CHAPTER 8

1. Michael Porter's 5 forces:

 Threat of intense segment rivalry (competition within the industry)
 Buyers' power
 Suppliers' power
 Threat of potential entrants (threat of mobility)
 Threat of substitutes

2. Industry - a group of firms that are close substitutes for each other. Classified
according to degre of product differentiation, presence or absence of entry, mobility,
and exit barriers, cost structure, degre of vertical integration, degree of globalization.

3. Degree of differentiation -
 Pure monopoly - Only 1 firm provides a particular product or service in the region /
country/area (regulated monopoly / unregulated monopoly)
 Oligopoly - Small no. of large firms provide a range of products or services - highly
differentiated or standardized. Pure oligopoly few companies, commodity markets.
Differentiated oligopoly few companies, partially differentiated products along certain
features like quality / features each competitor seeks leadership along one of these
major attributes.
 Monopolistic competition - Many competitors, differentiated (wholly or partially)
products, competitors focus on market segments which can meet customer needs ina
superior way and command a price premium.
 Pure competition - commodity markets, many players, no advertising unless it can
create psychological differentiation (e.g. cigarettes, cement)

4. Barriers-
 Mobility barriers - barriers of entry into new markets
 Exit barriers (many stay on as long as they cover all their variable and part of their
fixed costs)

5. Degree of Vertical Integration

 Backward / Forward integration to lower costs and/ or gain a larger share of the value
stream.
 A vertically integrated company can manipulate prices in various parts of the value
stream and earn more profits where taxes are lowest.

6. Degree of globalization- Compete on a global basis in order to achieve economies of

scale and keep up with the latest advances in technology

7. Competitor analysis
 Once the primary competitors are analyzed, the company needs to ascertain the
characteristics, i.e. strategies, objectives (what is each company seeking in the
marketplace - history, management, financial situation, expansion plans etc.),
strengths, weaknesses, reaction patterns of the competitors.
 A strategic group is a group of firms following the same strategy in a given target
market.
 Six competitive positions of a firm in its target market-
o Dominant
o strong (can take independent action without endangering its long term position
regardless of competitors' actions)
o favourable (more than average opportunity to improve)
o tenable (satisfactory enough to continue, but improvement opportunity is less
than average)
o weak (change or exit)
o non-viable (divest).

 Three variables to monitor while analyzing its competitors –

o Share of market
o share of mind
o share of heart.

 Reaction patterns of competitors –

o Laidback competitor,
o Selective competitor (reacts to certain types of attacks), T
o iger competitor (reacts to every move),
o Stochastic competitor (no predictable behaviour)

 Competitive equilibrium (Bruce Henderson):

o If competitors are nearly identical and make their living in a similar way, then
their competitive equilibrium is unstable as differentiation is hard to maintain.
o If a single factor (e.g. a cost breakthrough or technical advancement achieved
by one firm) is the critical factor, then competitive equilibrium is unstable as
competitors can defend their share only at a great cost.

 If multiple factors may be critical factors, then it is possible for each competitor to
have some advantage and be differentially attractive to some customers. The more
factors that may provide a competitive advantage, the more competitors can coexist.

 The fewer the number of critical factors, the fewer the number of competitors.

 A ratio of 2 to 1 in market share between any two competitors seems to be the

equilibrium point at which it is neither practical nor advantageous for either
 competitor to increase or decrease share. At this level, the costs of extra promotion or
distribution would outweigh the gains in market share.

8. Four main steps to designing a competitive intelligence system:

 Setting up the system
 Collecting the data
 Evaluating and analyzing the data
 Disseminating information and responding

9. Selecting competitors to attack and to avoid

 Customer value analysis - to reveal the company's strengths and weaknesses relative
to various competitors-
o Identify the major attributes customers value
o Assess the quantitative importance of the different attributes
o Assess the company's and competitors' performances on the different customer
values against their rated importance
o Examine how customers in a specific segment rate the company's performance
against a specific major competitor on an attribute-by-attribute basis
o Monitor customers' values over time

10. Classes of competitors-

 Strong vs. weak
 Close vs. distant (companies should avoid trying to destroy their closest competitor -
Porter)
 Good vs. bad (do not play by the rules, set unreasonable prices, try to buy share rather
than earn it, take large risks, invest in overcapacity, upset the industrial equilibrium)

11. Competitive Strategies

 Defending market share –

o Position defence (build an impregnable fortress around one's territory)
o Flank defence (erect outposts, i.e. new products/ alternatives) to protect a
weak front or serve as an invasion base for counterattack, e.g. Starbucks coffee
launching non- coffee products like tea and juice ('teazzi')
o Counteroffensive defence (hit back to counter the competitor's price cut or
promotional blitz)
o Mobile defence (stretch your domain over new territories that can serve as
future centres for defence and offence.
 o Market broadening - shift focus from the current product to the underlying
generic need. Do not carry this too far lest you fault upon the two fundamental
military principles - the principle of the objective (pursue a clearly defined,
decisive and attainable objective) and principle of mass (concentrate your
efforts at a point of enemy weakness.)
o Market Diversification shift focus to unrelated industries. Eg: Tobacco
companies moving into beer, liquor, soft drinks, etc, as a result of curbs on the
cigarette industry.
o Contraction Defense - Planned contraction by large companies (strategic
withdrawal) - giving up weaker territories and assigning resources to stronger
territories - concentrate competitive strength - pruning of product lines - Eg:
GE, Heinz, etc.

 Expanding Market Share –

o to improve profitability as it rises with its relative market share of the served
market.
o Share Gaining companies outperform competitors in:
 New Product activity
 Relative product quality
 Market expenditures

 Market challenger strategies - first define strategic objective and opponent(s)

o Attack the market leader: high risk-high payoff strategy. Makes sense if the
leader isn't serving the market well. Targeting unsatisfied customers out
innovate competitor across the whole segment.
o Attack firms of its own size that are under performing and are under financed:
they charge excessive prices, have ageing products, etc.
o Attack small & regional firms

 General Attack Strategy:

o Frontal Attack: match opponents products, pricing, advertising & distribution.
Win through sheer greater manpower & resources.
o Modified Frontal Attack: price cutting vis-à-vis opponent. Can work if market
leader doesn't retaliate or competitor can convince of better/equal quality
products.
o Main principle of offensive warfare - "Concentration of strength against
weakness"
o Flank Attack:
 a) Geographical-challenge opponent in spot areas where he is
underpefroming
b) Segmental serve uncovered market needs.
o Encirclement maneuver: capture a wide slice of opponent's market through a
'blitz'. Launch a grand offensive on several fronts. Can be pursued by firms
having superior resources.
o Bypass Strategy: bypass the enemy and attack easier markets to broaden
resource base. 3 ways:
 Diversifying into unrelated products
 Diversifying into new geographical markets
 New technologies to supplant existing products
o Guerilla Attack: small intermittent attacks to harass and demoralize opponents
and secure permanent footholds. Conventional & unconventional means
intense promotional blitzes, occasional legal actions.

 Specific Attack Strategies: (Beyond the above broad strategies)

o Price Discount
o Cheaper Goods
o Prestige Goods
o Product Proliferation
o Product Innovation
o Improved services
o Distribution innovation
o Manufacturing cost reduction
o Intensive advertising promotion
o selective price cuts
 Market Follower Strategies

o Counterfeiter: duplicate leader's product & package - sell it in the black

market thru disreputable dealers
o Cloner: emulate leader's products, name, and packaging, with slight variations
→ Imitator: copy some things from the latter but maintain differentiation in
packaging, advertising, pricing, etc.
o Adapter: take the leader's products and adapt or improve them. Choose to sell
to different markets. Grows into the future challenger.

 Market nicher strategy

This strategy involves avoiding competing with large firms by targeting small markets
which are low volume but highly profitable. The profits are higher because of higher
margin as compared to mass market. The specialization of niche market can be of
following type-
o End user specialist - customized computer hardware and software.
o Vertical level specialist- copper firm producing raw mat or comp or finished
prod 3. Customer size spec- small customer neglected by others
o Specific customer spec- selling entire output to GM or Sears
o Geographic spec - selling in one particular location
o Product line spec - lenses of microscope or ties
o Job shop spec- customizing for individuals, Customized cars
o Quality price spec - HP operated on high price and high quality
o Service spec - bank accepting loans on phone and hand delivery of money
o Channel spec - soft drink selling thru only gas stations