Chapter 8 Dealing with the Competition PowerPoint by Karen E. James Louisiana State University - Shreveport ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 0 in Chapter 8 Objectives Understand how a company identifies its primary competitors and ascertains their strategies. Review how companies design competitive intelligence systems. ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 1 in Chapter 8 Objectives Learn how a company decides whether to position itself as a market leader, a challenger, a follower, or a nicher. Identify how a company can balance a customer vs. competitor orientation. ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 2 in Chapter 8 Competitive Markets Porter’s Five Forces that Determine Market Attractiveness: – Threat of intense segment rivalry – Threat of new entrants – Threat of substitute products – Threat of buyers’ growing bargaining power – Threat of suppliers’ growing bargaining power ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 3 in Chapter 8 Competitive Markets Failing to identify competitors can lead to extinction Internet businesses have led to disintermediation of middlemen Competition can be identified using the industry or market approach ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 4 in Chapter 8 Competitive Markets Industries Can Be Classified By: Number of sellers Entry, mobility and exit barriers and degree of differentiation Degree of vertical integration Cost structure Degree of globalization ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 5 in Chapter 8 Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Only one firm offers an undifferentiated product or service in an area – Unregulated – Regulated Example: Most utility companies Pure Competition ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 6 in Chapter 8 Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition A few firms produce essentially identical commodities and little differentiation exists Lower costs are the key to higher profits Example: oil Pure Competition ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 7 in Chapter 8 Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition ©2003 Prentice Hall, Inc. A few firms produce partially differentiated items Differentiation is by key attributes Premium price may be charged Example: Luxury autos To accompany A Framework for Marketing Management, 2nd Edition Slide 8 in Chapter 8 Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Many firms differentiate items in whole or part Differentiated Oligopoly Appropriate market segmentation is key to success Monopolistic Competition Example: beer, restaurants Pure Competition ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 9 in Chapter 8 Competitive Markets Industry Structures Pure Monopoly Pure Oligopoly Many competitors offer the same product Differentiated Oligopoly Price is the same due to lack of differentiation Monopolistic Competition Example: farmers selling milk, crops Pure Competition ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 10 in Chapter 8 Competitive Markets A broader group of competitors will be identified using the market approach Competitor maps plot buying steps in purchasing and using the product, as well as direct and indirect competitors ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 11 in Chapter 8 Competitor Analysis Key characteristics of the competition must be identified: – Strategies – Objectives – Strengths and Weaknesses Effect a firm’s competitive position in the target market – Reaction Patterns ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 12 in Chapter 8 Competitor Analysis Competitive Positions in the Target Market Dominant Tenable Strong Weak Favorable Nonviable ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 13 in Chapter 8 Competitive Intelligence Systems Designing the system involves: – Setting up the system – Collecting the data – Evaluating and analyzing the data – Disseminating information and responding to queries ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 14 in Chapter 8 Competitive Intelligence Systems Value analysis helps firms to select competitors to attack and to avoid – Customers identify and rate attributes important in the purchase decision for the company and competition Attacking strong, close, and bad competitors will be most beneficial ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 15 in Chapter 8 Designing Competitive Strategies Major Strategies Market-Leader MarketChallenger Market-Follower Expanding the total market Defending market share Expanding market share Market-Nicher ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 16 in Chapter 8 Designing Competitive Strategies Expanding the Total Market: – Targeting Product to New Users Market-penetration strategy New-market strategy Geographical-expansion strategy – Promoting New Uses of Product – Encouraging Greater Product Use ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 17 in Chapter 8 Designing Competitive Strategies Defending Market Share Position defense Counteroffensive defense Flank defense Mobile defense Preemptive defense Contraction defense ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 18 in Chapter 8 Designing Competitive Strategies Before Attempting to Expand Market Share, Consider: – Probability of invoking antitrust action – Economic costs involved – Likelihood that marketing mix decisions will increase profits ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 19 in Chapter 8 Designing Competitive Strategies Market-Leader First define the strategic goals and opponent(s) MarketChallenger Choose general attack strategy Market-Follower Choose specific attack strategy Major Strategies Market-Nicher ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 20 in Chapter 8 Designing Competitive Strategies General Attack Strategies: – Frontal attacks match competition – Flank attacks serve unmet market needs or underserved areas – Encirclement “blitzes” opponent – Bypassing opponent and attacking easier markets is also an option ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 21 in Chapter 8 Competitive Markets Specific Attack Strategies Include: Price-discount Lower-price goods Prestige goods Improved services Product proliferation Product innovation Distribution innovation Manufacturing cost reduction Intensive advertising promotion ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 22 in Chapter 8 Designing Competitive Strategies Major Strategies Market-Leader MarketChallenger Market-Follower Market-Nicher ©2003 Prentice Hall, Inc. Imitation may be more profitable than innovation Four broad strategies: – – – – Counterfeiter Cloner Imitator Adapter To accompany A Framework for Marketing Management, 2nd Edition Slide 23 in Chapter 8 Designing Competitive Strategies Major Strategies Market-Leader MarketChallenger Market-Follower Market-Nicher ©2003 Prentice Hall, Inc. Niche specialties: – – – – – – – – – – – End-user Vertical-level Customer-size Specific customer Geographic Product/product line Product feature Job-shop Quality-price Service Channel To accompany A Framework for Marketing Management, 2nd Edition Slide 24 in Chapter 8 Balancing Customer and Competitor Orientations Competitor-centered companies evaluate what competitors are doing, then formulate competitive reactions Customer-centered companies focus on customer developments when formulating strategy ©2003 Prentice Hall, Inc. To accompany A Framework for Marketing Management, 2nd Edition Slide 25 in Chapter 8