DEALING WITH COMPETITION

Competitive Forces
Michael Porter has identified five forces that determine the intrinsic long term attractiveness
of a market or market segment:

Industry Concept of Competition

An Industry is a group of firms that offer a product or class of products that are close
substitutes for one another. Industries are classified according to:

Number of sellers and degree of differentiation

Entry, mobility, and exit barriers
Cost structure
Degree of vertical integration
Degree of globalization

Number of Sellers and Degree of Differentiation

The starting point for describing any industry is to specify the number of sellers and
whether the product is homogeneous or highly differentiated. These characteristics give rise
to four industry structure types.
Pure monopoly Only one firm provides a certain product or service in a
certain country or area. (Electricity, Water, Gas, etc.)
Oligopoly A small number of large firms produce products that range from
highly differentiated to standardize. (Padma Oil, Jamuna Oil)
Monopolistic Competition Many competitors are able to differentiate their
offers in whole or in part. (Pizza Hut, KFC, Persona, etc.)
Pure Competition Many competitors offer the same product and service.
Prices are similar to each other. (COKE, Pepsi, RC, Mojo, etc.)

Entry, Mobility, and Exit Barriers

Industries differ greatly in ease of entry. It is easy to open a restaurant but difficult to
enter the airline industry.
Cost Structure
Each industry has a certain cost burden that shapes much of its strategic conduct.
(BD, India, China having lower labor costs)
Degree of Vertical Integration
Companies find it advantageous to integrate backward or forward integration
(Vertical Integration).
Degree of Globalization
Companies in global industries need to compete on a global basis if they are to
achieve economies of scale and keep up with the latest advances in technology. (Emirates,
Qatar Airways, etc.)

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COMPETITIVE STRATEGIES
We can classify firms by the roles they play in the target market:
Market Leader Grameenphone (Maximum No. of Shares)
Market Challenger Banglalink ( Second position in Market
Share may turn into Market Leader)
Market Follower Warid, Aktel (Robi), Teletalk ( Follow the
Upper 2)
Market Nichers City cell (CDMA) Different attributes/kind
SIX TYPES OF DEFENSE STRATEGIES

Position Defense
Flank Defense
Preemptive
Counter offensive
Mobile
Contraction

Position Defense
The most basic idea of defense is to build an impregnable fortification around ones territory.
Position defense means occupying the most desirable market space in consumers minds,
making the brand almost impregnable.
e.g. P&G has done with tide detergent for cleaning
Crest Toothpaste for cavity prevention
Pampers diapers for dryness.
Flank Defense
The market leader should not only guard its territory but also erect outposts to protect a
weak front or possibly serve as an invasion base for counterattacking.
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e.g. When Heubleins brand Smirnoff, which had 23% of the US vodka market, was attacked
by low priced competitor Wolfschmidt, Heublein actually raised its price and put the
increased revenue into advertising. At the same time, Heublein introduced another brand
Reiska, to compete with Wolfschmidt and still another, Popov, to sell for less than
Wolfschmidt.
Pre-emptive Defense
A more aggressive defense maneuver is to launch an attack on the enemy before it starts its
offence against the enemy.
A company can launch a pre-emptive defense in several ways. It can wage guerrilla action
across the market-hitting one competitor here, another there-and keep everyone off balance.
e.g. Bank of Americas 17,000 ATMs and 5,700 retail branches nationwide provide steep
competition to local and regional banks
If Microsoft announces plans for a new-product development, smaller firms may choose to
concentrate their development efforts in other directions to avoid head-to-head competition.
Counteroffensive Defense
Most market leaders when attacked will respond with a counterattack.
An effective counterattack is to invade the attackers main territory so that it will pull back to
defend it.
e.g. After FedEx watched UPS successfully invade its airborne delivery system, FedEx
invested heavily in ground delivery service through a series of acquisitions to challenge UPS
on its home turf.
One of the Northwest Airlines most profitable routes is Minneapolis to Atlanta. A smaller air
carrier launched a deep fare cut and advertised it heavily to expand its share in this market.
Northwest retaliated by cutting its fares on the Minneapolis/Chicago route, which the
attacking airline depended on for its major revenue. With its major revenue source hurting,
the attacking airline restored its Minneapolis/Atlanta fare to a normal level.
Mobile Defense
In mobile defense, the leader stretches its domain over new territories that can serve as
future centres for defense and offense through market broadening and market
diversification.
e.g. US tobacco manufacturer Reynolds and Philip Morris acknowledged the growing curbs
on cigarette smoking; they were not content with position defense or with looking for
cigarette substitutes. Instead they moved quickly into new industries, such as beer, liquor,
soft drinks, and frozen foods.
Contraction Defense
Large companies sometimes must recognise that they are can no longer defend all their
territory. The best course of action then appears to be planned contraction (strategic
withdrawal): giving up weaker territories and reassigning resources to stronger territories.
e.g. Westinghouse cut its number of refrigerator models from 40 to the 30 that accounted for
85% of the sales.
General Motors standardised its auto engines and now offers fewer options.
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CHOOSING A GENERAL ATTACK STRATEGY

Frontal attack
Flank attack
Encirclement attack
Bypass attack
Guerrilla warfare

Frontal Attack
An aggressor is said to launch a frontal attack when it masses its forces right up against its
opponent. It attacks the opponents strengths rather than weaknesses.
In a pure frontal attack, the attacker matches its opponents product, advertising, price, and
so on.
For a pure frontal attack to succeed, the aggressor needs a strength advantage over the
competitor.
e.g. The runner-up razor-blade manufacturer in Brazil attacked Gillette.
Flank Attack
An enemys weak spots are natural targets. A flank attack can be directed along two
strategic directions-geographic and segmental.
In a geographic attack, the challenger spots areas where the opponent is under performing
e.g. Honeywell pursued businesses in smaller cities and towns where it did not have to battle
against larger numbers of IBM salespeople.
The other flanking strategy is to spot uncovered market needs not being served by the
leaders.
e.g. Japanese auto makers introduced their car to serve the growing customer market for
fuel efficient cars.
Miller Brewing Company discovered the customer market for light beer.
Encirclement Attack
Encirclement involves launching a grand offensive on several fronts, so that the enemy must
protect its front, sides and rear simultaneously. The aggressor may offer the market
everything the opponent offers and more, so that the offer is unrefusable.
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Encirclement makes sense where the aggressor commands superior resources and believes
that a swift encirclement will break the opponents will.
e.g. Seikos attack on the watch market. Seiko expanded distribution in every major watch
market and overwhelmed its competitors and consumers with an enormous variety of
constantly changing models.
Bypass Attack
The bypass is the most indirect of assault strategies. It means bypassing the enemy and
attacking easier markets to broaden ones resource base. This strategy offers three lines of
approach: diversifying into unrelated products, diversifying into new geographical markets,
and leapfrogging into new technologies to supplant existing products.
e.g. Sonys PlayStation has grabbed the technological lead to gain almost half the videogame market.
Challenger Google used technological leapfrogging to overtake Yahoo and become the
market leader in search.
Pepsi introduced Aquafina bottled water in 1997 against Coca-Cola.
Guerrilla Warfare
Guerrilla warfare consists of waging small, intermittent attacks on different territories of the
opponent, with the aim of harassing and demoralising the opponent and eventually securing
permanent footholds.
e.g. Diamond Crystal Salt had less than a 5% share of the national salt market compared
with Mortons 50%. Diamond decided to focus its attack against Morton in its own regional
market and launched an aggressive marketing campaign.

Specific Attack Strategies

Price discounts
Lower-priced goods
Value-priced goods
Prestige goods
Product proliferation
Product innovation
Improved services
Distribution innovation
Manufacturing-cost reduction
Intensive advertising promotion

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Analyzing Competitors

Share of market- The competitors share of the target 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 which you would
prefer to buy the product.

Classes of Competitors

Strong versus Weak- Even strong competitors have some weaknesses,

Close versus Distant- Chevrolet competes with Ford, not with Ferrari.
Coca-Cola recognizes that its number-one competitor is tap water not Pepsi.
US Steel worries more about plastic and aluminum than Bethlehem Steel.
Good versus Bad- Good companies play by the industry rules; they set prices in
reasonable relationship to costs and they prefer a healthy industry. Bad companies
try to buy share rather than earn it; they take large risks; they invest in overcapacity;
and they upset industry equilibrium.

NOTE- for details please see:

Marketing Management Kotler & Keller (12th Edition),
Marketing Management Philip Kotler (Millenium Edition)

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