Prof. Remigio Joseph De Ungria

Chapter 11Competitive Dynamics – Dealing

with Competition

Michael Allen D. Santillana

Competitive Strategies for Market Leaders

• Market leaders have the largest share and usually lead in price changes, new product introductions, distribution coverage, and promotional intensity.

• Kotler Example: – One such well-known brand and market leader is

Xerox – more than just a copier company, it paved the way for color printing and the overall boom of the printing service market through continuous development and revamping their machines.

Competitive Strategies for Market Leaders

• Local Example: – The now multinational fast food chain, Jollibee,

dominates the fast-food industry in the Philippines today, owning around 65% market share. Perhaps its main competitive advantages over fast food giants such as McDonald’s and KFC are its relatively higher turnover rates and very low prices.

• Medical Example: – The two main competitive advantages that

pharmaceutical giant Pfizer has over a lot of its adversaries is its large and diversified portfolio and tremendous brand recognition for quality.

When Your Competitor Delivers More for Less

• Companies offering the powerful combination of low prices and high quality are capturing the hearts and wallets of consumers all over the world.

• In order to compete, mainstream companies need to utilize the old imperatives of DIFFERENTIATION and EXECUTION to gain a much needed competitive advantage.

When Your Competitor Delivers More for Less

• Kotler Example: – Low-cost operations set up by HSBC, ING, Merrill Lynch,

and Royal Bank of Scotland succeed in part thanks to synergies be- tween the old and new lines of business.

• Local Example: – PAL, Cebu Pacific, and Air Philippines offering their own

low-cost carriers.• Medical Example: – Many health care providers, such as The Medical City,

have found out that electronic health records (EHRs) can help improve medical practice by being more efficient (e.g., in receiving labs faster) and increasing cost savings.

Expanding Total Market Demand

• When the total market expands, the dominant firm usually gains the most.

• In general, the market leader should look for new customers or more usage from existing customers.

• This involves gaining NEW CUSTOMERS and giving them NEW WAYS and ADDITIONAL OPPORTUNITIES to use your brand.

Expanding Total Market Demand• Kotler Example:

– In addition to sales through company-operated retail stores, Starbucks sells whole bean coffees through a specialty sales group and supermarkets, and by selling bottled Frappuccino® coffee drinks and ice cream through its joint venture partnerships.

• Local Example:– There is currently a growing market for premium ice cream, most notably

Magnum, Baskin-Robbins, and Ben & Jerry’s, here in the Philippines, mostly because of our sense of adventure in terms of taste, and strong purchasing power.

• Medical Example:– Dra. Vicki Belo, the CEO of the Belo Medical Group, has an unending drive

to pioneer many cosmetic breakthroughs and deliver the latest innovations, as seen in her skin products. That way, she is at the forefront of the cosmetics industry in the Philippines.

Protecting Market Share

• The most constructive response to actively defend any business is CONTINUOUS DEVELOPMENT.

• The front-runner should lead the industry in developing new products and customer services, distribution effectiveness, and cost cutting.

• Comprehensive solutions increase its competitive strength and value to customers.

Protecting Market Share• Kotler Example:

– When Philip Morris recognized the growing curbs against smoking, they purchased several industries whose products are unrelated to theirs, such as beer, liquor, and soft drinks.

• Local Example:– The more competitive global marketplace has compelled some

Filipino remittance service providers like Western Union to better market and promote their existing products, mostly as a way of protecting their market share and potential from existing competitors.

• Medical Example:– It is widely recognized that the pharmaceutical industry faces

serious financial challenges. Large numbers of blockbuster drugs are losing patent protection and going generic. Without patent protection, the pharmaceutical company is unlikely to invest the capital needed to develop innovative medications.

Increasing Market Share• Gaining increased share does not automatically

produce higher profits, however, especially for labor-intensive service companies that may not experience many economies of scale.

• Because the cost of buying higher market share through acquisition may far exceed its revenue value, a company should first consider four factors:– The possibility of provoking antitrust action– Economic cost– The danger of pursuing the wrong marketing activities– The effect of increased market share on actual and

perceived quality

Increasing Market Share• Kotler Example:– FairPoint Communications struggled to integrate the 1.3

million customers it gained in buying Verizon Communications’s New England franchise. A slow conversion and significant service problems led to massive customer dissatisfaction, and eventually bankruptcy.

• Local Example:– In the Philippines, Jollibee’s store expansion pace is quite

aggressive, and despite price adjustments, they still see growth in volume.

• Medical Example:– None of note.

Other Competitive Strategies

Market-Challenger Strategies

• Market Challenger– A company that can attack the leader and other direct

competitors in an aggressive bid for further market share.• Many market challengers have gained ground or even

overtaken the leader. • Kotler Example: – SoBe; positioned against Snapple and Arizona, The first

successful product was SoBe Black Tea 3G with ginseng, guarana, and ginkgo. The lizard character on the packaging, from an iconic South Beach hotel, became an integral part of SoBe’s brand imagery. SoBe’s explosive growth was based on a combination of functional benefits (the 3 Gs), colorful packaging, a powerful sales force establishing strong shelf presence in the store.

Market-Challenger Strategies

• Local Example:– With the advent of social media comes the need

for faster Internet connections. The biggest Internet service providers in the country today include PLDT, Globe, and Smart.

• Medical Example:– Pascual Labs and United Labs are among the most

venerable and prolific pharmaceutical industries in the Philippines.

Market-Follower Strategies

• Innovative imitation; where another firm can come along and copy or improve on the new product.

• Although it probably will not over- take the leader, the follower can achieve high profits because it did not bear any of the innovation expense.

Market-Follower Strategies• Kotler Example:– Pepsi vs. Coke. Although Pepsi may never be as well-

consumed, it used a bypass approach to battle Coke by finding new markets to enter.

• Local Example:– Nissin cup noodles and Lucky Me pancit canton are

among the most consumed instant noodle brands in the country today.

• Medical Example:– South Star Drug and Grace Pharmacy are among the

most common drugstores in the Philippines today.

Market-Nicher Strategies

• An alternative to being a follower in a large market is to be a leader in a small market, or NICHE.

• Smaller firms normally avoid competing with larger firms by targeting small markets of little or no interest to the larger firms, but even large, profitable firms may choose to use niching strategies for some of their business units or companies.

Market-Nicher Strategies• Kotler Example:

– With smoking on a steady decline, Zippo Manufacturing is finding the market for its iconic metal cigarette lighter drying up. Its marketers need to diversify and broaden their focus to “selling flame.”

• Local Example:– Vista Land, a Filipino property development group, has a new

unit called Lessandra that will focus on the specialized housing needs of a lower-bracket market, that of the P800,000 to P1.2 million bracket.

• Medical Example:– Many physicians have niche patient marketing strategies. For

example, in pediatrics, the parents of young children are likely to relate well to topics such as primary care, pediatrics, vaccinations and illnesses common among children.

Product Life-Cycle Marketing Strategies

• A company’s positioning and differentiation strategy must change as the product, market, and competitors change over the PRODUCT LIFE CYCLE (PLC). To say a product has a life cycle is to assert four things: – Products have limited lives– Product sales pass through distinct stages, each posing

different challenges, opportunities, and problems to the seller.

– Profits rise and fall at different stages of the product life cycle.

– Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life-cycle stage.

Product Life-Cycle Marketing Strategies

• Kotler Example:– Electrolux uses an elaborate seg- mentation plan and

an expansive product line to make sure its brand is not stuck in the middle of a shrinking market.

• Local Example:– None of note.

• Medical Example:– The concept of healthcare as a product with a life

cycle can be used to develop strategies to anticipate and manage change. By this analysis, healthcare is a mature product and will need to be rejuvenated or face decline.

Marketing in an Economic Downturn

• Given economic cycles, there will always be tough times, such as 2008–2010 in many parts of the world.

• Despite reduced funding for marketing programs and intense pressure to justify them as cost effective, some marketers survived—or even thrived—in the recession.

• Kotler Example:– With slogans like “Feed your family for a fiver”,

Sainsbury’s no-nonsense value appeal was just the right message to send to UK customers in the midst of a recession.

Marketing in an Economic Downturn

• Local Example:– As an export-oriented economy, the global financial crisis

created serious strains in Philippines markets when its top export destination for both goods and services suffered a downturn. Inflow of foreign direct investment also slowed down, further creating a slack in economic growth. This led to the government increasing its expenditures.

• Medical Example:– According to WHO, European public authorities struggle to

maintain a high level of access to health care while restraining increases in expenditure associated with an ageing population and higher demand. The recent global economic recession has put additional pressure on public budgets, such that all countries were urged to implement cost-saving measures that affected public financing for health care.