike every year and taking
apart the engine to see what it can improve

Hypothetical Market Structure &


Strategies
Market
Leader

40%
Expand Market
Defend Market Share
Expand Market Share

Market
Challenger

30%
Attack Leader
Status Quo

Market Market
Follower Nicher

20%

10%

Imitate Specialise

Market Niche Strategies


Possess the following characteristics:
Are of sufficient size and purchasing power to be profitable;
Have growth potential;
Do not interest the major players;
Have the requires skills/knowledge to be effective;
Can defend itself from predators through the goodwill network.
LOGITECH INTERNATIONAL
Logitech has become a $1.3 billion global success story by making every
variation of computer mouse imaginable. The company turns out mice for
left- and right-handed people, cordless mice that use radio waves, mice
shaped like real mice for children, and 3-D mice that let the user appear to
move behind screen objects. It sells to OEMs as well as via its own brand at
retail. Its global dominance in the mouse category enabled the company to
expand into other computer peripherals, such as PC headsets, PC gaming

Quote-2
"The most serious mistakes are not being
made as a result of wrong answers. The truly
dangerous thing is not getting the right
questions."

Dr Ravindra
Pratap Gupta

Questions
Q10. Discuss what leads to performance
decline. Discuss
the strategic options for declining
markets?
Q11. Discuss various defense strategies?

Thanks