Dealing with competition
Assembled by Arsene Kodjo
Dealing with the competition
Industry definition of competition
• Pure competition:- Many competitors offering the same product and
services, almost identical, no control over price and free entry for
competitors. Ex. Printing, laundry
• Monopolistic competition:-Many competitors focus on identifiable
•
segments and provide excellent services at premium prices. Relatively easy
entry and have some control over price. Ex. Restaurant, clothing industry
Oligopoly: Few or few dominant firms providing differentiated or
standardised products or services, difficult to enter and do not compete on
price. Ex. Cement, fertiliser
• Pure monopoly :Only one firm provide a certain product or service in the
country. Ex. Water company, electricity
Dealing with the competition
Market definition of competition- Existing and potential
competitors
• The treat of new entrants- How easy it is for other companies to enter a
market or industry and start operating.
• Power Of Suppliers- how easy it is to do business with your suppliers.
A concentrated industry creates powerful supplying companies.
• The power of buyers- How easy it is to do business with your customers
or buyers . large customers bargain strongly when making a purchase.
• Treat of substitute products or services : A market is unattractive if
there are actual or potential substitutes for the product or service.
• Rivalry among existing competitors: A market is unattractive if it
already contains numerous and aggressive competitors, with few
opportunity to differentiate or increase their market share.
Dealing with the competition
Analysing competitors
Customer
awareness
Competitor
A
Competitor
B
Competitor
C
Product
availability
Product
quality
Technical
assistance
Selling
staff
Dealing with the competition
classes of competitors
• Strong versus weak competitors: A strong competitor
can be a market leader enjoying a high market share, whereas a
weak competitor might be slow in reacting to market changes or
other competitors’ moves in the market.
• Close versus distant competitors: Companies servicing
a market with the same products are close competitors, but
companies servicing a market’s need with substitutes products are
called distant competitors.
• Good versus bad competitors- Good competitors play
by the industry rules but , bad competitors buy market share instead
of earning it through aggressive price cut.
Dealing with the competition
Designing competitive strategies
•
Market leader strategies
1.
Expand total market demand- Find new users, new uses or
encourage frequent purchase
2.
3.
Defending market share: Protect hard-won market share by:
preemptive, counteroffensive, mobile, contraction and flanking
defensive strategies.
Expanding market share: Design new or improved product for
existing or new market.
Dealing with the competition
Designing competitive strategies
Market challenger strategies - Attack market
leader or other competitors
• Frontal attack – matching opponents’ products, advertising
•
•
•
•
budget, price, and distribution
Flank attack- flanking the competitors product
Encirclement attack: attacking the competitor from different fronts
Bypass attack: bypassing the competitor and focus attention on
other areas of possible growth.
Guerrilla warfare: waging intermittent attack on the competitor
through ,price cut, legal battle and so on..
Dealing with the competition
Designing competitive strategies
Market -Follower strategies: Prefer to follow rather than
challenge the market leader .
1. Counterfeiter: Duplicate leader’s product and sell It
2.
3.
4.
in the black market.
Cloner :Emulates leader’s product, name, with slight
variations.
Imitator: Copy some aspect of the product by
maintain differentiation.
Adapter :Adapt the leader’s product and improve
upon it.
Dealing with the competition
Designing competitive strategies
Market-Nicher strategies- specialization on a
small market size.
Ex. End user specialisation
Specific –customer specialist
Dealing with the competition
Responding to price changes
• Maintain price- As the company may lose
too much profits if it reduced price, lose
market share or be able to regain market
share quickly.
• Maintain price and add value
• Reduce price- if it will lose market share,
hard to rebuild market share.
• Increase price and improve quality
• Launch a low-price fighter line.
Dealing with the competition
Strategic option
Reasoning
Consequences
Maintain price and perceived
quality. Engage in selective
Firm has higher customer loyalty.
willing to lose unprofitable
customers
Smaller market share. Lowered
profitability
customer pruning
Raise price and perceived quality
.
Raise price to cover cost
Improve quality to justify higher
prices
Smaller market share. Maintained
profitability
Maintain price and raised
perceived quality
It is cheaper to maintain price and
raise perceived value
Short term decline in-profitability,
long term maintained profitability
Cut price partly, and raise
perceived quality
Must give customers some price
reduction
Log=term maintained profitability,
Maintained market share
Cut price fully and maintain
perceived value
Discipline and discourage price
competition
Maintained market share, shortterm decline in profitability
Cut price fully and reduce
perceived quality
Discourage price competition ,
but maintain profit margin
Maintained market share but
long-term reduction in profitability
Maintain price but reduce
perceived quality
Cut marketing expense to combat
rising cost
Maintained margin, long-term
reduction in profitability
Introduce an economy model
Give the market what it wants
Some cannibaliation but higher
total volume