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Differentiation strategies

Competitive advantage
It is a companys ability to perform in
one or more ways that competitors
cannot or will not match
For a brand to be effectively
positioned, customers must see any
competitive advantage as a
customer advantage

Dimensions of
Differentiation
Employee differentiation Companies can
have better-trained employees who
provide superior customer service.
Singapore Airlines is well regarded in large
part because of its flight attendants
Channel differentiation Companies can
design their channels coverage,
expertise, and performance to make
buying easier, more enjoyable, and more
rewarding for customers

Image differentiation Companies


can craft powerful, compelling
images that appeal to consumers
social and psychological needs
Services differentiation A service
firm can differentiate itself by
delivering more effective and
efficient solutions to consumers

Competitive strategies

Competitive strategies for market


leaders

40
%

Market leader

30
%

Market challenger

20
%
10
%

Market follower
Market nichers

Hypothetical
market structure

Competitive strategies for market


leaders
Many industries have one firm that is acknowledged as the
market leader
These firms have the largest market share in the relevant product
market and leads other firms in price changes, new-product
introductions, distribution coverage & promotion intensity
E.g. Microsoft (computer software), Intel (microprocessors),
Gillette (razor blades)
But a leader might spend conservatively whereas a challenger
might spend liberally.
Hence the dominant firm should be constantly vigilant else it will
be overrun.
E.g. Godrej Vs. Whirlpool, HMT Vs. Titan
To retain no. 1 position, firm must find ways to expand the total
market demand, firm must protect its current market share
through good defensive & offensive actions and firm can try to
increase its market share though its constant.

Expanding the total market


The dominant firm gains the most when market
expands
New customers every product has the potential of
attracting buyers who are unaware of the product,
or who are resisting it because of price or lack of
certain features
A company can search for new users in 3 groups
Those who might use it and but not (market-penetration
strategy)
Those who have never used it (new-market segment
strategy)
Those who live elsewhere (geographical-expansion
strategy)

Expanding the total market


More usage usage can be increased by increasing the level
or quantity of consumption or frequency of consumption
Amt of consumption can be increased through larger
package sizes which creates an impulse to consume, when
the product is made more available
Increasing frequency of consumption involves additional
opportunities to use the brand. A marketing program can
communicate the advantages of using it frequently and
remind customers
For products with shorter life spans, customers may tend to
overestimate their lengths of productive usage.
Reminding customers at specific seasons, indicating the
current level of performance (oral-b toothbrushes with
indicators), to introduce new methods of usage of a
particular product (advertising recipes using their food
products) increase the frequency of consumption of the
product.

Defending the market share


When trying to expand, the dominant firm must try to
defend its current position and can be done only
through continuous innovation to increase
competitive strength & value to customers
In satisfying the customers needs there are 3 types
Responsive marketer: finds a stated need and fills it
Anticipative marketer: looks ahead what might customers
need in the near future
Creative marketer: discovers and produces solutions
customers did not ask for but to which they enthusiastically
respond e.g. the Walkmans by Sony in the late 1970s
which revolutionized the way people listened to music

6 types of defensive
strategies
(2)
Flank
(3) Preemptive
ATTACKE
R

(4)
Counteroffensi
ve

(1)
Positio
n
Defend
er

(6)
Contracti
on

(5) Mobile

Defensive strategies
Even if companies do not launch any
offensives, the company should not expose
any of its major flanks
Aim of defensive strategies is to reduce
the probability of attack, divert attacks to
less threatening areas and lessen their
intensity
The defenders speed of response can
make an important difference in the profit
consequences

Defensive strategies
Position defense: involves building superior brand power,
making the brand almost impregnable. E.g. Nescafe
Flank defense: the market leader should erect outposts
to protect a weak front or which possibly might serve as
an invasion base for a counter attack
Preemptive defense: a more aggressive defense, attacks
the enemy before the enemy starts its offense, hitting
one competitor here and there, and throwing everyone
off balance, introduce a new stream of products and
preceding them with preannouncements which signal
markets that they have to fight for market share.
E.g. if Microsoft announces a new product, then smaller
firms may choose to concentrate their development
efforts in other directions in order to avoid head-to-head
competition.

Defensive strategies
Counteroffensive defense: when attacked, most market
leaders respond with a counter attack. In a counter
offensive, the leader can meet the attacker frontally or hit
its flank. An effective counter attack is to invade the
attackers main territory so that it will have to pull back
some of its troops to defend itself.
E.g.US companies invaded the Japanese market, when the
latter tried to expand in US
Mobile defense: the leader stretches its domain over new
territories which might serve as future centers for
defense. 1) Market broadening involves in shifting the
focus from the current product to the underlying generic
need. E.g. petroleum companies involving in R&D and
emerging as energy companies and 2) Market
diversification involves shifting into unrelated industries.
E.g. ITC when faced with growing concerns in the
cigarette industry went into cosmetics, garments, food
items etc.

Defensive strategies
Contraction defense: Large
companies sometimes recognize that
they cant defend all of their
territories. Then the best course of
action is planned
contraction/strategic withdrawal
giving up weaker territories and
reassigning resources to stronger
territories

Expanding market share


Market leaders can improve their profitability by
increasing their market share but the underlying
costs may far exceed the revenue. So the
company should consider the following 4 factors:
1. The possibility of provoking an antitrust action;
jealous companies are likely to cry monopoly if
a dominant firm makes further inroads.
2. Economic cost: profitability might fall with
further increase in market share after some
level. Customers may dislike the company and
may prefer smaller suppliers. Also the cost of
legal work, public relations and lobbying rises
with market share.

Expanding market share


3) Pursuing the wrong marketing-mix strategy
4) The effect of increased market share on
actual and perceived quality. Too many
customers can put a strain on the firms
resources, hurting product value and service
delivery. Customers may infer that bigger
is not better and assume growth will lead
to a deterioration of quality. If exclusivity
is a key brand benefit, existing customers
may resent additional new customers.

Other competitive strategies


Market challenger strategy
The firms which occupy the 2nd, 3rd or lower positions are
called as runner-up or trailing firms. These firms can adopt
one among the following postures;
Attack the leader in an aggressive bid for further market
share (market challengers)
Or can opt for peaceful co-existence (market followers)
A market challenger should define its strategic objective
and opponents.
It can attack the market leader high risk but high pay-off
strategy. Useful only if the leader is not performing well or
otherwise should out-innovate the leader across the whole
segment
It can attack firms of its own size that are not doing their
jobs and are underfinanced
It can attack small local and regional firms

Choosing a general attack


strategy
Frontal attack: Pure frontal attack attacker matches
its opponents product, advertising, price &
distribution. Modified frontal attack cutting price vis-vis the opponents, can work if the market leader
does not retaliate and if the competitor can convince
that the product is equal to that of the leaders. Eg.
Amul Kool and Masti Dahi are better than higher
priced brands
Flank attack: Flanking strategy is to identify the shifts
in market segments that causes gaps and rushing in
to fill in the gaps and developing them to strong
segments. Can be directed across 2 dimensions
geographical (developing specific products for rural
areas) & segmental (Woodland shoes competing with
Bata & Liberty in offering durable outdoor shoes).

Choosing a general attack


Encirclement attack: strategy
is an attempt to catch a wide slice of
the enemys territory through a blitz; launching a grand
offensive on several fronts. E.g. Sun Microsystems licensed
its Java software to hundreds of companies against
Microsoft
Bypass attack: indirect assault strategy, bypassing the
enemy altogether and attacking easier markets to broaden
the firms resource base. Has 3 lines of approach
diversifying into unrelated products (e.g. Pepsi used a
bypass strategy against Coke by aggressively rolling out
Aquafina bottled water), diversifying into new geographical
markets and leapfrogging into new technologies to supplant
existing products (E.g. Sonys PSP has grabbed more than
half of the video game market through technological
leapfrogging)
Guerilla warfare: consists of waging small, intermittent
attacks to harass and demoralize the opponent and
eventually secure permanent foothold however it should not
cross lines of legality or morality.

Market Followers
The innovator bears the expense of developing the new
product, getting it into distribution and informing &
educating the market. The reward for all this work is
market leadership
However another firm can come and copy or improve on
the new product. These are market followers. These can
also achieve high profits because they did not bear any
innovation expense
Patterns of conscious parallelism are common in capitalintensive, homogenous-product industries such as
fertilizers, steel and chemicals. Here service quality is often
comparable and price sensitivity runs high
Market follower must know how to hold current customers
and win a fair share of new ones
Followers are main targets of challengers and hence they
must keep their manufacturing costs low and product &
service quality high. They must also enter new markets as
they open up.

Types of market followers and their


strategies
Counterfeiter duplicates the leaders product, packages
and sells it in the black market or through disreputable
leaders. Music firms, Apple & Rolex have been plagued by
this problem
Cloner emulates the leaders products, name and
packaging with slight variations
Imitator copies some things from the leader but maintains
differentiation in terms of packaging, advertising, pricing or
location. The leader doesnt mind the imitator unless the
latter attacks the former aggressively
Adapter takes the leaders products and adapts or
improves them. The adapter may chose to sell to different
markets but it often grows into future challenger.
Followership is often not a rewarding path.

Market-Nicher strategies
An alternative to be a follower in a large market is to be
a leader in a small market.
Firms with lower share of the market can become highly
profitable through smart niching
They offer high value, charge a premium price, achieve
lower manufacturing costs and shape a strong corporate
culture and vision
The ROI averaged 27% in smaller markets but only 11%
in larger markets. Niching is highly profitable because
the nicher ends up in knowing the target customer so
well and hence it meets their needs in a better way.
Nicher achieves high margin whereas mass marketer
achieves high volume

Market-Nicher strategies
Nichers have 3 tasks- creating niches,
expanding them and protecting them.
Nichers face the risk of market drying up
or being attacked and over-specialized
resources may not have alternate uses
Hence the firms should continually create
new niches. Multiple niching is always
preferable to single niching and the
company increases its chances of survival.