Competitive Strategies1 Competitive Strategies Prateek Kalia, Ph.D. Competitive strategies2 Agenda ̶ Competitive Strategies adopted by ̶ Market Leader ̶ Market Challenger ̶ Market Follower ̶ Market Nicher ̶ Product Life-Cycle Marketing Strategies ̶ Marketing in an Economic Downturn Competitive strategies3 Hypothetical Market Structure 10% Market Nichers 20% Market Follower 30% Market Challenger 40% Market Leader Competitive strategies4 Market Leaders Strategies Expanding Total Market Demand Protecting Market Share Increasing Market Share Competitive strategies5 Expanding Total Market Demand ̶ New Customers ̶ Who might use it but do not (market penetration strategy) ̶ Who have never used it (new-market segment strategy) ̶ Who live elsewhere (geographical-expansion strategy) ̶ More Usage ̶ Increase the amount, level, or frequency of consumption. ̶ Boost the amount through packaging or product redesign. ̶ More availability for impulse products such as soft drinks and snacks ̶ Additional opportunities to use the brand (E.g., Gillette razor cartridges with colored stripes signaling replacement) ̶ New ways to use the brand ̶ (E.g., Toothpaste as stain remover from piano keys) Competitive strategies6 Protecting Market Share ̶ The most constructive response is continuous innovation. The front-runner should lead the industry in developing new products and customer services, distribution effectiveness, and cost cutting. Proactive Marketing Defensive Marketing Competitive strategies7 Proactive Marketing Responsive • Finds a stated need and fills it. Anticipative • Looks ahead to needs customers may have in the near future. Creative • Discovers solutions customers did not ask for but to which they enthusiastically respond. Competitive strategies8 Defensive Marketing Competitive strategies9 Defensive Marketing ̶ Position Defense. ̶ Position defense means occupying the most desirable market space in consumers’ minds, making the brand almost impregnable, as Procter & Gamble has done with Tide detergent for cleaning, Crest toothpaste for cavity prevention, and Pampers diapers for dryness. ̶ Flank Defense ̶ The market leader should erect outposts to protect a weak front or support a possible counterattack. Procter & Gamble brands such as Gain and Cheer laundry detergent and Luvs diapers have played strategic offensive and defensive roles. ̶ Preemptive Defense. ̶ A more aggressive maneuver is to attack first, perhaps with guerrilla action across the market—hitting one competitor here, another there—and keeping everyone off balance. Another is to achieve broad market envelopment that signals competitors not to attack. E.g., Bank of America, Microsoft. Competitive strategies10 Defensive Marketing Contd.. ̶ Counteroffensive Defense ̶ In a counteroffensive, the market leader can meet the attacker frontally and hit its flank, or launch a pincer movement so it will have to pull back to defend itself. After FedEx watched UPS successfully invade its airborne delivery system, it invested heavily in ground delivery through a series of acquisitions to challenge UPS on its home turf. ̶ https://www.youtube.com/watch?v=vHVWegNfQl0&ab_channel=JvMNeckar ̶ Mobile Defense ̶ In mobile defense, the leader stretches its domain over new territories through market broadening and market diversification. Market broadening shifts the company’s focus from the current product to the underlying generic need. Thus, “petroleum” companies such as BP sought to recast themselves as “energy” companies. This change required them to research the oil, coal, nuclear, hydroelectric, and chemical industries. Competitive strategies11 Defensive Marketing Contd.. ̶ Contraction Defense ̶ Sometimes large companies can no longer defend all their territory. In planned contraction (also called strategic withdrawal), they give up weaker markets and reassign resources to stronger ones. Since 2006, Sara Lee has spun off products that accounted for a large percentage of its revenues—including its strong Hanes hosiery brand and global body care and European detergents businesses—to focus on its core food business. Competitive strategies12 Increasing Market Share ̶ Economic cost ̶ Profitability might fall with market share gains after some level. For instance, the costs of legal work, public relations, and lobbying rise with market share. ̶ The danger of pursuing the wrong marketing activities ̶ Companies that attempt to increase market share by cutting prices more deeply than competitors typically don’t achieve significant gains, because rivals meet the price cuts or offer other values so buyers don’t switch. ̶ The effect of increased market share on actual and perceived quality ̶ Too many customers can put a strain on the firm’s resources, hurting product value and service delivery. Competitive strategies13 The Concept of Optimal Market Share Competitive strategies14 Other Competitive Strategies Market Challengers Market Followers Market Nichers Competitive strategies15 Market-Challenger Strategies Competitive strategies16 Defining the strategic objective and opponent(s) ̶ Attack the market leader ̶ This is a high-risk but potentially high-payoff strategy and makes good sense if the leader is not serving the market well. Xerox wrested the copy market from 3M by developing a better copying process. ̶ Attack firms its own size that are not doing the job and are underfinanced. ̶ These firms have aging products, are charging excessive prices, or are not satisfying customers in other ways. ̶ Attack small local and regional firms. ̶ Several major banks grew to their present size by gobbling up smaller regional banks, or “guppies.” Competitive strategies17 Choosing a General Attack Strategy ̶ Frontal Attack ̶ The attacker matches its opponent’s product, advertising, price, and distribution. The principle of force says the side with the greater resources will win. A modified frontal attack, such as cutting price, can work if the market leader doesn’t retaliate, and if the competitor convinces the market its product is equal to the leader’s. ̶ Flank Attack ̶ Identifying shifts that are causing gaps to develop, then rushing to fill the gaps. Flanking is particularly attractive to a challenger with fewer resources and can be more likely to succeed than frontal attacks. E.g., Newspapers sell where internet is still weak. ̶ Encirclement Attack ̶ Attempts to capture a wide slice of territory by launching a grand offensive on several fronts. It makes sense when the challenger commands superior resources. E.g., Microsoft vs Java Software. Competitive strategies18 ̶ Bypass Attack ̶ Bypassing the enemy altogether to attack easier markets instead offers three lines of approach: diversifying into unrelated products, diversifying into new geographical markets, and leapfrogging into new technologies. E.g., Pepsi rolled Aquafina, bought Tropicana, Google used technological leapfrogging to overtake Yahoo! ̶ Guerrilla Attacks ̶ Guerrilla attacks consist of small, intermittent attacks, conventional and unconventional, including selective price cuts, intense promotional blitzes, and occasional legal action, to harass the opponent and eventually secure permanent footholds. Choosing a General Attack Strategies ... Competitive strategies19 Choosing a Specific Attack Strategy ̶ Any aspect of the marketing program can serve as the basis for attack, such as lower-priced or discounted products, new or improved products and services, a wider variety of offerings, and innovative distribution strategies. A challenger’s success depends on combining several, more specific, strategies to improve its position over time. Competitive strategies20 Market-Follower Strategies Competitive strategies21 Market-Follower Strategies ̶ Counterfeiter ̶ Duplicates the leader’s product and packages and sells it on the black market or through disreputable dealers. Music firms, Apple, and Rolex have been plagued by the counterfeiter problem, especially in Asia. ̶ Cloner ̶ Emulates the leader’s products, name, and packaging, with slight variations. For example, Ralcorp Holdings sells imitations of name-brand cereals in look-alike boxes. Competitive strategies22 Market-Follower Strategies Contd. ̶ Imitator ̶ Copies some things from the leader but differentiates on packaging, advertising, pricing, or location. The leader doesn’t mind as long as the imitator doesn’t attack aggressively. Fernandez Pujals grew up in Fort Lauderdale, Florida, and took Domino’s homedelivery idea to Spain, where he borrowed $80,000 to open his first store in Madrid. His Telepizza chain now operates almost 1,050 stores in Europe and Latin America. ̶ Adapter ̶ The adapter takes the leader’s products and adapts or improves them. The adapter may choose to sell to different markets, but often it grows into a future challenger, as many Japanese firms have done after improving products developed elsewhere. Competitive strategies23 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. Competitive strategies24 Product Life-Cycle Marketing Strategies Competitive strategies25 Product Life Cycle Competitive strategies26 Four assertions of Product Life Cycle ̶ Products have a limited life. ̶ 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. Competitive strategies27 Marketing Strategies: Introduction Stage ̶ Roll out a new product, work out the technical problems, fill dealer pipelines, and gain consumer acceptance, sales growth tends to be slow in the introduction stage. Profits are negative or low, and promotional expenditures are at their highest ratio to sales because of the need to: ̶ (1) Inform potential consumers, ̶ (2) Induce product trial, and ̶ (3) Secure distribution in retail outlets. Competitive strategies28 Marketing Strategies: Growth Stage ̶ Improve product quality and adds new features and improved styling. ̶ Add new models and flanker products (of different sizes, flavors, and so forth) to protect the main product. ̶ Enter new market segments. ̶ Increase distribution coverage and enter new channels. ̶ Shift from awareness and trial communications to preference and loyalty communications. ̶ Lowers prices to attract the next layer of price-sensitive buyers. Competitive strategies29 Marketing Strategies: Maturity Stage ̶ Market Modification ̶ A company might try to expand the market for its mature brand by working with the two factors that make up sales volume: Volume = number of brand users × usage rate per user, but may also be matched by competitors. ̶ Product Modification ̶ Stimulate sales by improving quality, features, or style. Quality improvement increases functional performance by launching a “new and improved” product. Feature improvement adds size, weight, materials, supplements, and accessories that expand the product’s performance, versatility, safety, or convenience. ̶ Marketing Program Modification ̶ Stimulate sales by modifying nonproduct elements—price, distribution, and communications in particular. Competitive strategies30 Marketing Strategies: Decline Stage ̶ Restage or rejuvenate ̶ a mature product often do so by adding value to it (When exit barriers are high). ̶ Harvesting ̶ Gradually reducing a product or business’s costs while trying to maintain sales. The first step is to cut R&D costs and plant and equipment investment. The company might also reduce product quality, sales force size, marginal services, and advertising expenditures, ideally without letting customers, competitors, and employees know what is happening. ̶ Divest ̶ If a company is having a product with strong distribution and residual goodwill, it can probably sell the product to another firm. Competitive strategies31 Summary Competitive strategies32 Marketing in an Economic Downturn ̶ Explore the Upside of Increasing Investment ̶ Get Closer to Customers ̶ Review Budget Allocations ̶ Put Forth the Most Compelling Value Proposition ̶ Fine-tune Brand and Product Offerings Competitive strategies33 Explore the Upside of Increasing Investment ̶ UK supermarket giant Sainsbury launched an advertising and in-store point-of-sale campaign called “Feed Your Family for a Fiver” that played off its corporate slogan, “Try Something New Today,” to encourage shoppers to try new recipes that would feed families for only £5. Competitive strategies34 Get Closer to Customers ̶ After unsuccessfully chasing twenty-somethings with trendier clothing, Old Navy refocused its message to target a budgetconscious mom shopping for herself and the family Competitive strategies35 Put Forth the Most Compelling Value Proposition ̶ Marketers should increase—and clearly communicate—the value their brands offer, making sure consumers appreciate all the financial, logistical, and psychological benefits compared with the competition. Competitive strategies36 Review Budget Allocations Competitive strategies37 Fine-tune Brand and Product Offerings ̶ Tier I, Giorgio Armani and Giorgio Armani Privé ̶ Custom-made couture products that sell for thousands of dollars. ̶ Tier II, Emporio Armani ̶ Young, modern, more affordable styles—convey technology and ecology. ̶ Tier III, A|X Armani Exchange ̶ Youthful and street-savvy sold at retail locations in cities and suburban malls.