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Competitor Analysis

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COMPETITOR ANALYSIS

Learning Objectives
 Understand how a company identifies its
primary competitors and ascertains their
strategies.
 Review how companies design
competitive intelligence systems.
“Poor firms ignore their
competitors ;
average firms copy their
competitors ;
winning firms lead their
competitors.”
Definitions
 Competitive Advantage
 An advantage over competitors gained
by offering consumers greater value
than competitors offer.

Competitive Analysis

The process of identifying key
competitors; assessing their objectives,
strategies, strengths and weaknesses,
and reaction patterns; and selecting
which competitors to attack or avoid.
Competitive Markets
 Failing to identify competitors can lead to
extinction
 Internet businesses have led to
disintermediation of middlemen
 Competition can be identified using the
industry or market approach
Competitive Markets
Industries Can Be Classified By:
 Number of sellers and degree of
differentiation
 Cost structure
 Entry, mobility and exit barriers
 Degree of vertical integration
 Degree of globalization
Industry Structures
Only one firm
 Pure Monopoly
offers an
undifferentiated
 Pure Oligopoly
product or service
 Differentiated
in an area
Oligopoly Unregulated
 Monopolistic
Regulated
Competition Example: Most
 Pure Competition
utility companies
Competitive Markets
 Pure Oligopoly
A few firms produce essentially identical
commodities and little differentiation exists
Lower costs are the key to higher profits
Example: oil
Differentiated Oligopoly
few firms produce partially differentiated items
 Differentiation is by key attributes
 Premium price may be charged
 Example: camera, washing m/c etc.
Competitive Markets
Monopolistic competition
 Many firms differentiate items in whole or part
 Appropriate market segmentation is key to
success
 Example: beauty clinics, restaurants
Pure Competition
 Many competitors offer the same product
 Price is the same due to lack of differentiation
 Example: farmers selling milk, commodity
market etc.
Cost Structure
 Each industry has a certain cost burden
that shapes much of its strategic conduct.
 E.g. Steel making- heavy manufacturing
and raw material costs
 Toy manufacturing –heavy distribution and
marketing costs
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
more attractive market segments
 Exit barriers- legal or moral obligations,
low asset-salvage value due to
obsolescence, lack of alternative
opportunities etc.
Porter’s five forces model of
competition

Potential Entrants
(Threat of New Entrants)

Industry Competitors
Suppliers (Segment Rivalry) Buyers
(Bargaining (Bargaining
Power of Rivalry Among Existing Power of
Firms
Suppliers) Buyers)
Substitutes (Threat of
Substitute Products or
Services
Threat of Intense Segment Rivalry
A segment is unattractive
 if it already contains numerous, strong or
aggressive competitors.
 If it is stable or declining
 If plant capacity additions are done in large
increments
 If fixed costs are high
 If exit barriers are high
 If competitors have high stakes in staying in the
segment.
These will lead to frequent price wars, advertising
battles and new product introductions and will
make it expensive to compete.
Threat of new entrants
Exit Barriers
Low High

Low Low, stable Returns


Entry Worst Case
e.g. retail, e-
commerce e.g. Hotels
Barriers
High, stable High, risky Returns
High Returns e.g. e.g. energy
education

Those 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 stable and self-regulated, so the profit margins do not fluctuate
along time.
Threat of Substitute Products
 A segment is unattractive when there
are actual or potential substitutes for
the product.
 Substitutes place a limit on prices and
on profits
 If technology advances or competition
increases in these substitute
industries, prices and profits in the
segment are likely to fall.
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
Threat of Suppliers’ growing
Bargaining Power
 A segment is unattractive if the company’s
suppliers are 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
Competitor Analysis
1.Identifying Competitors
 Firms face a wide range of competition
 Be careful to avoid “competitor myopia”
 Methods of identifying competitors:
• Industry point-of-view
• Market point-of-view
 Competitor maps can help
Competitor Map
Analyzing Competitors

 Determining competitors’ objectives


 Identifying competitors’ strategies
 Strategic groups (A group of firms following
the same strategy in a given target market is
called a strategic group).
 Assessing competitors’ strengths and
weaknesses
 Benchmarking
 Estimating competitors’ reactions
Analyzing Competitors
A company should monitor three variables
when analysing competitors:
 Share of market
 Share of mind
 Share of heart
Competitor Analysis
3.Selecting Competitors to Attack or Avoid

 Strong or weak competitors


 Customer value analysis (Customers identify and
rate attributes important in the purchase decision for
the company and competition)
 Close or distant competitors

Most companies compete against close competitors
 “Good” or “Bad” competitors
Competitive Intelligence Systems
 Designing the system involves:
 Setting up the system
 Collecting the data
 Evaluating and analyzing the data
 Disseminating information and responding to queries
 Value analysis helps firms to select competitors
to attack and to avoid
 Customers identify and rate attributes important in the
purchase decision for the company and competition
 Attacking strong, close, and bad competitors will
be most beneficial
DESIGNING COMPETITIVE STRATEGIES

 To prepare an effective marketing strategy, a


company must study its competitors as well
as its actual and potential customers.
 A company should also pay attention to
latent competitors, who may offer new or
other ways to satisfy the same need.
 Competitive intelligence needs to be
collected, interpreted, and disseminated
continuously. With good competitive
intelligence, managers can more easily
formulate their strategies.
DESIGNING COMPETITIVE STRATEGIES

 A marketer should thoroughly examine the


problem of designing marketing strategies
that take into account competitors’ strategy.
 Some competitors will be large, others small.
Some will have great resources, others will
be strapped for funds. Further insight can be
gained by classifying firms by the role they
play in the target market, that of leading,
challenging, following or niching.
DESIGNING COMPETITIVE STRATEGIES

 Market leader 40%


 Market Challenger 30%
 Market Follower 20%
 Market nicher 10%
DESIGNING COMPETITIVE STRATEGIES

 Market Leader : the firm with the largest


market share
 Market Challenger : a runner-up firm that is
fighting hard for an increased market share
 Market Follower : another runner-up firm that
is willing to maintain its market share and
not rock the boat
 Market Nicher : firms that serve small market
segments not being served by larger firms
MARKET LEADER STRATEGIES
Dominant firms want to remain number one.
This calls for action on three fronts :
 (1) The firm must find ways to expand its
total market demand.
 (2) The firm must protect its current market
share through good defensive and offensive
actions.
 (3) The firm can try to increase its market
share further, even if market size remains
constant.
Leaders Defense Strategy
MARKET LEADER STRATEGIES
 Market leader strategies
 The company can search for new users
 Market penetration strategy ( who might
use it but do not )
 New market segment strategy ( those who
have never used it
 Geographical expansion strategy ( those
who live somewhere else)
MARKET LEADER STRATEGIES
 The market leader has to use defensive
strategy to reduce the probability of attack,
or divert the attacks.
 Position defense: building superior brand
power
 Flank defense: build outposts to protect a
weak front .( bring out new products or
products with less price )
MARKET LEADER STRATEGIES
 Pre emtive defense: attack before the enemy
starts its offense. ( have products of all price
types and categories eg Seiko)
 Counteroffensive defense: attack the
competetor with same strategy as the
competetor.
 Mobile defense: leader stretches his domain
over new territories it spreads through market
broadening and market diversification
MARKET LEADER STRATEGIES
 Market broadning: Company shifts its
focus from current product to the
underlying generic need.
 Eg : Petrolium companies sought to recast
themselves into energy companies.
 They are into coal, power, oil, nuclear, and
chemical industris
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 .
MARKET LEADER STRATEGIES
3) Expanding Market Share :
 Identify the most important variables affecting
profits (pursue new marketing strategies)
 Higher shares tend to produce higher profits under
two conditions :
(a) unit costs fall with increased market share (b)
company offers a superior quality product and
charges a premium price, that more than covers the
cost of offering higher quality
 Share gaining companies typically develop and add
more new products to their line
MARKET LEADER STRATEGIES
(Expanding Market Share)
 Co. increase their product quality relative to
competitors’
 Increases in sales force expenditures
 Increased advertising may also produce share gains
 Co. that cut their prices more deeply than
competitors do not achieve significant market-share
gains generally. Presumably, enough rivals may
meet the price cuts partly, and others may offer
other values to the buyers, so that buyers do not
switch to the price cutter.
MARKET CHALLENGER STRATEGIES

Firms that occupy second, third and lower


ranks in an industry can be called runner-up
firms. These runner-up firms can adopt one
of the two postures :
 they can attack the leader and other
competitors in an aggressive bid for further
market share (market challengers)
OR
 they can play ball and not “rock the boat”
(market followers)
MARKET CHALLENGER STRATEGIES

Strategic Objectives and Opponent(s) :


 It can attack the market leader
 It can attack firms of its own size that are not
doing the job and are under-financed
 It 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 and attainable objective).
MARKET CHALLENGER STRATEGIES
(We can imagine an opponent who occupies a certain market territory; and
we can show five attack strategies in the following way…)

4. Bypass Attack
2. Flanking Attack
A
T
T
A 1. Frontal Attack
C DEFENDER
K
E 3. Encirclement
R Attack
Choosing an attack strategy
 1. Frontal Attack : Head on attack. Attacks the
opponents strengths 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 and
attacking easier markets (diversifying into unrelated
products, new geographical markets, new
technologies).
 5. Guerrilla Attack : Attacking on different territories
of the opponent, with the aim of harassing and
demoralize the opponent.
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
MARKET FOLLOWER STRATEGIES
 A strategy of product imitation might be as profitable
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 advantages to
its target market – location, services, financing etc.
 The follower is a major target of attack by
challengers. Therefore, the market follower must
keep its manufacturing costs low and its product
quality and services high. It must also enter new
markets as they open up.
MARKET FOLLOWER STRATEGIES

Three broad followership strategies can be


distinguished :
 Cloner – emulates the leaders’ products,
distribution, advertising and so on; (it
doesn’t originate 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.
MARKET NICHER STRATEGIES

 An alternative to being a follower in a


large market is to be a leader in a small
market or niche. Smaller firms normally
avoid competing with larger firms by
targeting small markets of little or no
interest to the larger firms. But
increasingly, even large firms are
setting up business units, or
companies, to serve niches.
MARKET NICHER STRATEGIES
 The main point is, that firms with low shares
of the total market can be highly profitable
through smart niching.
 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 firms that are
casually selling to this niche. As a result, the
nicher can charge a substantial mark-up over
costs because of the added value.
 The nicher achieves high margin, whereas
the mass marketer achieves high volume.
MARKET NICHER STRATEGIES
An ideal market niche would have the following
characteristics :
 The niche is of sufficient size and purchasing power
to be profitable
 The niche has growth potential
 The niche is of negligible interest to major
competitors
 The firm has the required skills and resources to
serve the niche in a superior fashion
 The firm can defend itself against an attacking major
competitor through the customer goodwill it has
built up
MARKET NICHER STRATEGIES

Nichers have three tasks :


 Creating niches (e.g. Nike, the athletic shoe
manufacturers)

 Expanding niches
 Protecting niches

(Multiple niching is preferable to single


niching)
Balancing Customer and
Competitor Orientations
 Competitor-centered companies evaluate
what competitors are doing, then
formulate competitive reactions
 Customer-centered companies focus on
customer developments when formulating
strategy

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