Chapter 5 Competitive Dynamics

CHAPTER-5
Competitive Dynamics
Discussion Questions
1. How can market leaders expand the total market
and defend market share?
2. How should market challengers attack market
leaders?
3. How can market followers or niche compete
effectively?
4. What marketing strategies are appropriate at each
stage of the PLC?
5. How should marketers adjust their strategies and
tactics for an economic downturn or recession ?
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 2 of 31
e d
if n
D e Overview
Companies are facing increased competition
– from global competitors, emerging online
competitors, private-label and store brands,
and brand extensions by mega-brands.
No brand, unless it is a monopoly, can rest
on its laurels.
This chapter explains how companies position
themselves relative to competitors.

4 Bogale A. (Ph.D. Scholar) 02/12/2021
e d
if n Cont’d…
e
InD general,a company should monitor three variables when
analyzing competitors:
1. Share of market - The competitor's share of the target
market.
2. Share of mind-The percentage of customers who named
the competitor in responding to the statement, "Name the
first company that comes to your mind in this industry."
3. 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."

Analyzing competition
Furthermore, companies need to know the
following things about their competitors.
 Who the competitors are
 Strategies of the competitors
 Objectives of the competitors
 Strength and weakness of the competitors
 Reaction pattern of the competitors
 Which competitors to attack and which to avoid.
 How to balance customer and competitor
orientation
Identifying Competitors
Companies look their competitors in four
ways.
1. Brand competition- company sees its
competitors as other companies offering
- Similar product and service
- To the same customer
- At almost similar price
2. Industry Competition- company sees its
competitors as companies that are making
the same product
Bogale A. (Ph.D. Scholar)
or class of products.
7 02/12/2021
Cont’d…
3. Form competition- occurs when a
company sees its competitors as all
companies manufacturing products that
supply the same service.
4. Generic competition- occurs when a
company sees its competitors as all
companies that compete for the same
consumer dollars.
Market Members
Market leader
Market challenger
Market follower
Market nichers

5 .1
u r e Hypothetical Market Structure
i g
F

Staying Number One
Things to be done;
1. Expand total market demand
2. Protect current market share
3. Increase market share

Expanding Total Market Demand
New Customers
More Usage
Replacement rate
New product uses

Protect Current Market Share
Offensive Strategy Defensive Strategy

Proactive Marketing

5 .2
r e
gu
i
F Six Types of Defense Strategy

Other Competitive Strategies
Market-challenger
Market-nicher
15 Market-follower 02/12/2021
Market leaders’ strategies
Competitors’ strategies can be seen from four sides.
Market leaders’ strategies
 Market leader is company, which is
- pioneer
- holds wide market share
- Set price
- produce new product
Strategies
- Finding ways to expand total market
- Continuous innovation
Market-Challenger Strategies
Define objectives and determine who to
attack
Choose general attack strategy
Choose Specific attack strategy

Market-Challenger Strategies
Objectives and Opponents General attack strategies
Frontal attack
Flank attack
Encirclement attack
Bypass attack
Guerrilla attack
Attack (to increase market share):
Market leader
Weaker, similar size firms
Smaller local or regional firms

e d
if n Who to attack?
D e
A typical objective for challengers is to increase market share.
This decision on who to attack is determined by who the
competitors are.
Attacking market leaders is typically a high-risk, high-reward
strategy, if successful. Market leaders often have superior
resources to counter an attack, but at times are unfocused at
serving the market well. Avis attacked Hertz with the slogan “We
try harder,” to emphasize a higher level of customer service.
Challengers can attack firms of similar size, in terms of market
share, that may be underfinanced, or are not satisfying customers.
Smaller firms can be the focus of the attack through expansion or
acquisition.

Cont’d….Market challenger
 They are firms which exist at the second place on the base of
market share.
 Market challengers use different offensive strategies to
attack the market leaders.
 From the strategies:
 Frontal Attack- matching the enemy’s product, advertising,
price and distribution.
 Flank attack- attacking the weakness of the leaders.
 Encirclement attack- an attempt to capture wide area by
attacking the weak sides of the leader.
 By pass (leap frog) attack- attacking the easier market by
passing the strong enemy.
 Guerrilla Warfare- the attack is not continuous, it is small
and frequent attack
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Market-Follower Strategies
Counterfeiter Adapter
Cloner Imitator
Cont’d…..
o By learning from the market leader experience produce
improved product with lower cost.
o Market followers have the following strategies.
 Counterfeiters- duplicate the leader’s product and
sell in black market.
 Cloners- manufacture the leader product, name and
package with slight variations.
 Imitators- copies something from the leaders
product but maintain differentiation in terms of
packaging, advertising, pricing, or location.
 Adapters- take the leaders product and adapt or
improve.
Market-Nicher Strategies
Nichers Task
Create niches
Expand niches
Protect niches
Target small, profitable segments

Achieve higher margins

e d
if n Nicher strategies
D e
•The strategy of a niche is to specialize in one area
instead of competing in wider markets
•Nicher can be successful by focusing on smaller,
highly profitable segments of the market.
•These segments are typically underserved by larger
competitors who are focused on high volume.
•The risk comes if the niche become so profitable that
competitors (such as challengers) take notice and
attack.

COMPETITORS’ OBJECTIVES
The competitors objective differ largely. It can be

 Market share maximization
 Profit maximization

Strength and weakness of competitors
Knowing the competitors strength and
weakness help the firm to decide whom to
attack and how to attack.
COMPETITORS REACTION
PATTERN
Competitors based on their reaction grouped
in to four.
1. Laid-back competitor- does not react
quickly or strongly to a rival’s move.
26
2. Selective competitors- react only to
Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall
02/12/2021
Slide 26 of 31
3. Tiger competitor- a competitor that react strongly to
any action.
4. Stochastic competitors- a competitor that does not
exhibit a predictable reaction pattern.
SELECTING COMPETITORS TO ATTACK AND
AVOID
 Attack both weak and strong competitors.
 Avoid attacking close and weak competitors.
 Avoid attacking good competitors
How good competitors help the company?
Product Life-Cycle Strategies
PLC: is the course that a product’s sales and profits
take over its lifetime.
Refers fluctuations in sales, profits, costs and level
of competition over time.
• Products have a limited life
• Sales pass through stages
• Profits rise, then fall
• Different strategies needed

5 .4
r e
gu
i
F Sales and Profit Life Cycles

5 .5
r e
gu
Fi Common Product Life-Cycle
Patterns

5 .6
r e
Fi gu Style, Fashion, and Fad Life
Cycles

Product Life-Cycle Stages
Introduction

PLC: Introduction Stage
Slow sales growth, negative profits
Marketing Strategies:
1.Create awareness
2.Induce product trial Speed to Market
3.Secure retail distribution.
Which is more profitable over 5 years?

• 6 months late, but on budget?
33 Bogale A. (Ph.D. Scholar) • On time, but 50% over budget?
02/12/2021
PLC: Growth Stage
Rapid sales growth; New competitors
Marketing Strategies:
1.Improve product quality; add new features
2.Add new models and flanker products
3.Enter new market segments
4.Focus advertising on preferences
5.Increase distribution coverage
6.Lower price; Attract price-sensitive buyers

PLC: Maturity Stage
Maturity stage is a long-lasting stage of a product that has gained
consumer acceptance.
 Slowdown in sales
 Many suppliers/Substitute products
 Overcapacity leads to competition
 Increased promotion and R&D to support sales and profits.
Marketers consider modifying strategies at the maturity stage

 Market modifying (expand the market),
 Product modifying (improve quality, features, or styles), or
 Other marketing mix modifying (alter price, distribution,
communications).

PLC: Decline Stage
Is stage when sales decline for an extended time resulting
in low/no profit.
Product Options:
1.Rejuvenate
2.Harvest
3.Divest

Cont’d…Decline stage
Is stage when sales decline for an extended time resulting
in low/no profit and the recommended action could be:
Maintain the product without change in the hope that
competitors leave the industry
Reposition or reformulate the product in hopes of
moving back into the growth stage
Harvest the product that means reducing various costs
and hoping that sales hold up.
Drop the product by selling it to another firm or simply
liquidate it at salvage value.
Develop new product by divesting existing

5.1
l e
b
Ta
Characteristics of the PLC
Introduction Growth Maturity Decline
CHARACTERISTI
CS
Sales Low Rapidly rising Peak Declining
Costs/customer High Average Low Low
Profits Negative Rising High Declining
Customers Innovators Early Adopters Middle majority Laggards
Competitors Few Increasing Stable number Declining

5.2
l e
b
Ta PLC Objectives and Strategies
Introduction Growth Maturity Decline
MARKETING OBJECTIVES
Maximize
Awareness Maximize Milk the
profits; Defend
and trial market share brand
share
STRATEGIES
Extend; Service, Diversify brands Phase out
Product Basic
warranty and models the weak
Charge cost- Price to
Price Price to match Cut price
plus penetrate
Distribution Selective Intensive More intensive Go selective
Awareness Awareness w/ Stress brand Reduce to
Communications
early adopters mass market benefits minimal
Marketing in an Economic Downturn
More Compelling Value Proposition
Review Budget Allocations
Get Closer to Customers
Increasing Investments

er !
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e c h
t h
d of
E n


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CHAPTER-5

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 3 of 31

Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 5 of 31

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1. Expand total market demand

2. Protect current market share

3. Increase market share

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New product uses

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Offensive Strategy Defensive Strategy

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Choose general attack strategy

Choose Specific attack strategy

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 19 of 31

Target small, profitable segments

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Copyright © 2012 Pearson Education, Inc. Publishing as Prentice Hall Slide 24 of 31

The competitors objective differ largely. It can be

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• Sales pass through stages

• Profits rise, then fall

• Different strategies needed

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3.Secure retail distribution.

Which is more profitable over 5 years?

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Marketers consider modifying strategies at the maturity stage

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37 Bogale A. (Ph.D. Scholar) 02/12/2021

Costs/customer High Average Low Low

Profits Negative Rising High Declining

Customers Innovators Early Adopters Middle majority Laggards

Competitors Few Increasing Stable number Declining

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More Compelling Value Proposition

Review Budget Allocations

Get Closer to Customers

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