Dr.

Johnston Marketing 710 Kotler Chapter 7 - Dealing with Competition September 13, 2001
By: Randy Pickens

Today competitors are more numerous than ever before. Many businesses are setting-up production in lower-cost countries and the
Internet makes the entry of new types of competitors very easy. Market attractiveness is subject to five competitive threats: (1)
Threat of intense segment rivalry, (2) Threat of new entrants, (3) Threat of substitute products, (4) Threat of buyers’ growing
bargaining power, and (5) Threat of suppliers’ growing bargaining power.
CHAPTER OBJECTIVES:
How can a company identify its primary competitors and ascertain their strategies, objectives, strengths and weaknesses, and
reaction patterns?
In order to identify primary competitors, the firm must look through all marketing channels within its industry including the
internet. There are four industry structure types: (1) Pure monopoly, (2) Oligopoly, (3) Monopolistic competition, and (4) Pure
competition. Industries differ in regard to their entry, mobility, and exit barriers. Each industry has a cost burden that shapes its
conduct which involves raw materials, production and warehouse space. Some companies try to be full service or value added
companies in that they have a lot of vertical integration. There are also those companies who are local while others are global. The
firm must look for competitors who closely satisfy the same customer need outside their industry.

A strategic group is a group of firms that follow the same strategy in a given target market. An analysis of strategic groups would
determine the upper and lower limit of the entry barriers and vertical integration or the amount of investment in other market
segments required (Fig. 7.3 pg. 128).

The company must then determine its competitor’s objective or what drives each competitor’s behavior. (1) Does the competitor
look for fast profits (US)? Or are they more interested in greater market share with lower profits (Japan). (2) Is the competitor a
division of a larger company (How deep are their pockets for capital projects)? (3) What are the competitors expansion plans? (Try
to beat them to the punch).

When investigating a competitor’s strengths and weaknesses one must determine the company’s resources and capabilities. Each
competitor will occupy one of six competitive positions within the target market: (1) dominant, (2) strong, (3) favorable, (4)
tenable, (5) weak, or (6) nonviable. To gauge strengths and weaknesses a company should monitor share of market, share of mind
and share of heart.

It also helps to know the personality type or reaction pattern of the competitor. The competitor could be (1) a laid-back
competitor,
(2) a selective competitor, (3) a tiger competitor, or (4) a stochastic.

How can a company design a competitive intelligence system?

The four main steps in designing a competitive intelligence system are: (1) setting up the system, (2) collecting the data,
(3) evaluating and analyzing the data, and (4) disseminating information and responding. Smart marketers ask customers how they
view their firm and their competitors. After the customer value analysis, the company can focus its attack on one of the following
classes of competitors: strong vs. weak, close vs. distant, and good vs. bad.

Should a company position itself as market leader, challenger, follower, or niche?

Each company must decide what its current and desired roles are relative to its competitive position within the target market. If the
firm is or has the desire to be the market leader, it must find more users, new uses, and more usage while defending its current
market share. A dominant firm can use six defensive strategies: (1) position defense, (2) flank defense, (3) preemptive defense,
(4) counteroffensive defense, (5) mobile defense, and (6) contraction defense.

Market challenger strategies must be formulated through determining the opponent and defining the objective first before choosing
the general attack strategy. One must exploit its opponent’s weakness. The company can then choose from five attack strategies:
(1) frontal attack, (2) flank attack, (3) encirclement maneuver, (4) bypass, and (5) guerrilla warfare. Specific attack strategies are:
(1) price-discounting, (2) cheaper goods, (3) prestige goods, (4) product proliferation, (5) product innovation, (6) improved services,
(7) distribution innovation, (8) manufacturing cost reduction, and (9) intensive advertising promotion (pg. 137-138).

Market followers often copy or improve upon the leaders product without bearing the expense of the original innovation. There
are four broad strategies for market followers: (1) counterfeiters, (2) cloners, (3) imitator, and (4) adapters.

Some companies choose to be a leader in small markets or niche markets. The small firm avoids competing with the large
competitor by developing business that is of no interest to the larger company. Therefore, the nicher is able to charge more for his
goods or services.

How can a company balance a customer-versus-competitor orientation?

A competitor-centered company is more interested in what the competitor is doing in terms of increasing distribution, cutting
prices, and introducing more services.
A customer-centered company focuses more on the wants and needs of the customer. These companies are especially interested in
servicing the customer. The customer centered company is in a better position to identify new opportunities.