Designing Competitor Strategies
A company's competitive environment obviously is a major influence on its marketing programs. Skillful marketing executives constantly monitor all aspects of competitors marketing activities their products, pricing, distribution systems and promotional programs.
Managers must gain insight into the competitive arena by classifying firms by the role they play in the target market that of leader, challenger, follower, or nicher.
Marketing strategies are highly dependant on whether the company is a market leader, challenger, follower, or nicher. A market leader has the largest market share in the relevant product market. A market challenger attacks the market leader and other competitors in an aggressive bid for more market share. A market follower is a runner up firm (behind the market leader) that is willing to maintain its market share. A market nicher is a firm that serves small market segments net being served by larger firm.
To maintain its position in the market, the business must define and analyze its competitors through designing the competitive intelligence system to keep track of their marketing activities in order to design the appropriate competitor strategy.
6.2 Competitor Analysis
A Company's competitive environment obviously is a Major influence on its marketing programs. Skillful marketing executives constantly monitor all aspects of competitors marketing activities –their products, pricing, distribution systems, and promotional programs.
6.2.1 Identifying and Evaluating Competitions' Strength and Weakness
By this stage it should be apparent that the identification and evaluation of competitors strengths and weakness is at the very heart of a well-developed competitive strategy. The marketing strategist should as a first step. Therefore concentrate upon collecting information under a number of headings as a prelude to a full comparative assessment. These include:
- Market share
- Cash flow
- Return on investment
- Investment patterns
- Production process
- Levels of capacity utilization
- Organizational culture
- Products and the products portfolio
- Product quality
- The size and pattern of the customer base
- The levels of brand loyalty
- Dealers and distribution channels
- Marketing and selling capabilities
- Operation and physical distribution
- Financial capabilities
- Management capabilities and attitudes to risk
- Human resources, their capability and flexibility.
The sources of this information will obviously vary from industry to industry, but will include most frequently the sales force, trade show, industry experts, the trade press, distributors, suppliers and perhaps most importantly customers.
6.2.2 Competitor Analysis
All organization operates in a competitive environment. There may not be always head-on competition in the strict sense of an industry in which there are different companies offering similar products or services to the same market segments. Competitors take different forms.
- Direct competitors
These competitors are producing identical products with that of the organization. These are the competitors with whom head on is specific market segments
- Indirect competitors
These are the competing sideways. That is, their products or service may be an alternatives option for those customers who decide not to buy the type of product or service, which you and your competitor offer.
- Potential Competitors
These are the competitors whose future actions could have an impact upon what you provide to whom.
126.96.36.199 Forms of Competition
The competitions may take different forms. Even the level of competition also vary from simplest to the complex. However, the following are some of the forms of competition.
- Simple competition:
This form of competition may occur when two or more organizations striving is parallel for the same goal. (Customer – centered competition)
- Conflict: -
These forms of competition may occur when firms are focus more on competitor – centered than customer – centered. The goal is to destroy or defeat the competition.
- Co – existence: -
Organizations Co – exist alongside each other, either allowing each other their respective market deliberately each other their respective market deliberately, or competing but not realizing that they are.
- Co – operations: -
This embraces a range of joint – activities, such as, joint ventures, forming an industry lobby, sub contracting to each other, sharing resources.
- Collusion: -
This form of competition arises when two or more firms pursue a conflict strategy against a third party (supplies, competitor even the customer).
What to analyze?
Once you have identified who to include in your analysis, the next stage to establish what to analysis. The objective of a competitor analysis is to develop a profile of the nature of competitive strategy. This profile requires information on competitions.
- Goals: -
A useful initial assumption is that competitions strive to maximize their profits. However, companies differ in the weights they put on short – term versos long-term profits. Furthermore, more companies orient their around “satisfying” rather than maximizing they set target profit goals and are satisfied when they achieve they, even if they could have produced more profits unit other strategies or more effort.
- Current strategies: -
The next step is to arise the current mention strategies the competitions is pursing, as suggested by its marketing mix.
- Belief: -
The next guess is to averse what strategic changes and respires that competitor might make, which may hinge upon what beliefs they hold about themselves, the industry and their competitions.
- Capabilities: -
The next is to know what strategic changes and responses are possible and achievable by competitions.
188.8.131.52 The Value Chain
The value chair is a way of on covering the relative strengths and weaknesses of both your competitions and your own organization. By breaking down each stages and components of operations, one can averse where competitive advantage applies. The analysis is based upon the primary as well as the supporting activities.
6.3 Designing a competitive intelligence system
Information describing competitors must be collected, interpreted, distributed, and used.
The competitive intelligence system is a system, which first identifies the important types of competitive information and the best sources of their information.
Then, the system continuously collects information from sales forces, channels, suppliers, market research firms, government publications, speeches, articles etc.
Next the system checks the information for validity and reliability, interprets it, and organizes it in an appropriate way. Finally, it sends key information to relevant decision makers and responds inquiries from managers about competitors.
6.4 Designing Competitor strategies
For market leader, challengers, followers & nichers
6.4.1 Market Leader Strategies
Many firms/industries contain one firm that is the acknowledged one - market leader. This firm has the largest market share in the relevant product market. It usually leads the other firms in price changes, new product introductions, distribution coverage, & promotional intensity.
Some of the best-known market leaders are KODAK (Photography), Microsoft (Computer software), XEROX (copying) ,Proctler and Gambler ( Consumer Packaged goods ) , Caterpillar (Earth Moving equipment ) .etc
Unless a dominant firm enjoys a legal monopoly, its life is not altogether easy. It must maintain constant vigilance because other firms keep challenging its strengths or trying to take advantage of its weaknesses.
- The market leader can easily miss a turn in the road to plunge in to second or third place
A product innovation may come along & hurt the leader
The leader might spend conservatively, expecting hard times, while a challenger spends liberally.
The leader might misjudge its competitors & finds itself left behind
The dominant firm might look old fashioned against new & peppier rivals
The dominant firm’s costs might rise excessively & hurt its profits
Dominant firms want to remain number one. This calls for action on three fronts:
First, the firm must find ways to expand total market demand. Second, the firm must defend its current share through good defensive & offensive actions. And third, the firm can try to increase its market share further even if may the size Remains constant.
i. Expanding the Total Market Share
The dominant firm normally gains the most when the total market expands. The leading firm gains the most when the total market expands. In general, the market leader should look for new users, new uses & more usage of its product
New users: every product class has the potential of attracting buyers who are unaware of the product or who are resisting it because of its price of lack of certain features.
A Company can search for new users among three groups: Those who might use it but do not (market penetration strategy) ; Those who have never used it (new market segment strategy);Or those who live elsewhere (Geographic expansion strategy )
New uses: markets can be expanded through discovering & promoting new uses for the product. For example, the average American eats dry breakfast cereal three mornings a week. Cereal manufacturers would gain if they could promote cereal eating’s on other occasions-perhaps a week.
In many cases, customers deserve credit for discovering new uses. Over the years, users have reported many new uses for the product including a skin ointment, a healing agent, and a hair -dressing
More usage: A third market expansion strategy is to convince people to use more of the product per use occasion. Shampoo manufacturers convince consumers to use more Shampoo by printing the direction “ lather, rinse and repeat “ on every bottle when no one really knows. If there is any benefit to washing once hair twice!
ii. Defending market share: (protecting market share)
While trying to expand total market size, the dominant firm must continuously defend its current business against rival attacks. The leader is like a large elephant being attacked by a swarm of bees. The most constructive response is continuous innovation. The leader leads the industry in developing new product and customer services, distribution effectiveness, and cost cutting. It keeps increasing its competitive strength and value to the customers. A dominant firm can use the six defensive strategies, as illustrated below.
i) Position Defense
The basic defense is to build an impregnable fortification around owns territory. Coca Cola, today, in spite of selling nearly half the soft drinks of the world, has acquired first drink companies and diversified into desalinization equipment and plastics. Although defense is important leader under attack would be foolish to put all their resources into only building fortifications around their current product.
ii) Flank Defense
The market leader should also erect outposts to protect a weak front or possibly serve as an invasion base for counter attack. Here is a good example of a plant defense. The Japanese auto manufacturers successfully entered into the small car market business because USA automakers left a gaping hold in the sub market. Using a flank defense, the company carefully checks its flanks and protects the weaker ones. In contrast, the leader can launch a more aggressive preemptive defense.
iii) Preemptive Defense
A major aggressive maneuver is to attack before the enemy starts its offense. A company can launch a preemptive defense in several ways. It can wage guerilla action across the market – hutting are competitor here, another there – and keep evengue of balance. A major pharmaceutical firm might leak news that it may cut its drug price to discourage a competitor from entering the market. Market leaders with strong resources may even choose to entice opponents into costly attacks.
iv) Counter offensive Defense
Most market leaders, when attacked, will respond with a counter attack. The leader cannot remain with a counter attack. The leader cannot remain passive in the face of a competitor's price cut, promotion blitz, product improvement, or sales - ternary invasion. In a counter offensive, the leader can meet the attacker frontally or hit his flank or launch a pricier movement.
An effective counterattack is to invade the attackers main territory so that it will have to pull back more troops to defend the territory.
v) Mobile Defense
In mobile defense, the leader stretches its domain over new territories that can serve as future centers for defense and offense. It spreads through market broadening and market diversification.
Market broadening involves the company in shifting its focus from the current product to the underlying generic need.
Market diversification into unrelated industries in the other alternative. When US tobacco companies like Reynolds and Philip Morris acknowledged the growing curbs on cigarette smoking, they were not content with position defense, or even with looking for substitutes for the cigarettes. Instead they move quickly into new industries, such as beer, liquor, soft drinks and frozen foods.
vi) Contraction Defense
Large companies sometimes recognize that they can no longer defend all their territory. The best course of action that appears to planned contraction (also called strategic withdrawal). Planned contraction means giving up weaker territories and reassigning resources to stronger territories. A planned counteraction is a move to consolidate one’s competitive strength in the market & concentrate mass at pivotal positions.
iii. Expanding Market Share:
Market leaders can improve their profitability. Further through increasing their market share. In many markets, small market share increases means very large sales increases.
Studies have shown that, an average, profitability rises with increasing market share because of these finds, many companies have sought expanded market shares to improve profitability.
6.4.2 Market Challenger Strategy
Firms that occupy second, third and lower ranks in an industry are often called runner-up, or trailing firms. These runner-up firms can adapt one of two postures.
- They can attack the leader & other competitors in an aggressive bid for further market share (market challengers) or
- They can play ball & not “rock the boat” (market followers)
There are many cases of market challengers that gained ground on the market leader or even overtook the leader. E.g Toyota today produce more Cars than General Motors, and British airways flies more passengers flights than the former leader, Pan am
These challengers set high aspirations & leveraged their smaller resources while the market leaders ran their business as usual. We will now examine the Competitive attack strategies available to the market challengers.
Defining the strategic objective & opponent(s)
A market challenger must first define its strategic objective. Most market challengers’ strategic objective is to increase their market shares. The challenger must decide whom to attack
It can attack the market leader: this is a high risk but potentially high-pay-off strategy & makes good sense if the leader is a “false leader” who is not serving the market well.
The alternative strategy is to out-innovate the leader across the whole segment.
It can attack firms of its own size that aren’t doing the job & are under financed: These firms have aging products, are charging excessive prices, or aren’t satisfying customers in other ways.
It can attack small local & regional firms. Several major beer companies grew to their present size by gobbling up smaller firms or “guppies “if the attacking company goes after the market leader, its objective might be to wrest a certain share. If the attacking company goes after a small local company, its objective might be to drive that company out of existence.
Choosing a General Attack Strategy
Given clear opponents & objectives, what attack options are available? We can distinguish among five attack strategies: Frontal, Flank, Encirclement, Bypass, and Guerilla attacks
1. Frontal attack / Full Frontal Attack
In a pre frontal attack, the attacker matches its opponents product; advertising, price and distribution. The principle of force says that the side with the greater man power (resources) will win.
A modified frontal attack, such as entering price vis-à-vis the opponents, can work if the market leader does not retaliate and if the competitor convinces the market that its product is equal to the leader's.
In a full frontal attack, the challenger matches the competitor’s product, advertising, price & distribution efforts. It attacks the competitor’s strengths rather than its weaknesses. The outcome depends on who has the greater strength & endurance. If the market challenger has fewer resources than the competitor, a frontal attack makes little sense. Even great size & strength mayn’t be enough to challenge a firmly entrenched, resourceful competitor successfully.
2. Flank Attack
A flank attack can be directed along two strategic dimensions – geographical and segmental. In a geographic attack, the challenger spots areas where the opponents is under performing.
For example, some of IBM's rivals, such as Honeywell, choose to set up strong sales branches in medium and smaller – size cities that were relatively neglected by IBM. The other flanking strategy is to serve uncovered market needs.
A flanking strategy is another name for identifying shifts in market segments that are causing gaps to develop, then rushing into fill gaps and develop them into strong segments. Flanking is in the best tradition of modern marketing, which holds that the purpose of marketing is to discover needs and satisfy them. Flank attacks make excellent marketing sense and are particularly attractive to a challenger with fewer resources than its opponents. Plank attacks are much likely to be successful than frontal attack.
3. An Encirclement Attack
The encirclement maneuver is an attempt to capture a wide slice of the enemy's territory through a "blitz". It involves a launching a grand offensive on several fronts. Encirclement makes sense when the challenger commands superior resources and believes shift encirclement will break the opponent's will.
4. A Big Pass Attack/By Pass Attack
The most indirect assault strategy is the bypass. It means bypassing the enemy and attacking easier markets to broaden one's resource base. This strategy offers three lines of approaches diversifying into unrelated products, diversifying into new geographical markets, and leap frogging into new technologies to supplant existing products.
5. Guerrilla Attacks
Guerilla warfare consists of waging small, intermittent attack to harass and demoralize the opponents and eventually secure permanent footholds. The guerilla challenger uses both conventional and unconventional means of attack. These include selective price cuts, intense promotional blitzes, and occasional legal actions. Here is an example of a very successful guerilla strategy.
Normally, a small firm against a larger one practices guerilla warfare. The smaller firm launches a barrage of short promotional and price attacks in random corners of the larger opponent's market in a manner calculated to weaken the opponent's market power gradually.
A guerilla campaign can be expensive, although admittedly less expensive than a frontal, encirclement, or frontal attack. Guerilla was is more a preparation fro war than a war itself.
- Choosing a Specific Attack Strategy
The challenger must go beyond the five broad strategies and develop more specific strategies:
- Price discount: The challenger can offer a comparable product at a lower price. This is the strategy of discount retailers. Three conditions must be fulfilled. First, the challenger must convince buyers that its product and service are comparable to the leader's. Second, buyers must be price – sensitive. Third, the market leader must refuse to cut its price in spite of the competitor's attack.
- Cheaper goods: The challenger can offer an average or low-quality product at a much lower price.
Prestige goods: A market challenger can launch a higher quality product and charge a higher price than the leader. Mercedes gained a Cadillac in the US market by offering a car of higher quality at a higher price.
Product proliferation: The challenger can attack the leader by launching a larger product variety thus giving buyers more choice.
Product innovation: The challenger can peruse product innovation. 3M typically enters new market by introducing a product improvement or breakthrough.
Improved service: The challenger can offer new or better services to customers. The challenger will do so based upon promising and delivering super products and faster service that its competitors do.
Distribution innovation: A challenger might develop a new channel of distribution. Avon became a major cosmetics company by perfecting door to door selling instead of battling other cosmetic firm in conventional stores.
Manufacturing cost reduction: The challenger might achieve lower manufacturing costs than its competitors through more effective purchasing, lower labor costs, and / or more modern production equipment.
Intensive advertising promotion: some challengers attack the leader by increasing expenditures on advertising and promotion, substantial promotion spending, however, is usually not a sensible strategy unless the challenge is product or advertising message is superior.
6.4.3 Market Follower Strategies
Many companies prefer to follow rather than challenge the market leader; patterns of "Conscious Parallelism" are common in capital – intensive homogeneous product industries, such as steel, fertilizers, and chemicals. The opportunities for product differentiation and image differentiation are low. Service quality is often comparable. And price sensitivity runs high. Price wars can erupt at any time. The mood in these industries is against short-run grabs for market share because that strategy only provokes relation. Most firms decide against stealing are another's customers. Instead, they present similar offers to buyers, usually be copying the leader. Market shares show a high stability.
This is not to say that market followers lack strategies. A market follower must know how to hold current customers and win a fair share of new customers. Each follower tries to bring distinctive advantages to its target market location, services, financing; and because the follower is often a major target of attacks by challengers, it must keep its manufacturing costs low and its product quality and services high. It must also enter new market as they open up. The follower has to define a growth path, but is that does not invite competitive retaliation. Four broad strategies can be distinguished.
6.4.4 Market Nicher Strategies
Yet cultivating a niche is only one facet of these companies' success. Thechnol's ultimate success in market niching can be attributed to its ability to pick its fight carefully (surgical masks are small potatoes to Johnson and Jonson and 3M); keep costs down by developing and producing its product in house innovative constantly by bringing out a dozen new products a year and acquire smaller rivals to help stretch and expand its product offering.
Increasingly, even larger firms are setting up business units, or companies to serve niches. Thus, firms with low shares of the total market can be highly profitable through smart niching. Pricing carries a major risk in that the market niche might dry up or be attacked. The company is then stuck with highly specialized resources that may not have high value alternative uses.
To prepare an effective marketing strategies a company must study its competitors as well as its actual and potential customers, companies need to identify competitors strategies, objectives strengths, weaknesses, and reaction patterns. They also need to know how to design an effective competitive intelligence system – which competitors to attack and which to avoid.
A company's closest competitors are those seeking to satisfy the same customers and needs and making similar offers. A company should also pay attention to latent competitors, who may offer new or other ways to satisfy the same needs. The company should identify competitors by using both industry and market based analysis.
Managers should be able to receive timely information about competitors. With good competitive intelligence, managers can more easily formulate their strategies.
Managers need to conduct a customer value analysis to reveal the company's strength and weaknesses relative to competitors. The aim of this analysis is to determine the benefits that customers want and how they perceive the relative value of competitors' offers.