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Diferentiation strategies
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Competitive advantage
• It is a company’s ability to perorm inone or more ways that competitorscannot or will not match
• For a brand to be efectivelypositioned, customers must see anycompetitive advantage as a
customer advantage
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Dimensions oDiferentiation
• Employee diferentiation – Companies canhave bettertrained employees whoprovide superior customer service!
"ingapore #irlines is well regarded in largepart because o its $ight attendants
• Channel diferentiation – Companies candesign their channels’ coverage,e%pertise, and perormance to ma&ebuying easier, more en'oyable, and morerewarding or customers
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• Image diferentiation – Companiescan crat powerul, compellingimages that appeal to consumers’social and psychological needs
• "ervices diferentiation – # service(rm can diferentiate itsel by
delivering more efective ande)cient solutions to consumers
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Competitive strategies
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Competitive strategies or mar&etleaders
Hypothetical
market structure
*+
-+
.+
/+
0ar&et leader
0ar&et challenger
0ar&et ollower
0ar&et nichers
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Competitive strategies or mar&etleaders
• 0any industries have one (rm that is ac&nowledged as themar&et leader
• 1hese (rms have the largest mar&et share in the relevant productmar&et and leads other (rms in price changes, newproductintroductions, distribution coverage 2 promotion intensity
• E!g! 0icrosot 3computer sotware4, Intel 3microprocessors4,5illette 3ra6or blades4
• 7ut a leader might spend conservatively whereas a challengermight spend liberally!
• 8ence the dominant (rm should be constantly vigilant else it will
be overrun!• E!g! 5odre' 9s! :hirlpool, 801 9s! 1itan
• 1o retain no! / position, (rm must (nd ways to e%pand the totalmar&et demand, (rm must protect its current mar&et sharethrough good deensive 2 ofensive actions and (rm can try to
increase its mar&et share though its constant!
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E%panding the total mar&et
• 1he dominant (rm gains the most when mar&ete%pands
• ;ew customers – every product has the potential oattracting buyers who are unaware o the product,
or who are resisting it because o price or lac& ocertain eatures
• # company can search or new users in - groups – – 1hose who might use it and but not 3mar&etpenetration
strategy4 – 1hose who have never used it 3newmar&et segment
strategy4
– 1hose who live elsewhere 3geographicale%pansionstrategy4
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E%panding the total mar&et•
0ore usage – usage can be increased by increasing the levelor
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Deending the mar&et share
• :hen trying to e%pand, the dominant (rm must try todeend its current position and can be done onlythrough continuous innovation to increasecompetitive strength 2 value to customers
• In satisying the customers’ needs there are - types – ?esponsive mar&eter@ (nds a stated need and (lls it
– #nticipative mar&eter@ loo&s ahead what might customersneed in the near uture
– Creative mar&eter@ discovers and produces solutions
customers did not as& or but to which they enthusiasticallyrespond e!g! the :al&mans by "ony in the late /AB+’swhich revolutioni6ed the way people listened to music
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types o deensivestrategies
3/4
ositionDeender
3.4Flan&
34
Contraction
3-4 reemptive
3*4Counterofensive
#11#CE?
34 0obile
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Deensive strategies
•
osition deense@ involves building superior brand power,ma&ing the brand almost impregnable! E!g! ;escae
• Flan& deense@ the mar&et leader should erect outpoststo protect a wea& ront or which possibly might serve asan invasion base or a counter attac&
• reemptive deense@ a more aggressive deense, attac&sthe enemy beore the enemy starts its ofense, hittingone competitor here and there, and throwing everyoneof balance, introduce a new stream o products andpreceding them with preannouncements – which signal
mar&ets that they have to (ght or mar&et share!E!g! i 0icrosot announces a new product, then smaller(rms may choose to concentrate their developmenteforts in other directions in order to avoid headtoheadcompetition!
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Deensive strategies• Counterofensive deense@ when attac&ed, most mar&et
leaders respond with a counter attac&! In a counterofensive, the leader can meet the attac&er rontally or hitits $an&! #n efective counter attac& is to invade theattac&er’s main territory so that it will have to pull bac&some o its troops to deend itsel!
E!g!G" companies invaded the Hapanese mar&et, when thelatter tried to e%pand in G"
• 0obile deense@ the leader stretches its domain over newterritories which might serve as uture centers ordeense! /4 0ar&et broadening involves in shiting the
ocus rom the current product to the underlying genericneed! E!g! petroleum companies involving in ?2D andemerging as energy’ companies and .4 0ar&etdiversi(cation involves shiting into unrelated industries!E!g! I1C when aced with growing concerns in the
cigarette industry went into cosmetics, garments, ooditems etc!
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Deensive strategies
• Contraction deense@ Jargecompanies sometimes recogni6e thatthey cant deend all o their
territories! 1hen the best course oaction is plannedcontractionKstrategic withdrawal –
giving up wea&er territories andreassigning resources to strongerterritories
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E%panding mar&et share• 0ar&et leaders can improve their pro(tability by
increasing their mar&et share but the underlyingcosts may ar e%ceed the revenue! "o thecompany should consider the ollowing * actors@
/! 1he possibility o provo&ing an antitrust actionL
'ealous companies are li&ely to cry =monopoly> ia dominant (rm ma&es urther inroads!
.! Economic cost@ pro(tability might all withurther increase in mar&et share ater some
level! Customers may disli&e the company andmay preer smaller suppliers! #lso the cost olegal wor&, public relations and lobbying riseswith mar&et share!
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E%panding mar&et share
-4 ursuing the wrong mar&etingmi% strategy
*4 1he efect o increased mar&et share onactual and perceived and assume growth will lead
to a deterioration o is a &ey brand bene(t, e%isting customersmay resent additional new customers!
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Mther competitive strategies –0ar&et challenger strategy
• 1he (rms which occupy the .nd, -rd or lower positions arecalled as runnerup or trailing (rms! 1hese (rms can adoptone among the ollowing posturesL
• #ttac& the leader in an aggressive bid or urther mar&et
share 3mar&et challengers4• Mr can opt or peaceul coe%istence 3mar&et ollowers4
• # mar&et challenger should de(ne its strategic ob'ectiveand opponents!
• It can attac& the mar&et leader – high ris& but high payof
strategy! Gseul only i the leader is not perorming well orotherwise should outinnovate the leader across the wholesegment
• It can attac& (rms o its own si6e that are not doing their 'obs and are under(nanced
• It can attac& small local and regional (rms
Ch i l tt &
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Choosing a general attac&strategy
• Frontal attac&@ ure rontal attac& – attac&er matches
its opponent’s product, advertising, price 2distribution! 0odi(ed rontal attac& – cutting price visNvis the opponent’s, can wor& i the mar&et leaderdoes not retaliate and i the competitor can convincethat the product is e
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strategy
• Encirclement attac&@ is an attempt to catch a wide slice othe enemy’s territory through a blit6L launching a grand
ofensive on several ronts! E!g! "un 0icrosystems licensedits Hava sotware to hundreds o companies against0icrosot
• 7ypass attac&@ indirect assault strategy, bypassing theenemy altogether and attac&ing easier mar&ets to broaden
the (rm’s resource base! 8as - lines o approach –diversiying into unrelated products 3e!g! epsi used abypass strategy against Co&e by aggressively rolling out#
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0ar&et Followers• 1he innovator bears the e%pense o developing the new
product, getting it into distribution and inorming 2
educating the mar&et! 1he reward or all this wor& ismar&et leadership
• 8owever another (rm can come and copy or improve onthe new product! 1hese are mar&et ollowers! 1hese canalso achieve high pro(ts because they did not bear any
innovation e%pense• atterns o =conscious parallelism> are common in capital
intensive, homogenousproduct industries such asertili6ers, steel and chemicals! 8ere service
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1ypes o mar&et ollowers and theirstrategies
•
Countereiter – duplicates the leader’s product, pac&agesand sells it in the blac& mar&et or through disreputableleaders! 0usic (rms, #pple 2 ?ole% have been plagued bythis problem
• Cloner – emulates the leader’s products, name and
pac&aging with slight variations• Imitator – copies some things rom the leader but maintains
diferentiation in terms o pac&aging, advertising, pricing orlocation! 1he leader doesn’t mind the imitator unless thelatter attac&s the ormer aggressively
•
#dapter – ta&es the leader’s products and adapts orimproves them! 1he adapter may chose to sell to diferentmar&ets but it oten grows into uture challenger!
Followership is often not a rewarding path.
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0ar&et;icher strategies
• #n alternative to be a ollower in a large mar&et is to bea leader in a small mar&et!
• Firms with lower share o the mar&et can become highlypro(table through smart niching
• 1hey ofer high value, charge a premium price, achievelower manuacturing costs and shape a strong corporateculture and vision
• 1he ?MI averaged .B in smaller mar&ets but only //in larger mar&ets! ;iching is highly pro(table because
the nicher ends up in &nowing the target customer sowell and hence it meets their needs in a better way!;icher achieves high margin whereas mass mar&eterachieves high volume
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0ar&et;icher strategies
• ;ichers have - tas&s creating niches,e%panding them and protecting them!
• ;ichers ace the ris& o mar&et drying up
or being attac&ed and overspeciali6edresources may not have alternate uses
• 8ence the (rms should continually createnew niches! 0ultiple niching is alwayspreerable to single niching and thecompany increases its chances o survival!