marketing management chapter 22

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© SHH Kazmi, 2007

Excel BooksMarketing Management Text and Cases, S H H Kazmi22-1

Competition Analysis and Strategic Options Across PLC Stages

Marketing Management Text and Cases

Excel Books22-1

Competition

Analysis andStrategic Options

Across PLC Stages

22Chapter



© SHH Kazmi, 2007



Industr ies ar e classified according to the number of fir ms selling similar

pr oducts and the degr ee of pr oduct differ entiation. The industr ies have been

divided into four types according to economists view of competition: Pur e

Monopoly, Oligopoly, Monopolistic competition, and Per fect competition.



© SHH Kazmi, 2007



Competitive Forces

Michael Porter has identified five inter active competitive for ces that

deter mine an industry¶s long-ter m attr activeness:

Pr esent competitors.

Potential competitors.

The Bargaining power of suppliers.

The bargaining power of buyers.

The thr eat of substitute pr oducts.



© SHH Kazmi, 2007



Rivalry among Present CompetitorsRivalry takes place among companies that pr oduce close substitute pr oducts

and when competitors try to impr ove or maintain their position. As the

intensity of r ivalry incr eases, gener ally the pr ofitability starts decr easing.



© SHH Kazmi, 2007



The

Deter minants

of Industry

Attr activeness

Rivalry

Among Existing

Industry Fir ms

Bargaining Power Bargaining Power

of Suppliers

Thr eat of Substitute

Pr oducts

Thr eat of New

Entr ants



© SHH Kazmi, 2007



Threat of New Entrants

New entr ants can become a sour ce of competition, particular ly when they

ar e bigger. The degr ee of attr activeness of an industry var ies according to

its entry and exit barr iers.



© SHH Kazmi, 2007



Bargaining Power of Suppliers

Suppliers exer cise bargaining power thr ough higher pr ices, or r educed supply.

The effect could be quite significant, particular ly when the number of suppliers

in the industry is limited, when the supplied pr oduct is an important input,

switching costs and pr ices of substitutes ar e high, or when the suppliers ar e

organised and can r ealistically thr eaten for ward integr ation.



© SHH Kazmi, 2007



Entry and

Exit

Barr iers

Entry Barr iers

High Low

Returns Returns

High but Risky Low and Risky

High and Stable Low but Stable

Exit

Barr iers

High

Low

Returns Returns



© SHH Kazmi, 2007



Bargaining Power of Buyers

The success of buyers bargaining power gr ows when

1. the number of large buyers is quite limited, they ar e concentr ated, or

organised,

2. switching costs ar e favour ably low,

3. thr eat of backward integr ation,

4. when the pr oduct r epr esents just a small part of buyer¶s cost, and

5. buyers earn low pr ofits and the pr oduct involved pr oduct cost is an important

part of their costs, then buyers will bargain mor e deter minedly.



© SHH Kazmi, 2007



Threat of Substitute Products

Those alternative pr oduct types that per for m essentially the same f unction

ar e called the substitutes, such as differ ent cooking oils, laundry pr oducts,

headache r emedies, or postal and cour ier ser vices. Availability of substitutes

puts a limit on pr ices companies can charge and the pr ofit margins ar er estr icted, mor e so when supply position is such that it exceeds the demand.



© SHH Kazmi, 2007



Competitive Strategies and PLC Stages

The thr ee basic per for mance objectives, companies choose keeping in view

the competition include

shar e position,

sales gr owth, and

pr ofit per for mance.



© SHH Kazmi, 2007



Market Attractiveness:

The factors that make a mar ket attr active include mar ket size, mar ket

gr owth; competitive intensity, pr ofit potential, accessibility to mar ket, and fit

with company¶s cor e competencies.



© SHH Kazmi, 2007



Elements

Shaping

Mar ket

Attr activeness

Mar ket For ces Mar ket size Gr owth

r ate Buyer power

Mar ket Access

Customer familiar ity

Channel access Sales

r equir ements

No. of Competitors Pr ice r ivalry Ease of

entry

Competitive

Intensity

Mar ket

Attr activeness



© SHH Kazmi, 2007



Competitive Advantage:

Ther e ar e var ious elements that deter mine competitive advantage of a

business and include differ entiation advantage, cost advantage, and

mar keting advantage.



© SHH Kazmi, 2007



Factors

Influencing

Competitive

AdvantageDiffer entiation

Advantage

Cost Advantage

Mar keting

Advantage

Pr oduct quality

Ser vice quality Br and image

Unit cost

Tr ansaction cost

Mar keting costs

Competitive

Advantage

Mar ket shar eBr and awar eness

Distr ibution



© SHH Kazmi, 2007



Offensive strategies ar e most likely to be adopted by competing

businesses dur ing gr owth stage of pr oduct-mar ket life cycle (ear ly gr owth and

r apid gr owth stages) and aim at sales gr owth and incr ease mar ket shar e, and

impr ove pr ofit position in f utur e.



© SHH Kazmi, 2007



Offensive

Str ategies

Strategy Basic Strategy

(A)

Invest to Grow Sales

In Existing Markets

Basic Strategy

(B)

Invest to Improve

Competitive Position

Basic Strategy

(C)

Invest to Enter New

Markets

Objective Gr ow in Existing

Mar ket

Impr ove

Revenues

Diversif y to

Gr ow

Gr ow mar ket

shar e

Impr ove customer

loyalty and r etention

Enter r elated

new mar kets

Differ ent

Str ategies

to

Implement

Centr al

Str ategies

Gr ow r evenue

per customer

Impr ove differ ential

advantage

Enter unr elated

new mar kets

Enter new mar ket

segment

Impr ove mar keting

pr oductivity

Enter new

emerging mar kets

Expand mar ket

demand

Build mar keting

advantage

Develop new

mar kets



© SHH Kazmi, 2007



Defensive StrategiesGener ally businesses with high mar ket shar e in gr owing or matur e mar kets

opt to adopt defensive str ategies with the objective of maintaining cash flow

and short-ter m pr ofitability.



© SHH Kazmi, 2007



Defensive

Str ategies

Strategies Basic Strategy

(A)

Protect Position

Basic Strategy

(B)

Optimise Position

Basic Strategy

(C)

Increase Cash Flow

Harvest, or Divest

Objective Maintain Pr ofit Maximise Pr ofits Cash Flow

Differ ent

Str ategies

To Implement

Centr al

Str ategies

Pr otect mar ket shar e Maximise net pr ofits Manage for cash flow

Develop customer

r etention

Reduce mar ket focus Har vest or Divest

for cash flowEnter new mar ket

segment

Impr ove mar keting

pr oductivity

Enter new

emerging mar kets



© SHH Kazmi, 2007



Choosing Competitors

Four types of competitors in an industry, including the company itself .

Mar ket Leader

Mar ket Follower

Mar ket Challenger

Niche Mar keter



© SHH Kazmi, 2007



Strategic Options for Growth Markets

Market Leader Strategies

Mar ket leader is either a pioneer or at least one of the first few entr ants who first

developed the pr oduct-mar ket. Gener ally, the leader¶s objective is to maintain its

leading shar e position despite the entry of new players.

Market Share Expansion:

A business should consider four major factors:

1. Possibility of Competition Act 2002, or similar laws such as Anti-trust Action in

USA.

2. The cost involved in mar ket shar e gain may r ise and exceed the r evenues.

3. Selecting and using an inappr opr iate mar keting mix str ategy.

4. Incr eased number of customers may put a str ain on the company¶s r esour ces

and hurt ser vice delivery and pr oduct value.



© SHH Kazmi, 2007



Depending on the situation a mar ket leader faces, the str ategic move options

include:

Position Defence Str ategy

Flanker Str ategy

Conf r ontation Str ategy

Pr e-emptive Str ategy

Mar ket Expansion Str ategy

Contr action or Withdr awal Str ategy



© SHH Kazmi, 2007



Market Follower Strategies

Mar ket-shar e followers try to r etain their customer base, try to acquir e new

customers but avoid any moves that might attr act r etaliation f r om

competitors. Some commonly adopted str ategies ar e:

Counter feit Str ategy

Adapter Str ategy



© SHH Kazmi, 2007



Market Challenger Strategies

A challenger visualises captur ing the mar ket-shar e leadership in an industry.

Ther e ar e five major competitive str ategies for a challenger that may be used

singly or in combination and include

frontal attack strategy,

leapfrog strategy,

flanking attack strategy,

encirclement strategy, and

guerrilla attack strategy.

Most of these str ategies seem similar to shar e maintenance str ategies.



© SHH Kazmi, 2007



Whom to Attack?It is necessary for a challenger to decide which competitor to attack. Ther e ar e

sever al options to choose f r om. Choosing whom to attack r equir es car ef ul analysis

and compar ison of str engths and weaknesses of differ ent competitors:

Attack the mar ket-shar e leader

Attack another follower

Attack one or mor e smaller competitors

Avoid dir ect attacks on any established competitor

Fr ontal Attack Str ategy

Leapf r og Str ategy

Flanking Attack Str ategy

Encir clement Str ategy

Guerr illa Attack Str ategy



© SHH Kazmi, 2007



Strategic Option for Mature and Declining

Markets

A business should always consider that all mar ket segments and all the

available br ands do not matur e at the same time. A pr oduct-shar e leader in a

matur e mar ket might adopt str ategies to gain sales volume by pr omoting new

uses for its old pr oduct and/or encour age customer to use it mor e of ten, or use

mor e of the pr oduct per use occasion. Most str ategies attempt to follow the

following equation:

Sales Volum e = Number of Users × Usage Rate



© SHH Kazmi, 2007



Strategic Traps During Shakeout Period

The ability of a fir m to sur vive the shakeout per iod or tr ansition f r om gr owth

stage to matur ity depends to a large extent on its ability to avoid str ategic

tr aps. Common tr aps ar e:

Failur e to anticipate tr ansition or shakeout f r om gr owth to matur ity.

Business not having any clear competitive advantage as gr owth slows.

Assuming that an ear ly advantage will insulate the business f r om pr ice

or ser vice differ entiation.

Sacr ificing mar ket shar e in favour of short-ter m pr ofits.



© SHH Kazmi, 2007



Mature MarketsCurrent Market Share Maintenance Strategies: Matur ity stage of

mar kets can continue for pr olonged per iods of time. In ear ly stage of

matur ity, a business should aim to maximise pr ofit flow over the r emaining

per iod of pr oduct-mar ket. The most important goal is to maintain and protect market share.



© SHH Kazmi, 2007



Volume Growth Strategies

A business has choice of sever al str ategies that can be adopted singly or in

combination to gain additional volume in a mar ket that is viewed as matur e.

These volume gr owth str ategies include greater penetration strategy,

prolonged use strategy, and market expansion strategy.



© SHH Kazmi, 2007



Declining Markets

Most pr oduct-mar kets enter a decline phase in their life cycle, but not all

mar kets decline at the same time.

Attr activeness of declining mar kets depends on a set of thr ee factors:

(1) conditions of demand including the r ate and r eliability of for ecasted f utur e

decr ease in volume,

(2) exit barr iers (ease with which weaker competitors can leave the

mar ket), and

(3) r ivalry and intensity of f utur e competition within the mar ket.



© SHH Kazmi, 2007



Marketing Strategies for Competitors Who

Stay in Declining Market

Str ategies for declining mar kets include harvesting strategy, maintenance

strategy, survival with profits strategy, and niche strategy.

marketing management chapter 22

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