Analysis of Competition Dealing with the Competition Why to analyze competitors? • Knowing the competitors is critical to effective marketing planning • A company must constantly compare its products, prices, places and promotion with those of its competitors • In this way, it can identify areas of competitive advantage and disadvantage • The company can launch more precise attacks on its competitors as well as prepare stronger defenses against attacks • Sometimes competitor can become a partner BASIC QUESTIONS • 1. Who are our competitors? + who are not our competitors yet but they can be? (why they are not competing now?) • 2. What are their objectives? • 3. What are their strategies? „4 Ps“ • 4. What are their strengths and weaknesses? Analyze competitors’ ability to: – Conceive and design new products – Produce the product or deliver the service – Market their products – Finance – Manage • 5. What are their reaction patterns? Michael Porter model of 5 competitive forces Rivalry Between Established Competitors The extent to which industry profitability is depressed by aggressive price competition depends upon: • Concentration (number and size distribution of firms) • Diversity of competitors (differences in goals, cost structure, etc.) • Product differentiation • Excess capacity and exit barriers • Cost conditions – Extent of scale economies – Ratio of fixed to variable costs Identifying competitors • Market concept of competition (WIDER VIEW) • Industry concept of competition – Industry = set of sellers and degree of differentiation • Pure monopoly • Oligopoly – Pure oligopoly – Differentiated oligopoly • Monopolistic competition • Pure competition • Pure monopoly • Only one firm offers an undifferentiated product or service in an area – Unregulated – Regulated • Example: Most utility companies Differentiated oligopoly • A few firms produce partially differentiated items • Differentiation is by key attributes • Premium price may be charged • Example: Luxury autos • Pure oligopoly • A few firms produce essentially identical commodities and little differentiation exists • Lower costs are the key to higher profits • Example: oil • Monopolistic Competition • Many firms differentiate items in whole or part • Appropriate market segmentation is key to success • Example: beer, restaurants • Pure competition • Many competitors offer the same product • Price is the same due to lack of differentiation • Example: farmers selling milk, coal, wood… Identifying and analyzing competitors – Entry, Mobility, Exit Barriers • Entry barriers • Mobility barriers • Exit barriers – Cost Structure – Degree of Vertical Integration • Vertical integration – Degree of Globalization • 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 Other ways of Identifying Competitors – Supply-based approaches • Classify competitors based on objective attributes. – Demand-based approaches • Classify competitors based on customer attitudes and behaviors. – The Product-Industry Hierarchy identifies four levels of competition. Demand-Based Methods – from the customer’s perspective. • Product form competition: narrowest form, includes products of the same product type. • Product class/category competition: products with similar features that provide the same basic function. • Generic competition: products that fulfill same basic need. • Budget competition: products that compete for the same discretionary budget dollars. other view: levels of competition • Four-level model of competition implies different tasks for each competitive level: – Product form competition: aim marketing activities at direct competitors. – Product class/category competition: convince customers that your product form is best in the category. – Generic competition: convince consumers of the superiority of your product category’s ability to satisfy needs over other categories. – Budget competition: same challenge as with generic competition. Identifying key success factors Pre-requisites for success Analyzing competitors • Strengths and Weaknesses – Dominant – Strong – Favorable – Tenable „sustainable“ – Weak – Nonviable Analyzing competitors Three ways or variables to monitor when analyzing competitors: • Share of market • Share of mind The percentage of customers who named the competitor in responding to the statement “Name the first company that comes to mind in this industry” • Share of heart The percentage of customers who named the competitor in responding to the statement “Name the company from whom you would prefer to buy the product” • http://www.vidarena.com/coca-cola-vs-pepsi-video_599_1_vidEMo6o0BtFG8.html#video1 Assessing Competitive Positions: Strategic Groups • A Strategic Group consists of those rival firms with similar competitive approaches and positions in an industry • A Strategic Group displays different competitive positions that rival firms occupy • Organizations in the same strategic group have one or more competitive characteristics in common – Sell in the same price/quality range – Cover same geographic areas – Be vertically integrated to same degree – Emphasize same types of distribution channels – Offer buyers similar services – Use identical technological approaches Strategic groups • Groups of firms that pursue similar strategies with similar resources Balancing customer and competitor orientations Designing Competitive Strategies MARKET LEADER • Expanding the total market • Defending market share • Expanding market share MARKET CHALLENGER • First define the strategic goals and opponent(s) • Choose general attack strategy • Choose specific attack strategy MARKET LEADER 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 Defending market share • Position defense • Flank (side) defense • Preemptive (preventive) defense • Counteroffensive defense • Mobile defense • Contraction defense Expanding Market Share • Develop and add more new products to the line • Increase the product quality relative to competitors • Increase the marketing expenditures faster the rate of market growth to achieve share gains • Avoid price cut, but offer other values to the customers Defending Market Share MARKET CHALLENGER General attack atrategies: – 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 Specific attack strategies include: • Price-discount • Lower-price goods • Prestige goods • Improved services • Product proliferation • Product innovation • Distribution innovation • Manufacturing cost reduction Strategies for Market Challenger MARKET FOLLOWER • Imitation may be more profitable than innovation • Four broad strategies: – Counterfeiter – Cloner – Imitator – Adapter MARKET NICHER • Niche specialties: – End-user – Vertical-level – Customer-size – Specific customer – Geographic – Product/product line – Product feature – Job-shop – Quality-price – Service – Channel