MGT301 - Principles of Marketing - Lecture Handout 40

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Lesson overview and learning objectives:

Basic learning objective of today’s Lesson is to discuss the need to understand competitors as well as customers through competitor analysis. Explain the fundamentals of competitive marketing strategies based on creating value for customers. Two key trends in marketing for the twenty-first century are:

  1. The trend towards the use of relationship marketing to improve customer satisfaction.
  2. The trend towards in-depth competitor analysis as a means of identifying the company’s major competitors (using both an industry and market-based analysis) and closely examining and formulating strategies to deal with competitors’ objectives, strategies, strengths and weaknesses, and reaction patterns.

CREATING COMPETITIVE ADVANTAGE

To be successful, a company must consider its competitors as well as its actual and potential customers. In the process of performing a competitor analysis, the company carefully analyzes and gathers information on competitors’ strategies and programs. A competitive intelligence system helps the company to acquire and manage competitive information. The company must then choose a competitive marketing strategy of its own. The strategy chosen depends on the company’s industry position and its objectives, opportunities, and resources. Several basic competitive strategies are outlined in this chapter. Some of these are time-tested and some are relatively new.
Four primary competitive positions are reviewed in the Lesson.
The first is that of the market leader which faces three challenges: expanding the total market, protecting market share, and expanding market share. The market leader is interested in finding ways to expand the total market because it will benefit from any increased sales. The leader must also have an eye towards protecting its share. Several strategies for accomplishing this protection task are presented. Aggressive leaders also try to expand their own market share.
The second position is that of the market challenger. This is a firm that aggressively tries to expand its market share by attacking the leader, other runner-up firms, or smaller firms in the industry.
The third position is that of the market follower which is designated as a runner-up firm that chooses not to rock the boat (usually out of fear that it stands to lose more than it might gain). Lastly, the market niche is a position option open to smaller firms that serve some part of the market that is not likely to attract the attention of the larger firms. These firms often survive by being specialists in some function that is attractive to the marketplace.
The competitive analysis of these four competitive position options presented in this chapter is a truly unique presentation and offers insight for every potential manager. This information can be used by every mid-level strategic planner who seeks insight into competitive strategy dynamics.

A. Competitive Advantage:

Today’s companies face their toughest competition ever. To win in today’s marketplace, companies must become adept not just in managing products, but in managing customer relationships in the face of determined competition. Building profitable customer relationships and gaining competitive advantage requires delivering more value and satisfaction to target customers than competitors do. Two steps must be taken in order to deal effectively with competitors and their strategies:

  1. the first step is competitor analysis where the company goes through the process of identifying, assessing, and selecting key competitors.
  2. the second step is competitive marketing strategies where the company strongly positions itself against competitors and finds a way to give itself the greatest possible competitive advantage.

a. Competitor Analysis

To plan effective marketing strategies, the company needs to find out all it can about its competitors. In this way the company can find the areas of potential competitive advantage and disadvantage.

i. Identifying Competitors

Competitors include those who make similar products and services and sell them to the same customers at similar prices. Competitors can be:

  1. those that make the same product or class of products.
  2. those that supply the same services.
  3. those that compete for the same consumer dollars.

Companies must avoid “competitive myopia” (seeing only one set of competitors). Companies can identify their competitors from the industry point of view or the market point of view. One approach is to profile the company’s direct and indirect competitors by mapping the steps buyers take in obtaining and using the product (i.e., a competitor map).

ii. Assessing Competitors

It is important to determine the objectives of the competition. It is important to determine the importance a competitor places on:

  1. Current profitability.
  2. Market share growth.
  3. Cash flow.
  4. Technological leadership.
  5. Service leadership.
  6. other goals.

The more that one firm’s strategy resembles another firm’s strategy, the more the two firms compete. Strategic groups should be identified. A strategic group is a group of firms in an industry following the same or similar strategy in a given target market.

  1. There is often rivalry among groups.
  2. All dimensions must be examined to identify the correct strategic group.

Assessment of strengths and weaknesses should be accomplished. Benchmarking is the process of comparing the company’s products and processes to those of competitors or leading firms in other industries to find ways to improve quality and performance. A company also wants to know what a competitor will do in a certain situation. Each competitor normally reacts differently.

iii. Selecting Competitors to Attack and Avoid

It is very important that a company have an idea of how to select competitors to attack and avoid. Strong or weak competitors may be attacked. Weak competitors are easier targets but less profitable. Succeeding against stronger competitors often provides greater returns. A useful tool for assessing competitor strengths and weaknesses is customer value analysis. The aim of customer value analysis is to determine the benefits that target customer’s value and how customers rate the relative value of various competitors’ offers.
Steps in conducting customer value analysis include:

  • Identify the major attributes that customer’s value and the importance customers place on these attributes.
  • Assess the company’s and competitors’ performance on the valued attributes.

Close or distant competitors may be targeted. A company really needs and benefits from competitors.
Benefits of competition include:

  • Competitors may help to increase total demand.
  • They may share the costs of market and product development and help to legitimize new technologies.
  • They may serve less-attractive segments or lead to more product differentiation.
  • They lower the antitrust risk and improve bargaining power versus labor or regulators.

A company may not view all competitors as beneficial. “Good” or “bad” competitors also provide opportunities and different threats. Good competitors play by the rules of the industry while bad competitors break the rules.

b. Designing a Competitive Intelligence System

The company must design a broad competitive strategy by which to gain competitive advantage. No one strategy, however, is best for all companies. The competitive intelligence system does the following:

  • Identifies the vital types of competitive information and the best sources of this information.
  • The system continuously collects information from the field and from published data.
  • The system checks the information for validity and reliability, interprets it, and organizes it in an appropriate way.
  • It sends key information to relevant decision makers and responds to inquiries from managers about competitors.

c. Competitive Strategies

i. Approaches to Marketing Strategy

No one strategy is best for all companies. Companies differ on how they approach the strategy planning process. Approaches to marketing strategy often pass through three stages:

  1. Entrepreneurial marketing—companies started by individuals.
  2. Formulated marketing—as small companies achieve success, they inevitably move toward more formulated marketing (formulated marketing strategies).
  3. Entrepreneurial marketing—companies that became lost and re-established themselves with the entrepreneurial spirit and actions that made them successful in the first place.

ii. Basic Competitive Strategies

Basic competitive positioning winning strategies include (as suggested by Michael Porter):

  1. Overall cost-leadership—cost-leadership is gained by being the lowest-cost producer in the industry. This affords the company flexibility in responding to competitive moves by always being able to offer the lowest price to the consumer. This strategy usually wins the company a large market share.
  2. Differentiation—this strategy creates competitive advantage by offering products with unique customer benefits or features not available from competitive offerings. Here the company concentrates on creating a highly differentiated product line and marketing program so that it comes across as the leader in the industry. This image helps it to compete against lower cost rivals.
  3. Focus—this narrow-focus strategy achieves competitive advantage by concentrating on narrow segments of a larger market. Emphasis is often on quality or benefits in tightly defined market sub segments.

Firms that do not pursue a clear strategy (a losing strategy) are called middle-of-the-readers. According to Porter, these firms do the worst in competitive struggles. Another set of strategies based on what they call value disciplines are:

  1. Operational excellence—the company provides superior value by leading its industry in price and convenience.
  2. Customer intimacy—the company provides superior value by precisely Segmenting its markets and tailoring its products and services to match Exactly the needs of targeted customers.
  3. Product leadership—the company provides superior value by offering a Continuous stream of leading-edge products or services that make their own and competing products obsolete.

iii. Competitive Positions

Firms competing in a given target market, at any point in time, differ in their objectives and resources. These firms might take four different forms:

  1. Market leader—the firm with the largest market share.
  2. Market challenger—the runner-up firm, fighting to overtake the leader.
  3. Market follower—the firm that also has runner-up status but seeks to maintain share and not rock the boat.
  4. Market niche—the firm that serves small segments that the other firms overlook or ignore.

iv. Market Leader Strategies

Market leader strategies—most industries contain an acknowledged market leader. The leader has the largest market share and usually leads the other firms in price changes, new product introductions, distribution coverage, and promotion spending. Competitors focus on the leader as a company to challenge, imitate, or avoid. To remain number one, leading firms may take any of three actions.

  1. Expanding the total demand—the leader gains the most when the market expands.
    • New users can be attracted from those who are still unaware of the product.
    • New uses can be discovered and marketed to increase purchase.
    • More usage strategies aim at convincing buyers to use the product more often and in greater amounts for each existing usage occasion.
  2. Protecting market share.
    • Prevent or fix weaknesses that provide opportunities for competitors.
    • The best defense is a good offense, and the best response is continuous innovation.
    • Increase competitive effectiveness and value to customers.
  3. Expanding market share—sometimes the leaders can expand their relative market share. If this expansion comes in the served market then even small increases in share can lead to large increases in profitability.

v. Market Challenger Strategies

These firms are usually the second, third, or lower in an industry. These runner-up firms can adopt one of two competitive strategies:

  • They can challenge the leader and other competitors in an aggressive bid for more market share (market challengers).
  • They can play along with competitors and not rock the boat (market followers.

A market challenger must first define the strategic objective and competitor. The market challenger must decide from among the following strategies:

  1. Attack the leader.
  2. Avoid the leader.
  3. Attack other firms.
  4. Acquire smaller firms.

Choosing an attack strategy. The options available are:

  1. Frontal attack. Strong challengers sometimes match the market leader’s product, advertising, price, and distribution efforts. It strengths rather than weaknesses.
  2. Indirect attack. Attack competitive weaknesses or on gaps in the competitor’s market coverage.
  3. Diversify into unrelated products or leapfrog into new technologies to replace existing products.

vi. Market Follower Strategies

Market follower strategies—not all runner-up companies want to challenge the market leader. The follower can learn from the leader’s successes and failures and copy or improve on the leader’s product and programs, usually with less investment. This might be called following closely. The follower must also be aware of attacks from challengers. The follower must keep costs low and its product quality and services high, look for new markets as they open. This might be called following at a distance.

vii. Market Niche Strategies

Market niche strategies—mass marketers achieve high volume, the niche achieves high margins. These firms have limited resources. These firms usually know their markets very well. The key idea in nichemanship is specialization. They look for markets that are safe and profitable. The niche can specialize along any of several market, customer, product, or marketing mix lines (Risks are often overcome by multiple nicking).

  1. End-user specialist.
  2. Customer-size specialist.
  3. Specific-customer specialist.
  4. Geographic market specialist.
  5. Quality-price niche.
  6. Service niche.

d. Balancing Customer and Competitor Orientations

Organizations must continually adapt their strategies to fit the fast-paced and ever-changing environment. A competitor-centered company is one that spends most of its time tracking competitors’ moves and market shares and trying to find strategies to counter them.

  1. Advantages include:
    • A fighter orientation.
    • Alertness.
  2. Disadvantages include:
    • the company becomes too reactive.
    • Strategy is built on what others do. Bases goals on what others do.
    • Lessens innovation. It only matches or extends what others does.

Customer-centered company focuses more on customer developments in designing strategies.

  1. in a better position to identify new opportunities and set long-run strategies that make sense.
  2. It can concentrate on serving the needs of important customer groups.

Market-centered companies are ones that watch both their customers and their competition. Companies have moved through four orientations over the years:

  1. Product-oriented—pay little attention to either customers or competitors.
  2. Customer-oriented—started to pay attention to customers.
  3. Competitor-oriented—when they started to pay attention to customers, they became competitor-oriented.
  4. Market-oriented—this advanced form balances attention between customers and competition. This method finds new ways to deliver satisfaction to customers and, therefore, overcomes competition. Find innovative ways to deliver more value than competitors do.

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