Chapter-by-Chapter Instructional Material

CHAPTER

11

DEALING WITH
COMPETITION

LEARNING OBJECTIVES
After reading this chapter, students should:

Know how marketers identify primary competitors

Know how we should analyze competitors strategies, objectives, strengths, and
weaknesses

Know how market leaders can expand the total market and defend market share

Know how market challengers should attack market leaders

Know how market followers or nichers can compete effectively

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!

TEACHING STRATEGY AND CLASS ORGANIZATION

PROJECTS
1. At this point in the semester-long project, students should be prepared to present their
competitive analysis. Who are the market leaders for their chosen product or service?
What niche have they identified for their product/service? Is their product or service
going to be a leader, follower, or challenger to well-established products or brands?
2. Michael Porters Five Forces model is as applicable today as it was when it was
introduced. Have the students select a market or market segment (jeans, cell phones,
etc.) and using Michael Porters model, completely define these five forces for the
market or market segment. Who are the potential entrants, who are the suppliers (and
how much power do they have), who are the buyers (and what sort of buying power
do they have), what are the substitutes and how is the industry segmented (market
share is a good indicator of segmentation for this project)? Students analysis and
answers should be comprehensive.
3. Sonic PDA Marketing Plan Competitive strategy analysis is an important part of
two areas within the marketing plan. First, in assessing the Current Situation,
businesses need to identify key competitors and learn about each rivals strengths and
weaknesses. Second, competitive intelligence and analysis shapes the competitive
strategy that is supported by the marketing mix.
Sonic is a new entrant in an established industry that has competitors with relatively
high brand identity and strong market positions. As you assist Jane Melody in

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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:

What is the strategic group for Sonic?

Which firm is the market leader, and what are its objectives, strengths, and
weaknesses?
What additional competitive intelligence is needed to answer the question about
the market leader more completely, and how should Sonic go about getting the
information?
Which competitive strategy should be most effective for Sonic?

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.

MARKETING TODAYCLASS DISCUSSION TOPICS

Toys R Us and KB Toys are facing price pressures from other retailers. In fact, at one
time Toys R Us flirted with selling its Toys R Us stores and concentrating on its more
profitable Babies R Us niche. In light of the information presented in this chapter,
should Toys R Us concentrate on niche marketing to babies? In preparing your
answers, you first should do a complete financial profile on the company, and then do a
demographic profile on the future demand for baby products. Is this market going to
increase or decrease in the future? If the company decides on this strategy, what must
Toys R Us do to prevent firms like Wal-Mart and Target from taking share away from
them as they did in the toy business?

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

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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.

DETAILED CHAPTER OUTLINE

Building strong brands requires a keen understanding of competition, and competition
grows more intense every year. New competition is coming from all directionsfrom
global competitors; from online competitors; from private label and store brands; and
from brand extensions from strong mega-brands leveraging their strengths to move into
new categories. Too effectively, devise and implement the best possible brand
positioning strategies, companies must pay keen attention to their competitors.

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.

Industry Concept of Competition

What exactly is an industry? An industry is a group of firms that offer a product or
class of products that are close substitutes for one another.
A) Industries are classified according to:
1) Number of sellers
2) Degree of product differentiation
3) Presence or absence of entry
4) Mobility
5) Exit barriers
6) Cost structure
7) Degree of vertical integration
8) Degree of globalization

Number of Sellers and Degree of Differentiation

The starting point for describing an 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:
A) Pure monopoly.
B) Oligopoly.
C) Monopolistic competition.
D) Pure competition.
An industrys competitive structure can change over time.

Entry, Mobility, and Exit Barriers

Industries differ greatly in ease of entry.
A) Major entry barriers include:
1) High capital requirements.
2) Economies of scale.
3) Patents and licensing.
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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 Vertical Integration

A) Companies find it advantageous to integrate backward or forward (vertical
integration).
B) Vertical integration often lowers costs, and the company gains a larger share of the
value-added stream.

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.

Market Concept of Competition

Using the market approach, competitors are companies that satisfy the same
customer need. Marketers must overcome marketing myopia and stop defining
competition in traditional category terms.
A) Rayport and Jaworski suggest profiling a companys direct and indirect
competitors by mapping the buyers steps in obtaining and using the product.
Figure 11.2 illustrates Eastman Kodaks competitor map.

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.

Strengths and Weaknesses

A)
A company needs to gather information on each competitors strengths and
weaknesses.
Table 11.1 shows the results of a company survey that asked customers to rate its
three competitors on five attributes.
B) In general, a company should monitor three variables when analyzing competitors:
1) Share of market.
2) Share of mind.
3) Share of heart.
Table 11.2 shows the number for these measures for the three competitors listed in
Table 11.1.
C) Companies that make steady gains in mind share and heart share will
inevitably make gains in market share and profitability.

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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COMPETITIVE STRATEGIES FOR MARKET LEADERS

A) We can gain further insight by classifying firms by the roles they play in the target
market:
1) Leader.
2) Challenger.
3) Follower.
4) Nicher.
Figure 11.5 shows the hypothetical market structure.

Expanding the Total Market

The dominant firm normally gains the most when the total market expands.

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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Defending Market Share

While trying to expand total market size, the dominant firm must continuously
defend its current business.
A) What can the market leader do to defend its terrain?
1) By continuous innovationdeveloping new product and customer services,
distribution effectiveness, and cost cuttingit keeps its competitive strength and
value to customers.
B) In satisfying customer needs, a distinction can be drawn between
responsive marketing, anticipative marketing, and creative marketing.
1) A responsive marketer finds stated need and fills it.
2) An anticipative marketer looks ahead into what needs customers may have in the
near future.
3) A creative marketer discovers and produces solutions customers did not ask for
but to which they enthusiastically respond.
C) Even when it does not launch offensives, the market leader must not leave any major
flanks exposed.
D) A dominant firm can use the six defense strategies
1) Position defense.
2) Flank defense.
3) Preemptive defense.
4) Counteroffensive defense.
5) Mobile defense.
a. Market broadening.
b. Market diversification.
6) Contraction Defense.
a. Strategic withdrawal.
Figure 11.6 shows the six defensive strategies.
Review Key Definitions here: continuous innovation, responsive marketer,
anticipative marketer, creative marketer, position defense, flank defense,
preemptive defense, counteroffensive defense, mobile defense, and contraction
defense

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Expanding Market Share

Market leaders can improve their profitability by increasing market share.
A) Gaining increased share in the served market does not automatically produce higher
profits.
B) A company should consider four factors before pursuing increased market share:
1) The possibility of provoking antitrust action.
2) Economic cost.
Figure 11.7 shows that profitability might fall with further market-share gains after
some level.
3) Pursuing the wrong marketing-mix strategy.
4) The effect of increased market share on actual and perceived quality.

OTHER COMPETITIVE STRATEGIES

Firms that occupy second, third, and lower ranks in an industry are often called
runner-up, or trailing firms. These firms can adopt one of two postures. Each can
attack the leader and others in an aggressive bid for further market share (market
challengers), or they can play ball and not rock the boat (market followers).

Market-Challenger Strategies
Many market challengers have gained ground or even overtaken the leader.

Defining the Strategic Objective and Opponents(s)

A market challenger must first define its strategic objective. The challenger must
decide whom to attack:
A) It can attack the market leader.
B) It can attack firms of its own size that are not doing the job and are underfinanced.
C) It can attack small local and regional firms.

Choosing a General Attack Strategy

We can distinguish among five attack strategies:
A) Frontal.
B) Flank.
C) Geographic.
D) Segmental.

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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

Choosing a Specific Attack Strategy

A) The challenger must go beyond the five broad strategies and develop more specific
strategies:
1) Price discount.
2) Lower price goods.
3) Value priced goods and services.
4) Prestige goods.
5) Product proliferation.
6) Product innovation.
7) Improved services.
8) Distribution innovation.
9) Manufacturing-cost reduction.
10) Intensive advertising promotion.
B) A challengers success depends on combining several strategies to improve its position
over time.

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.

BALANCING CUSTOMER AND COMPETITOR ORIENTATIONS

We have stressed the importance of a companys positioning itself competitively as
a market leader, challenger, follower, or nicher. Yet a company must not spend all
its time focusing on competitors.

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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A customer-centered company focuses more on customer developments in

formulating its strategies:
)A The customer-centered company is in a better position to identify new
opportunities and set a course that promises to deliver long-run profits.

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