Competition
Industry Concept of Competition
Monopoly
- Only one firm provides the product/service
- Very few (if any) partial substitutes
Oligopoly
- Small number of firms:
o produce identical products and sell at comparable price
o differentiated products and sell at premium
Monopolistic Competition
- Many competitors produce differentiated products
- Go after different segments
- Charge a premium
Pure Competition
- Many competitors offer the same/identical product
- No basis of differentiation
- Charge same price
Michael Porter and Competition
1) Internet Rivalry
2) Threat of New Entrants
3) Threat of Substitutes
4) Bargaining Power of Buyers
5) Bargaining Power of Suppliers
Red Oceans Strategy
Analysing Existing and Potential Competitors:
Step 1: Identifying Competitors
Step 2: Targeting Competitors
Step 3: Assessing Competitors (Competitors Behaviour/Own Behaviour)
Identifying Competitors Through Factors Like:
Form/Category/Generic/Budget
Substitutability
Similarity/Consideration sets/Substitution by use/Opportunity cost
Switching/Cross-elasticity
Targeting Competitors:
Factors to Consider:
Own and Competitor Strategies + Resources
Customer Segment
Time Horizon
Rate of Technology Change
Assessing Competitors:
Know your competitor’s:
- Strategies
- Objectives
- Strengths
- Weaknesses
- Current position and strategy
o Market share and sales
o Target market and positioning
o Marketing mix
o Manufacturing and R&D
o Financial strength (profitability, liquidity, financial position, etc.)
- Future goals
o Product portfolio
o Share/profit goals
o Product differentiation/Cost Leadership
- Abilities
o Designing new products
o Manufacturing
o Market research/marketing
o Financing products
o Managing resources
- Share of Market (value and volume)
- Share of Mind* (awareness)
- Share of Heart* (preference)
** Gains in mind and heart share will lead to gains in market share: awareness and then
preference (brand loyalty)
How to find this information?
- Annual reports, SEC filings
- Press quotes, announcements, speeches
- Talk to external stakeholders (customers, distributors, suppliers)
- Observations
Reaction Patterns
Laid Back Competitor: slow to respond – do not notice, lack funds, own loyal customers
(bureaucratic)
Selective Competitor: responds to specific attacks only (price cuts, but not to advertisements)
Tiger Competitor: react swiftly and strongly to all competition
Stochastic Competitor: unpredictable trends/patterns (small businesses based on affordability)
Classification of Firms
Market Leader
-
Expanding market
Protect current market share
Increase market share
Expanding the Market
Find new users (market penetration, geographical representation)
Find new uses (for same product)
More usage (per occasion)
Protecting Market Share
Plug any holes
Build on strengths
Pre-emptive attacks against competitors
Continuously innovating
Expanding Market Share
New products
Improved product/service quality
Increasing marketing/promotional expenditure
Market Challenger
-
Aim to increase market share
They attack:
o Market leader: risk-reward play, usually if leader isn’t serving the market well
o Firms their own size: not doing job well, under financed, poor products
o Small players: gobble up local competition (eat up)
Strategies:
Market Follower
Follow rather than challenge market leader
Product imitation (no product innovation)
Offers advantages in financing, services, location, no retaliation
Low differentiation
High stability (shown by market shares)
Capital intensive, homogenous product industries
Strategies:
Market Nicher
Target small markets/niches, no interest in competing with larger firms
Large share of small markets, meets customer needs the best way
High value products, charge premium prices, high profitability
SPECIALISATION:
- Customer
- Product
- Other
Blue Oceans Strategy
Don’t just compete for a share in the market, increase the size of the market
Examples: Tesla, Uber, Cirque du Soleil
Cirque du Soleil
Problem:
Market for circus declining
Costs increasing (animals/star performances)
Animal cruelty (public opinion/views changing public tastes and preferences)
Limited demand (kids forget easily, prices of tickets high)
Solution:
Transform it into a show
Target a greater audience (family, not just kids)
Increase prices
Reduce costs (get rid of animals/stars)
Blue Oceans Strategy: focus on needs rather than technology, new ways of satisfying existing
needs, blending multiple needs