2 competitor analysis
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COMPETITOR ANALYSIS
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Learning Objectives
Understand how a company identifies its primary competitors and ascertains their strategies.
Review how companies design competitiveintelligence systems.
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“Poor firms ignore theircompetitors ;
average firms copy theircompetitors ; winning firms lead theircompetitors.”
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Definitions
Competitive Advantage
An advantage over competitors gained byoffering consumers greater value thancompetitors offer.
Competitive AnalysisThe process of identifying key competitors;
assessing their objectives, strategies,strengths and weaknesses, and reaction
patterns; and selecting which competitors toattack or avoid.
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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 moreattractive market segmentsExit barriers- legal or moral obligations, low asset-
salvage value due to obsolescence, lack of alternative
opportunities etc.
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Porter’s five forces model of competition
Suppliers(BargainingPower of
Suppliers)
Potential Entrants(Threat of New Entrants)
Buyers(BargainingPower of
Buyers)
Substitutes (Threat of Substitute Products orServices
Industry Competitors(Segment Rivalry)
Rivalry Among ExistingFirms
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Threat of Intense Segment Rivalry
A segment is unattractiveif it already contains numerous, strong oraggressive competitors.If it is stable or declining
If plant capacity additions are done in largeincrementsIf fixed costs are highIf exit barriers are high
If competitors have high stakes in staying in thesegment.These will lead to frequent price wars, advertising
battles and new product introductions and willmake it expensive to compete.
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Threat of new entrants
Exit Barriers
Low High
EntryBarriers
Low
High
Low, stableReturns
e.g. retail, e-commerce
High, stable
Returns e.g. education
High, riskyReturns
e.g. energy
Worst Casee.g. Hotels
ØThose 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 self-regulated, so the profit margins fluctuate very much along time. Those markets with a low exit barrier are stableand self-regulated, so the profit margins do not fluctuate along time.
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Threat of Substitute Products
A segment is unattractive when there are actual orpotential substitutes for the product.Substitutes place a limit on prices and on profitsIf technology advances or competition increases in
these substitute industries, prices and profits in thesegment are likely to fall.
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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
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Threat of Suppliers’ growing Bargaining Power
A segment is unattractive if the company’s suppliersare 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
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Competitor Analysis
1.Identifying Competitors Firms face a wide range of competition
Be careful to avoid “competitor myopia” (Competitor myopiarefers to a firm focusing on what it considers to be its direct
competition and not being aware of indirect or new competitors
Methods of identifying competitors:
Industry point of view refers to competitors within the same industry
Market point of view refers to competitorstrying to satisfy the same customer need or buildrelationships with the same customer group
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Competitor Analysis
Competitor map highlights both competitiveopportunities and challenges facing the firmü Center is the list of consumer activities
ü First outer ring lists main competitors
ü Second outer ring lists indirect competitors
A competitor Map of Eastman
(Kodak in the digital imaging business)
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Identifying Competitor’s Strategies
Companies need to understand the competitor’sability to deliver value to its customers
• Product quality
• Product features• Customer service
• Pricing policy
• Distribution coverage
• Sales force strategy
• Promotion programs
• Financial strategies
• R&D
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Assessing Competitor’s Strengths and Weaknesses
Primary data
Secondary data
Personal experience
Word of mouthBenchmarking is the comparison of the company’s
products or services to competitors or leaders inother industries to find ways to improve quality and
performance
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Estimating Competitor’s Reactions
Marketing managers need to develop anunderstanding of a given competitor’s mentality,culture, values, and way of doing business toanticipate how the competitor will react to the
company’s marketing strategies
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Selecting Competitors to Attack and Avoid
Customer value analysis determines the benefits that target customers value and how customers rate the relative value of variouscompetitor’s offers.
• Identification of major attributes that customers value and the importance of these values
• Assessment of the company’s and competitors’
performance on the valued attributes
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Analyzing Competitors
A company should monitor three variables whenanalysing competitors:
Share of market
Share of mindShare of heart
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Competitor Analysis
Selecting Competitors to Attack or Avoid
Strong or weak competitors
Customer value analysis (Customers identify and rateattributes important in the purchase decision for thecompany and competition)
Close or distant competitors
Most companies compete against close competitors“Good” or “Bad” competitors
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DESIGNING COMPETITIVESTRATEGIES
To prepare an effective marketing strategy, acompany must study its competitors as well as itsactual and potential customers. A company should also pay attention to latent
competitors, who may offer new or other ways tosatisfy the same need.Competitive intelligence needs to be collected,
interpreted, and disseminated continuously. With
good competitive intelligence, managers can moreeasily formulate their strategies.
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DESIGNING COMPETITIVESTRATEGIES
A marketer should thoroughly examine the problemof designing marketing strategies that take intoaccount competitors’ strategy.
Some competitors will be large, others small. Some will have great resources, others will be strapped forfunds. Further insight can be gained by classifyingfirms by the role they play in the target market, that
of leading, challenging, following or niching.
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DESIGNING COMPETITIVESTRATEGIES
Market leader 40%
Market Challenger 30%
Market Follower 20%
Market nicher 10%
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DESIGNING COMPETITIVESTRATEGIES
Market Leader : the firm with the largestmarket share
Market Challenger : a runner-up firm that is
fighting hard for an increased market shareMarket Follower : another runner-up firmthat is willing to maintain its market shareand not rock the boat
Market Nicher : firms that serve smallmarket segments not being served by largerfirms
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MARKET LEADER STRATEGIES
Dominant firms want to remain number one. This callsfor action on three fronts :(1) The firm must find ways to expand its total market
demand.
(2) The firm must protect its current market sharethrough good defensive and offensive actions.(3) The firm can try to increase its market share
further, even if market size remains constant.
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Leaders Defense Strategy
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MARKET LEADER STRATEGIES
Market leader strategiesThe company can search for new users
Market penetration strategy ( who might use it but do
not )New market segment strategy ( those who have neverused it
Geographical expansion strategy ( those who live
somewhere else)
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MARKET LEADER STRATEGIES
The market leader has to use defensivestrategy to reduce the probability of attack, ordivert the attacks.
Position defense: building superior brandpower e.g. Sony, Nescafe
Mercedes was using a position defense strategy until Toyota launched a frontal attack with itsLexus.
Flank defense: build outposts to protect a weak front .( bring out new products or
products with less price ) e.g. HUL
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MARKET LEADER STRATEGIES
Pre-emptive defense: attack before the enemy starts its offense. ( have products of all pricetypes and categories eg Seiko has over 2,000
models)Counteroffensive defense: attack the
competitor with same strategy as the
competitor. e.g. Toyota launched the Lexus torespond to Mercedes attack
Mobile defense: leader stretches his domainover new territories it spreads through market
broadening and market diversification
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MARKET LEADER STRATEGIES
Market broadning: Company shifts its focus fromcurrent product to the underlying generic need.
Eg : Petroleum companies sought to recastthemselves into energy companies.
They are into coal, power, oil, nuclear, and chemicalindustries
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MARKET LEADER STRATEGIES
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 .e.g. India’s TATA Group sold its soaps and detergents
business units to Unilever in 1993
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MARKET LEADER STRATEGIES
Expanding Market ShareCo. increase their product quality relative to
competitors’
Increases in sales force expendituresIncreased advertising may also produce sharegainsCo. that cut their prices more deeply than
competitors do not achieve significant market-share gains generally. Presumably, enough rivalsmay meet the price cuts partly, and others may offer other values to the buyers, so that buyers donot switch to the price cutter.
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MARKET CHALLENGER STRATEGIES
Firms that occupy second, third and lower ranks in anindustry can be called runner-up firms. Theserunner-up firms can adopt one of the two postures :
they can attack the leader and other competitors inan aggressive bid for further market share (marketchallengers)
OR
they can play ball and not “rock the boat” (marketfollowers)
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MARKET CHALLENGER STRATEGIES
Strategic Objectives and Opponent(s) :It can attack the market leaderIt can attack firms of its own size that are not doing
the job and are under-financedIt can attack small local and regional firms that are
not doing the job and are under-financed(it should follow the military principle of objective,
which holds that every military operation must be
directed toward a clearly defined, decisive andattainable objective).
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MARKET CHALLENGER STRATEGIES
(We can imagine an opponent who occupies acertain market territory; and we can show fiveattack strategies in the following way…)
ATTAC
K ER
DEFENDER
4. Bypass Attack 2. Flanking Attack
1. Frontal Attack
3. EncirclementAttack
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Choosing an attack strategy
1. Frontal Attack : Head on attack. Attacks the opponentsstrengths rather than its weaknesses.
2. Flanking Attack : Concentration of strengths against weaknesses.3. Encirclement Attack : Attempt to capture a wide slice of
the enemy’s territory through a comprehensive ‘Blitz’attack.
4. Bypass Attack : Bypassing the main enemy andattacking easier markets (diversifying into unrelatedproducts, new geographical markets, new technologies).
e.g. Pepsi use a bypass attack strategy against Coke inChina by locating its bottling plants in the interiorprovinces
5. Guerrilla Attack : Attacking on different territories of the opponent, with the aim of harassing and demoralizethe opponent.
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MARKET CHALLENGER STRATEGIES(ATTACK STRATEGIES AVAILABLE TO CHALLENGERS)
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
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MARKET FOLLOWER STRATEGIES
A strategy of product imitation might be asprofitable 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 advantagesto its target market – location, services, financingetc.
The follower is a major target of attack by challengers. Therefore, the market follower mustkeep its manufacturing costs low and its productquality and services high. It must also enter new
markets as they open up.
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MARKET FOLLOWER STRATEGIES
Three broad followership strategies can bedistinguished :Cloner – emulates the leaders’ products,
distribution, advertising and so on; (it doesn’toriginate anything).Imitator – copies some things from the leader but
maintains differentiation in terms of packing,advertising, pricing and so on. Adapter – takes the leader’s products and adapts
and often improves them.
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MARKET NICHER STRATEGIES
An alternative to being a follower in a large market isto be a leader in a small market or niche. Smallerfirms normally avoid competing with larger firms by targeting small markets of little or no interest to the
larger firms. But increasingly, even large firms aresetting up business units, or companies, to serveniches.
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MARKET NICHER STRATEGIES
The main point is, that firms with low shares of thetotal market can be highly profitable through smartniching.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 firmsthat are casually selling to this niche. As a result, thenicher can charge a substantial mark-up over costs
because of the added value.
The nicher achieves high margin, whereas the massmarketer achieves high volume.
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MARKET NICHER STRATEGIES
An ideal market niche would have the followingcharacteristics :
The niche is of sufficient size and purchasingpower to be profitable
The niche has growth potentialThe niche is of negligible interest to major
competitorsThe firm has the required skills and resources to
serve the niche in a superior fashionThe firm can defend itself against an attackingmajor competitor through the customer goodwill ithas built up
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