Chapter 11: Dealing With Competition

* One good way to start to deal with competition us thorough creatively designed and
well-executed marketing programs

* It is important to acquire a solid understanding of what it costs to serve various types

of customers and how to make a profit serving potentially lucrative but high-risk
customers no one else wanted to cover

* Companies must pay keen attention to their competitors, markets have become too
competitive to focus on the consumer alone

I. Competitive Forces

Michael Porter’s Five Forces:

A. Threat of intense segment rivalry
B. Threat of new entrants
C. Threat of substitute products: substitutes place a limit on prices and on profits
D. Threat of buyers’ growing bargaining power
E. Threat of suppliers’ growing bargaining power

II. Identifying Competitors

* The range of a company’s actual and potential competitors can be much broader than
the obvious, and a company is more likely to be hurt by emerging competitors or new
technologies than by current competitors

Industry- group of firms that offer a product or a class of products that are close
substitutes for one another

Competitors [Market Approach]- companies that satisfy the same customer need

III. Analyzing Competitors

A. Strategies
Strategic Group- a group of firms following the same strategy in a given target market

Red-ocean Thinking: seeking bloody, head-to-head battles with competitors based

largely on incremental improvements in cost, quality, or both

Blue-ocean Thinking: creating products and services for which there are no direct
competitors
B. Objectives

* Companies differ in the relative emphasis thy put on short-term and long-term profits
* A company must monitor competitors’ expansion plans

C. Strength and Weaknesses

* A company needs to gather information about each competitor’s strengths and
weaknesses

Three Variables to Monitor when Analyzing Competitors:

1. Share of Market- competitor’s share of the target market
2. Share of Mind- the percentage of customers who named the competitor in responding
to the statement “Name the first company that comes to mind in this
industry”
3. Share of Heart- - the percentage of customers who named the competitor in
responding to the statement “Name the company from which you
would prefer to buy the product”

* Companies that make steady gains in mind share and heart share will inevitably make
gains in market share and profitability

D. Selecting Competitors

1. Strong vs. Weak: even strong competitors have some weaknesses

2. Close vs. Distant: most companies compete with competitors that resemble them the
most yet companies should also identify distant competitors
3. Good vs. Bad:
- Good competitors play by the industry’s rules; they set prices in reasonable
relationship to costs; and they favor a healthy industry

- Bad competitors try to buy share rather than earn it; they take large risks; they
invest in overcapacity; and they upset industrial equilibrium

E. Selecting Customers
* Firms must evaluate its customer base and think about which customers it’s willing to
lose and which it wants to retain

IV. Competitive Strategies for Market Leaders

- Market Leader
- Market Challenger
- Market Follower
- Market Nicher
* Staying the number-one firm calls for action in three fronts:
1. The firm must find ways to expand 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, even if market size remains
constant

A. Expanding the Total Market

* When the total market expands, the dominant firm usually gains the most
* The market leader should look for new customers or more usage from existing
customers

1. New Customers
- Those who might use it but do not (market-penetration strategy)
- Those who have never used it (new-market segment)
- Those who live elsewhere (geographical-expansion strategy)

2. More Usage
* Marketers can try to increase the amount, level, or frequency of consumption

Amount of Consumption- can be increased through packaging or product redesign

* Usage of impulse consumption products increase when made more available

Frequency of Consumption:
- identifying additional opportunities to use the brand in the same basic way
- identifying completely new and different ways to use the brand

How to Increase Frequency of Consumption?

- Communicate the appropriateness and advantage of using the brand more
frequently in new or existing situations or remind customers to actually use
the brand as close as possible to those situations

- To identify completely new and different applications

B. Defending Market Share

* Defend the market share via continuous innovation.
* The leader should lead the industry in developing new products and customer services,
distribution effectiveness, and cost cutting
* It keeps increasing its competitive strength and value to customers by providing
comprehensive solutions
Responsive Marketer- finds a stated need and fills it
Anticipative Marketer- looks ahead into what needs customers may have in the near
future
Creative Marketer- discovers and produces solutions customers did not ask for but to
which they enthusiastically respond
* Market-driving firms become market leaders through superior value delivery of unmet-
and maybe even unknown—consumer needs

1. Position Defense- occupying the most desirable market space in consumers’ minds,
making the brand almost impregnable

2. Flank Defense- erect outposts to protect a weak front or possibly serve as an invasion
base for counterattack

3. Preemptive Defense- to attack before the enemy starts its offense

- use of guerrilla marketing
- use of pre-announcements: deliberate communications
regarding future actions

4. Counteroffensive Defense- the leader can meet the attacker frontally or hit its flank or
launch a pincer movement
- exercise of economic or political clout

5. Mobile Defense- the leader stretches its domain over new territories that can serve as
future centers for defense and offense through market broadening
and market diversification

Market Broadening- shifts focus from the current product to the underlying generic
need

Market Diversification- shifts into unrelated industries

6. Contraction Defense- when a territory can no longer be defended, planned contraction

(strategic withdrawal) is needed to be done

Planned Contraction- giving up weaker territories and reassigning resources to

stronger territories

C. Expanding Market Share

* Gaining increased share in the served market does not automatically produce higher
profits—especially for labor-intensive service companies that may not experience many
economies of scale
Four Factors to Consider Before Pursuing Increased Share:
1. The possibility of provoking antitrust action
2. Economic cost
3. Pursuing the wrong marketing activities
4. The effect of increased market share on actual and perceived quality

V. Other Competitive Strategies

A. Market-Challenger Strategies

1. Defining the Strategic Objective and Opponent(s)

a. Attack the market leader: high-risk but potentially high-payoff strategy and
makes good sense if the leader is not serving the
market well

b. Attack firms of its own size that are not doing the job and are underfinanced

c. Attack small local and regional firms

2. Choosing a General Attack Strategy

a. Frontal Attack: the attacker matches its opponent’s product, advertising, price,
and distribution

b. Flank Attack
Geographic: the challenger spots areas where the opponent is
underperforming
Segmental: to serve underserved market needs

* To flank is to identify shifts in market segments that are causing gaps to develop, then
rushing in to fill the gaps and develop them into strong segments

c. Encirclement Attack: an attempt to capture a wide slice of the enemy’s territory

through a blitz

d. Bypass Attack
i. Diversifying into unrelated products
ii. Diversifying into new geographic markets
iii. Leapfrogging into new technologies to supplant existing products

Technological Leapfrogging- bypass strategy practiced in high-end industries

 e. Guerilla Warfare- waging small, intermittent attacks to harass and demoralize
the opponent and eventually secure permanent footholds
- can be expensive, although less so than a frontal,
encirclement, or flank attack
- must not cross lines of legality or morality

3. Choosing a Specific Attack Strategy

* A challenger’s success depends on combining several strategies to improve its position
over time

B. Market-Follower Strategies
* Product imitation might be as profitable as a strategy of product innovation

* Many companies prefer to follow rather than challenge the market leader

1. Counterfeiter- duplicates the leader’s product and packages and sells it on the black
market or through disreputable dealers

2. Cloner- emulates the leader’s products, name, and packaging, with slight variations

3. Imitator- copies some things from the leader but maintains differentiation in terms of
packaging, advertising, pricing, or distribution

4. Adapter- takes the leader’s products and adapts or improves them

C. Market-Nicher Strategies
* To be a leader in a small market or niche

* Niching is profitable because the market nicher ends up knowing the target customers
so well, it meets their needs better than other firms selling to this niche casually

* Market nicher achieves high margin, whereas the mass marketer achieves high volume

Three Tasks of Nichers:

1. Creating niches
2. Expanding niches
3. Protecting niches

* The firm should “stick to its niching” but not necessarily to its niche. That is why
multiple niching is preferable to single niching