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CHAPTER
11
DEALING WITH
COMPETITION
LEARNING OBJECTIVES
After reading this chapter, students should:
Know how market leaders can expand the total market and defend market share
CHAPTER SUMMARY
To prepare an effective marketing strategy, a company must study competitors as
well as actual and potential customers. Companies need to identify competitors
strategies, objectives, strengths, and weaknesses.
A companys closest competitors are those seeking to satisfy 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. A company
should identify competitors by using both industry and market-based analyses.
A market leader has the largest market share in the relevant product market. To
remain dominant, the leader looks for ways to expand total market demand, attempts
to protect its current market share, and perhaps tries to increase its market share.
A market challenger attacks the market leader and other competitors in an aggressive
bid for more market share. Challengers can choose from five types of general attack;
challengers must also choose specific attack strategies.
A market follower is a runner-up firm that is willing to maintain its market share and
not rock the boat. A follower can play the role of counterfeiter, cloner, imitator, or
adapter.
A market nicher serves small market segments not being served by larger firms. The
key to nichemanship is specialization. Nichers develop offerings to fully meet a
certain groups of customers needs, commanding a premium price in the process.
As important as a competitive orientation is in todays global markets, companies
should not overdo the emphasis on competitors. They should maintain a good
balance of consumer and competitor monitoring.
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OPENING THOUGHT
This chapter adds an additional element to the complexity of marketingcompetitive
analysis. Students who are having difficulty just understanding consumers and potential
markets might begin to be overwhelmed when you add to their load the concept of
understanding and predicting competitive responses to marketings responsibility! Care should
be taken not to over dramatize the importance of monitoring competition, however, many
firms do not give competitor reactions the attention it merits so some emphasis is needed in
teaching marketing to students.
A key concept introduced in this chapter is that of market nichera specialist in small markets
underserved by larger corporations. Many large firms today started out as nichers and many
large firms of tomorrow are our nichers today. The concept of nichers and the potential of
growing them into larger firm can be excitingthe reason so many students study marketing!
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development of the Sonic marketing plan, consider the following key issues that will
affect Sonics ability to introduce a new PDA successfully:
Enter your answers in a written marketing plan or enter them into the Competition,
SWOT Analysis, and Critical Issues sections of Marketing Plan Pro.
ASSIGNMENTS
Small Group Assignments
1. Identify the major competitors in the blue jeans market. Who has the leading market
share, whose shares have declined? What segmentation is(has) occurring/occurred in
the blue jeans market and why? Did demographic changes affect the market (from
baby boomers to Gen X or Gen Y)? What competitive signs, symbols, events, or
occurrences did Levi-Strauss miss? What current shifts in competition and channel
power is occurring and what can Levi-Strauss do to minimize the impact from these
changes?
2. The competitor map (Figure 11.2) shows a mapping of competitors for Eastman
Kodaks film business. Choosing an industry of their choice, ask the students to
complete a competitor map for that industry. For instance, what would a competitor
map look like for cell phones, blue jeans, colleges, and universities?
Individual Assignments
1. For a market leader, increased sales must come from expanding the total market
through adding new customers or increasing the usage of the product. Picking a
market leader in an industry (Dell computers for example) explain how your market
leader can expand the total market by adding new customers or increasing the usage
of the product. Be as specific as possible.
2. In the Marketing Memo entitled, Strategies for Entering Markets Held by Incumbent
Firms, the authors outline four strategies for launching a new brand into a market
dominated by one brand. Students are to present examples of brands/firms competing
in each of these strategies. Students should include their rationale for placing the
firm/brand in each of the positions.
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Think-Pair-Share
1. In challenging a market leader, the challenger has a number of differing strategies to
employ. Choosing the right one (or wrong one) could result in a larger market share
and increased profits (or disaster) for the challenger. In choosing a specific attack
strategy, the challenger must go beyond and develop specific strategies of price, lower
price goods, value priced goods and services, and so on. Students should explore
these strategies and come prepared to identify one company (or brand) that has
chosen each of these strategies to implement and to defend their selection(s).
2. Market-nichers avoid large markets and try to be the leader in a small market or
niche. Nichers have three tasks: creating niches, expanding niches, and protecting
niches. Multiple niching is preferable to single niching. Students should identify three
nichers (firms and/or brands) and explain why they have identified these as
nichers based upon the criteria in the chapter.
END-OF-CHAPTER SUPPORT
MARKETING DEBATEHow Do You Attack a Category Leader?
Attacking a leader is always difficult. Some strategists recommend attacking a leader headon by targeting its strengths. Other strategists disagree and recommend flanking and
attempting to avoid the leaders strengths.
Take a position: The best way to challenge a leader is to attack its strengths versus the best
way to attack a leader is to avoid a head-on assault and to adopt a flanking strategy.
Pro: What are some of the strengths of a market leader? A market leader as defined here,
generally, has the largest market share in the relevant product, market, usually leads the other
firms in price changes, new-product introductions, distribution coverage, and promotional
intensity. Market leaders may also have products that generally hold a distinctive position in
consumers minds. These strengths and competitive advantages can be formable when used by
a savvy and seasoned firm. Trying to attack the leader on its strengths requires point-ofdifferences in brands, sophisticated marketing positioning, and deep pockets for the
challenger.
The underling strategy for performing a head on attack to a market leader is: If the attacking
firm sees that the market leader is not serving the market well; that the attacker has out77
innovated the market leader through product innovations or other differentials; or if the market
leader is conservatively spending or is milking the market.
Con: A flanker attack can be directed along two strategic directionsgeographic and
segmental. In a geographic attack, the challenger spots areas where the opponent is
underperforming. In segmental, the challenger uncovers underserved market needs and
attempts to penetrate these markets with its products. Flanking is in the best tradition of
modern marketing that holds that the purpose of marketing is to discover needs and satisfy
them. Flanking is particularly attractive to challengers with fewer resources.
MARKETING DISCUSSION
Pick an industry. Classify firms according to the four different roles they might play: leader,
challenger, follower, or nicher. How would you characterize the nature of competition? Do the
firms follow the principles described in the chapter?
Suggested Response:
Student answers will differ according to the industries picked and the role the firms play in
that industry. All answers should contain some of the following:
Leaders: largest market share, leads on price changes, new-product introductions, distribution
coverage, and promotional intensity. Have products that generally hold a distinctive position in
the minds of the consumers.
Can use strategies that expand the total market demand: (new customersmarket-penetration
strategies, new-market segment strategies, geographic-expansion strategies).
More usage (level of quantity or frequency of consumption).
Protect its current market share through good defensive (position defenses, flank defense,
preemptive defense, counteroffensive defense, mobile defense, contraction defense).
Challengers, followers: can attack the leader for increased market share, (challengers), or
followers (not rock the boat), through:
Frontal attack.
Encirclement attack.
Flank attack.
Bypass attack.
Guerrilla warfare.
MARKETING SPOTLIGHTAccenture
Discussion Questions:
1) What have been the key success factors for Accenture?
a. Niche marketing to the professional services area in management and
technology consulting.
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2) Where is Accenture?
a. Niche marketer
3) What should it watch out for?
a. Decline or closing of the niche
b. Increased competition in the niche by larger firms.
4) What recommendations would you make to senior marketing executives going
forward?
a. Review its niche to see if it is performing services that others cannot or are
unwilling to perform.
5) What should the company be sure to do with its marketing?
a. Emphasize the advantages of a niche marketer: Knowing the target customers
so well that it meets their needs better than other firms selling to this niche
casually.
COMPETITIVE FORCES
Michael Porter has identified five forces that determine the intrinsic long-run
attractiveness of a market or market segment: industry competitors, potential
entrants, substitutes, buyers, and suppliers. The threats these forces pose are as
follows:
Figure 11.1 shows Michael Porters model.
A) Threats of intense segment rivalry.
B) Threat of new entrants.
C) Threat of substitute products.
D) Threats of buyers growing bargaining power.
E) Threat of suppliers growing bargaining power.
Review Key Definition here: Michael Porters Model
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IDENTIFYING COMPETITORS
It would seem a simple task for a company to identify its competitors. However, the
range of a companys actual and potential competitors can be very broad.
A) Many businesses failed to look to the Internet for their most formidable
competitors.
4) Scarce locations.
5) Raw material.
B) Even after a firm enters an industry, it might face mobility barriers when it tries to
enter more attractive market segments.
C) Firms often face exit barriers such as:
1) Legal or moral obligations.
2) Government restrictions.
3) Low asset salvage value.
4) Lack of alternative opportunities.
5) High vertical integration.
6) Emotional barriers.
Cost Structure
Each industry has a certain cost burden that shapes much of its strategic conduct.
Degree of Globalization
A) Some companies are highly local; others are global.
B) Companies in global industries need to compete on a global basis if they are to
achieve economies of scale.
ANALYZING COMPETITORS
Once a company identifies its primary competitors, it must ascertain their
strategies, objectives, strengths, and weaknesses.
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Strategies
A) A group of firms following the same strategy in a given target market is called a
strategic group.
Figure 11.3 shows a chart for the four strategic groups.
Objectives
Once a company has identified its main competitors and their strategies, it must ask
what each competitor is seeking in the marketplace. What drives each competitors
behavior?
A) One useful initial assumption is that competitors strive to maximize profits.
B) A company must monitor competitors expansion plans.
Figure 11.4 shows a product-market battlefield map for the personal computer
industry.
Selecting Competitors
A) After the company has conducted value analysis and examined 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.
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New Customers
A) Every product class has the potential of attracting buyers who are unaware of the
product or who are resisting it because of price or lack of certain features.
B) A company can search for new users among three groups:
1) Those who might use it but do not (market-penetration strategy).
2) Those who have never used it (new-market segment strategy).
3) Those who live elsewhere (geographical-expansion strategy).
More Usage
Usage can be increased by increasing the level of quantity of consumption or
increasing the frequency of consumption.
A) Increasing the amount of consumption can sometimes be done through packaging or
product design.
B) Increasing frequency of use involves identifying additional opportunities to use the
brand in the same basic way or identifying completely new and different ways to use
the brand.
C) To generate additional usage opportunities, a marketing program can communicate the
appropriateness and advantages of using the brand more frequently in new or existing
situations and /or remind consumers to actually use the brand as close as possible to
those situations.
D) Another potential opportunity to increase frequency of use is when consumers
perceptions of their usage differ from the reality of their usage.
E) The second approach is to identify completely new and different applications.
F) Product development can spur new uses.
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Market-Challenger Strategies
Many market challengers have gained ground or even overtaken the leader.
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E) Encirclement.
F) Bypass.
1) Diversifying into unrelated products.
2) Diversifying into new geographical markets.
3) Technological leapfrogging into new technologies .
G) Guerrilla Warfare
Review Key Definitions here: frontal attack, flank attack, geographic attack,
segmental attack, encirclement attack, bypass attack, and guerrilla warfare
Market-Follower Strategies
Many companies prefer to follow rather than challenge the market leader.
A) A market follower must know how to hold current customers and win a fair share of
new customers.
B) Each follower tries to bring distinctive advantages to its target marketlocation,
services, and/or financing.
C) Four broad strategies can be distinguished:
1) Counterfeiter.
2) Cloner.
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3) Imitator.
4) Adapter.
Market-Nicher Strategies
An alternative to being a follower in a large market is to be a leader in a small
market, or niche.
A) Firms with low shares of the total market can be highly profitable through smart
niching.
B) Such companies tend to offer high value, charge a premium price, achieve lower
manufacturing costs, and shape a strong corporate culture and vision.
C) Why is niching so profitable?
1) The main reason is that the market nicher ends up knowing the target customers so
well that it meets their needs better than other firms selling to this niche. The
nicher achieves high margin, whereas, the mass marketer achieves higher volume.
D) Nichers have three tasks:
1) Creating niches.
2) Expanding niches.
3) Protecting niches.
E) Niching carries a major risk in that the market niche might dry up or be attacked
F) Because niches can weaken, the firm must continually create new ones.
G) Multiple niching is preferable to single niching.
Competitor-Centered Companies
A competitor-centered company sets its course based on reactions to its competitors.
A) This kind of planning has some pluses and minuses.
1) On the positive side, the company develops a fighter orientation.
2) On the negative side, the company is too reactive.
a. Rather than formulating and executing a consistent, customer-orientated
strategy, it determines its moves based on competitors moves.
Customer-Centered Companies
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