Chapter # 4

Competition is a contest between individuals, groups,
nations, animals, etc. for territory, a niche, or a location
of resources. It arises whenever two or more parties strive
for a goal which cannot be shared. Competition occurs
naturally between living organisms which co-exist in the
same environment.

For example, animals compete over water supplies, food,
etc. Humans compete for water, food.

Business is often associated with competition as most
companies are in competition with at least one other firm
over the same group of customers.

Building strong brands requires a keen understanding of
competitors.

New competition is coming from all direction.

Global competitors (eager to grow sales in new markets)
e.g., Etisalat is UAE based company. Warid – Royal bank of
Scotland-Barclays Bank.

Online competitors (seeking cost efficient ways to expand
distribution) e.g., TESCO- Marks & Spencer-Dell

Private label and store brands (designed to provide lowprice alternatives. E.g., Thunder cola, mekka cola, super
cola etc
 Michael
Porter has identified five forces
that determine the long run
attractiveness of a market.
 Industry
Competition
 Threat of New Entrants
 Threat of Substitute Product
 Buyer Bargaining Power
 Supplier Bargaining Power.
Threat of
New entry
Suppliers
power
Industry
Competition
Threat of
substitutes
Buyers
power
1- Industry Competition
 An industry is unattractive if it already
contains number of strong or aggressive
competitors.
 Competitive industry lead to frequent price
wars, advertising battles and new product
introduction and it is very expensive to
compete in such industry.
 For example- The cellular phone market.
2- Threat of New Entrants
 The most attractive segment is one in which
entry barriers are high and exit barrier are
low.
 It is not only the competitors that pose a
threat to firms in an industry; the possibility
that new firms may enter the industry also
affects competition.
 For example- Etisalat cellular UAE based
company enter the Afghanistan market as a
new entrant in Telecom Industry.
2- Threat of New Entrants (Cont…)
 Advertising (the incumbent company
spending heavily on advertising that new
firms would find more difficult to afford.
 Customer
loyalty - Large incumbent firms
may have existing customers loyal to
established products. The presence of
established strong brands within a market
can be a barrier to entry in this case.
3- Threat of Substitute Product
 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, prices and profits are likely to fall.
 For Example; Surf excel is a substitute
product of Arial
4- Buyers Bargaining Power
 A segment is unattractive if buyers posses
strong bargaining power.
 Buyers bargaining power are strong when
they are few or they purchase frequently or
suppliers are many.
 Buyers can change suppliers easily.
5- Suppliers/Sellers Bargaining Power
 A segment is unattractive if the company’s
suppliers able to raise prices or reduce
quality supplied.
 Suppliers are strong when there are few
suppliers and many buyers or the buyers
purchases are not frequent.
 Suppliers can change buyers easily.
 The
company should know about its
competitors.




Competitors in an industry are those they are
satisfying the same needs and wants of the
target market/ customers.
E.g., Pepsi co, knows that Coca-Cola is its
competitor
Safeguard knows that Life boy is its competitor
(P&G VS UL)
Procter and Gamble (P&G) knows that Liver
Brother is its competitor.
 There
are many ways to analyze your
competitors and the techniques of
analyzing your competitors changes from
industry to industry.
 Following are some of the very important
techniques to analyze your competitors.
 Competitor's Strategies
 Competitor's Objectives
 Competitor's Strength & Weaknesses
Competitor's Strategies
 Strategy is the scope and direction of the
company over the long term to achieve
advantage through its limited resource in a
challenging environment to fulfill the
requirement of customers.
 In the analysis of competitors the company must
check what sort of strategy its competitors are
using.
 For Example; the product strategy, pricing
strategy, distribution and promotion strategy.
Competitor's Objectives
Once a company has identified its main
competitors and their strategies then you must
know, what is each competitors seeking in the
market place and how.
 The objective can be-maximize profits, sales
growth, market share, technological leadership,
service leadership or a mix of these.

Competitor's Strength and Weaknesses
A company needs to gather information about
each competitor’s strength and weaknesses.
 Compare your company strength and weaknesses
with your competitors strength and weaknesses.
 Following is a good example for the analysis of
your and your competitors strength and
weaknesses.


Example of Strength and Weaknesses
Customer
Awareness
Product
Quality
Product
Availability
Technical
Assistance
Selling
Staff
Competitor-A
excellent
excellent
poor
poor
good
Competitor-B
good
good
excellent
good
excellent
Competitor-C
fair
poor
good
fair
fair
Competitor-A is weak in Distribution and Technical assistance
Competitor-C is Weak in all aspects.
Competitor-B is no weaknesses- can attack on the weak
points of Competitor A and B.
After the company has conducted customer
Analysis and examined and analyze its
competitors carefully, it can focus its attack
on one of the following classes of
competitors.
1. Strong versus weak
2. Close versus distant
3. Good versus Bad
3- Strong versus Weak
 Most companies aim their shots at weak
competitors, because this requires fewer
resources.
 Competitor C in the previous example is
weak competitor comparatively.
2- Close versus Distant.
 Most companies compete with the
competitors that resemble them most.
 For
example; safeguard and Life boy Gold
are close competitors.
 Pepsi and Coca-Cola are closed
Competitors.
 Pepsi and Nestle are distant competitors
3- Good versus Bad
 Every industry contains good and bad
competitors. Good competitors play by the
industry’s rules, they set prices in reasonable
relationship to cost.
 Bad competitors try to buy share rather than
earn it.
Market leader
40% Market Share
Market Challenger
30% Market Share
Market Follower
20% Market Share
Market Niche
10%
 Among
firms in an industry there is a
business firm which is acknowledged as
Market leader.
 The firm which has the largest market share
 Market leader leads other firms in Price
change, New Product Introduction,
distribution and Promotions.
 For
Example; Some well known Market
Leaders are Microsoft, Intel, P&G,
Caterpillar, Gillette etc.
 Business
firms that occupy the second
highest market share in the ranking are
Market challengers
 Pepsi Co, Ford.
 Some of the market challenger has overtaken
the leaders.
 For example Toyota has overtaken General
Motors.
 Price
cut is the most intense reason of
challenging a market leader and maintaining
quality.
 Price reduction is achieved by decreasing the
total fixed cost
 Or may challenge the leader by introducing
Prestige Goods, Price Discounts, Product line,
Innovation, Services, Intensive Distribution,
low Manufacturing Cost and Promotions.
 “Product
imitation might be as profitable as
product innovation”
 Innovator spend heavy cash on developing a
new product, distribute and promote it to
people. But another firm comes copy the
new product and get the rewards of it at the
expense of market leader.
 Market followers are of three kind;
 Counterfeiters
 Cloners
 Imitators
 Counterfeiters:
They copy market leader products and sell it
to customers in black market, e.g. Music
companies, Videos.
 Cloners:
Those companies who copy the name and
packaging with slight variation
 Imitators:
Those companies who copy some part of the
innovation from market leader but maintain
the differentiation e.g. Sony mp3 players and
iPods or Samsung touch phones and iPhones.
 An
alternative to be a follower in large
market is to be a leader in Small Market.
 Small business firms normally avoid
competing with larger firms thus targeting
smaller markets.
 Firms with low share of the total market can
become highly profitable.
 In a study of hundreds of business units, the
Strategic Planning Institute found that the
return on investment averaged 27% in smaller
markets, but only 11% in larger markets.
 Michael
1.
2.
3.
4.
Porters’ competitive Strategies
Cost leadership
Differentiation
Cost Focus
Differentiation Focus
1- Overall Price (Cost) Leadership: appealing to
a broad section of the market by providing
products or services at the lowest price. E.g.,
Costco is the cost leader in retail stores, Hyundai
is the cost leader in automobiles
2- Differentiation: appealing to a broad section of
the market through offering differentiating
features that make customers willing to pay
premium prices, e.g., superior technology,
quality, special features, and service.
3- Price (Cost) Focus: concentrating on a narrow
customer segment and competing with lowest prices,
which, again, requires having lower cost structure
than competitors (e.g., a single, small shop on a sidestreet in a town, in which they will order electronic
equipment at low prices, or the cheapest automobile
made in India by TATA company)
4- Differentiation Focus: concentrating on a narrow
customer segment and competing through
differentiating features (e.g., a high-fashion women's
clothing boutique in Paris, or Ferrari).