Competition analysis. What is competition? Competition is a contest between individuals, groups,...
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Chapter 2 Competition analysis
Competition analysis. What is competition? Competition is a contest between individuals, groups, nations, animals, etc. for territory, a niche, or a location
What is competition? Competition is a contest between
individuals, groups, nations, animals, etc. for territory, a niche,
or a location of resources. It arises whenever two or more parties
strive for a goal which cannot be shared. Competition occurs
naturally between living organisms which co-exist in the same
environment. For example, animals compete over water supplies,
food, etc. Humans compete for water, food. Business is often
associated with competition as most companies are in competition
with at least one other firm over the same group of customers.
Slide 3
Competition analysis Building strong brands requires a keen
understanding of competitors. New competition is coming from all
direction Global competitors (eager to grow sales in new markets)
e.g., Zong china based company. Warid Royal bank of
Scotland-Barclays Bank. Online competitors (seeking cost efficient
ways to expand distribution) e.g., TESCO- Marks & Spencer-Dell
Private label and store brands (designed to provide low-price
alternatives. E.g., Thunder cola, mekka cola
Slide 4
Competitive forces Michael Porter has identified five forces
that determine the long run attractiveness of a market. Industry
competition Threat of new entrants Threat of substitute product
Buyer power Supplier power.
Slide 5
Competitive forces Industry Competition Threat of New entry
Buyers power Threat of substitutes Suppliers power
Slide 6
Competitive forces Industry competition An industry is
unattractive if it already contains number of strong or aggressive
competitors. competitive industry lead to frequent price wars,
advertising battles and new product introduction and it is very
expensive to compete in such industry. For example- The cellular
phone market.
Slide 7
Competitive forces Threat or new entrants The most attractive
segment is one in which entry barriers are high and exit barrier
are low. It is not only the competitors that pose a threat to firms
in an industry; the possibility that new firms may enter the
industry also affects competition. For example- Zong cellular China
based company enter the Pakistan market as a new entrant.
Slide 8
Competitive Forces Entry Barriers Advertising (the incumbent
company spending heavily on advertising that new firms would find
more difficult to afford. Customer loyalty - Large incumbent firms
may have existing customers loyal to established products. The
presence of established strong brands within a market can be a
barrier to entry in this case.
Slide 9
Competitive Forces Threat of substitute product- A segment is
unattractive when there are actual or potential substitutes for the
product. Substitutes place a limit on prices and on profits. If
technology advances or competition increases, prices and profits
are likely to fall. E.g., Surf excel is a substitute product of
Arial
Slide 10
Competitive Forces Threat of buyers growing bargaining power A
segment is unattractive if buyers posses strong bargaining power.
Buyers bargaining power are strong when they are few or they
purchase frequently or suppliers are many. Buyers can change
suppliers easily.
Slide 11
Competitive Forces Threat of suppliers growing bargaining power
A segment is unattractive if the companys suppliers able to raise
prices or reduce quality supplied. Suppliers are strong when there
are few suppliers and many buyers or the buyers purchases are not
frequent. Suppliers can change buyers easily.
Slide 12
Identifying Competitors The company should know about its
competitors. Competitors in an industry are those they are
satisfying the same needs and wants of the target market/
customers. E.g., Pepsi co, knows that Coca-Cola is its competitor
Safe Guard knows that life boy is its competitor Proctal and Gamble
knows that liver brother is its competitor.
Slide 13
Analyzing Competitors Strategies. strategy is the scope and
direction of the company over the long term to achieve advantage
through its limited resource in a challenging environment to
fulfill the requirement of customers. In the analysis of
competitors the company must check what sort of strategy its
competitors are using. E.g., the product strategy, pricing
strategy, distribution and promotion strategy.
Slide 14
Analyzing Competitors Objectives Once a company has identified
its main competitors and their strategies, its must know, what is
each competitors seeking in the market place. The objective can
be-maximize profits, sales growth, market share, technological
leadership, service leadership or a mix of these.
Slide 15
Analyzing Competitors Strength and Weaknesses A company needs
to gather information about each competitors strength and
weaknesses.
Slide 16
Analyzing Competitors Example of Strength and Weaknesses
Competitor-A is weak in Distribution and Technical assistance
Competitor-C is Weak in all aspects. Competitor-B is no weaknesses-
can attack on the weak points of Competitor A and B Customer
Awareness Product Quality Product Availability Technical Assistance
Selling Staff Competitor-Aexcellent poor good Competitor-Bgood
excellentgoodexcellent Competitor-Cfairpoorgoodfair
Slide 17
Analyzing Competitors Selecting Competitors After the company
has conducted customer Analysis and examined its 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
Slide 18
Analyzing Competitors Strong versus Weak Most companies aim
their shots at weak competitors, because this requires fewer
resources. Competitor C in the previous example is weak competitor
comparatively.
Slide 19
Analyzing Competitors Close versus Distant. Most companies
compete with the competitors that resemble them most. For example
safeguard and Life boy Gold are close competitors. Pepsi and
Coca-Cola are closed Competitors. Pepsi and Nestle are distant
competitors
Slide 20
Analyzing Competitors Good versus Bad Every industry contains
good and bad competitors. Good competitors play by the industrys
rules, they set prices in reasonable relationship to cost. Bad
competitors try to buy share rather than earn it.
Slide 21
Competitive Strategies Market Leader Strategies: Among firms in
an industry there is a business firm which is acknowledged as
Market leader. The firm which has the largest market share Market
leader leads other firms in Price change, New Product Introduction,
distribution and Promotions. Some well know Market Leaders
Microsoft, Intel, P&G, Caterpillar, Gillette
Market Challenger Market Challenger: Business firms that occupy
the second highest market share in the ranking are Market
challengers Pepsi Co, Ford. Some of the market challenger has
overtaken the leaders. For example Toyota has overtaken General
Motors.
Slide 24
Market Challenger Strategy Price cut is the most intense reason
of challenging a market leader and maintaining quality. Price
reduction is achieved by decreasing the total fixed cost Or may
challenge the leader by introducing Prestige Goods, Price
Discounts, Product line, Innovation, Services, Intensive
Distribution, low Manufacturing Cost and Promotions.
Slide 25
Market Follower Market Follower Strategy: product imitation
might be as profitable as product innovation Innovator spend heavy
cash on developing a new product, distribute and promote it to
people. But another firm comes copy the new product and get the
rewards of it at the expense of market leader. Market followers are
of three kind
Slide 26
Market Follower strategies Counterfeiters: They copy market
leader products and sell it to customers in black market, e.g.
Music companies, Videos. Cloners: Those companies who copy the name
and packaging with slight variation Imitators: Those companies who
copy some part of the innovation from market leader but maintain
the differentiation e.g. Sony mp3 players and iPods or Samsung
touch phones and iPhones.
Slide 27
Market Nicher: An alternative to be a follower in large market
is to be a leader in Small Market. Small business firms normally
avoid competing with larger firms thus targeting smaller markets.
Firms with low share of the total market can become highly
profitable. In a study of hundreds of business units, the Strategic
Planning Institute found that the return on investment averaged 27%
in smaller markets, but only 11% in larger markets.
Slide 28
Balancing Customer-Competitor Orientation Competitor Centered
Companies: Companies that bring changes to their marketing
activities according to their competitors: Customer Centered:
Companies that bring changes to their marketing activities
according to their customer:
Slide 29
Balancing Customer-competitor Orientation cont..
Competitors-Centered Observed Situation Competitor W is going all
out to crush us in north zone. Competitor X is improving its
distribution coverage in the south zone and hurting our sales
Competitor Y has cut its prices in the east zone and we lost 3% of
the market share in less than one-quarter. Competitor Z has
introduced a new service feature in the west zone affecting our
sales. Reaction: We will withdraw from the north zone to avoid a
messy battle. We will increase our trade-promotion budget in the
south zone We will meet the price cut in the east zone. We will
increase our advertising expenditure in the west zone
Slide 30
Balancing Customer-competitor Orientation cont.. Customer
Centered Observed: The total market is growing 4% annually. The
quality sensitive segment is growing at 8% annually. A growing
number of customers have expressed an interest in a 24-hour
hotline, which no one in the industry offers. Reaction: We will
focus more effort on reaching and satisfying the quality segment of
the market. We will buy better components, improve quality control,
and shift our advertising theme to quality. We will avoid cutting
prices and making deal because we do not want the kind of customer
that buys this way. We will install a 24-hour hotline if it looks
promising.
Slide 31
Michael Porters Competitive Strategies Michael Porters
competitive Strategies 1. Cost leadership 2. Differentiation 3.
Cost Focus 4. Differentiation Focus
Slide 32
Michael Porters Competitive Strategies cont Overall Price
(Cost) Leadership: appealing to a broad section of the market by
providing products or services at the lowest price. E.g., Costco is
the cost leader in retail stores, Hyundai is the cost leader in
automobiles Differentiation: appealing to a broad section of the
market through offering differentiating features that make
customers willing to pay premium prices, e.g., superior technology,
quality, special features, and service. Price (Cost) Focus:
concentrating on a narrow customer segment and competing with
lowest prices, which, again, requires having lower cost structure
than competitors (e.g., a single, small shop on a side-street in a
town, in which they will order electronic equipment at low prices,
or the cheapest automobile made in India by TATA company)
Differentiation Focus: concentrating on a narrow customer segment
and competing through differentiating features (e.g., a
high-fashion women's clothing boutique in Paris, or Ferrari).