COMPETITIVE DYNAMICS

DETAILED CHAPTER OUTLINE

To be a long-term market leader is the goal of any marketer. Todays challenging marketing
circumstances, however, often dictate that companies reformulate their marketing strategies and
offerings several times. Economic conditions change, competitors launch new assaults, and
buyer interest and requirements evolve. Different market positions can suggest different market
strategies.
This chapter eamines the role competition plays and how marketers can best manage their
brands depending on their market position and stage of the product life cycle. !ompetition grows
more intense every year"from global competitors eager to grow sales in new markets, and
online competitors seeking cost-efficient ways to epand distribution, to private-label and store
brands providing low-price alternatives and brand etensions by mega-brands moving into new
categories. #or these reasons and more, product and brand fortunes change over time, and
marketers must respond accordingly.
COMPETITIVE STRATEGIES FOR MARKET LEADERS
$ market leader has the largest market share and usually leads in price changes, new-product
introductions, distribution coverage, and promotional intensity.
%e can gain further insight by classifying firms by the roles they play in the target market&
'( )eader
*( !hallenger
+( #ollower
,( -icher
$lthough marketers assume well-known brands are distinctive in consumers minds, unless a
dominant firm en.oys a legal monopoly, it must maintain constant vigilance.
Marketing Insight !hen Y"#r C"$%etit"r De&i'ers M"re ("r Less
/tates that too many companies search within the conventional boundaries of industry
competition 01do battle2( instead of finding unoccupied market positions that represent real value
innovation.
Di((erentiati"n
3arketers need to protect areas where their business models give other companies room to
maneuver.
E)e*#ti"n
To compete effectively, firms may instead need to downplay or even abandon some market
segments. The low-cost operation must be designed and launched as a moneymaker in its own
right, not .ust as a defensive play.
To stay number one, the firm must first find ways to epand total market demand. /econd, it
must protect its current share through good defensive and offensive actions. Third, it should
increase market share, even if market si4e remains constant.
E)%an+ing T"ta& Market De$an+
%hen the total market epands, the dominant firm usually gains the most.
Ne, C#st"$ers
Every product class has the potential to attract buyers who are unaware of the product or are
resisting it because of price or lack of certain features. $ company can search for new users
among three groups&
'. those who might use it but do not 0market-penetration strategy(,
*. those who have never used it 0new-market segment strategy(,
+. Those who live elsewhere 0geographical-epansion strategy(.
M"re Usage
$( 3arketers can try to increase the amount, level, or frequency of consumption.
5( They can sometimes boost the amount through packaging or product redesign.
!( )arger package si4es increase the amount of product consumers use at one time.
D( !onsumers use more of impulse products such as soft drinks and snacks when the product is
made more available.
E( 6ncreasing frequency of consumption, on the other hand, requires either
0'( identifying additional opportunities to use the brand in the same basic way or
0*( identifying completely new and different ways to use the brand.
#( $dditional opportunities to use the brand.
7( $ marketing program can communicate the appropriateness and advantages of using the
brand. !loro ads stress the many benefits of its bleach, such that it eliminates kitchen odors.
8( $nother opportunity arises when consumers perceptions of their usage differs from reality.
6( -ew ways to use the brand. The second approach to increasing frequency of consumption is
to identify completely new and different applications.
Pr"te*ting Market Share
$( %hile trying to epand total market si4e, the dominant firm must actively defend its current
business.
5( 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.
!( !omprehensive solutions increase its competitive strength and value to customers.
Pr"a*ti'e Marketing
$( 6n satisfying customer needs, we can draw a distinction between responsive marketing,
anticipative marketing, and creative marketing.
5( $ responsive marketer finds a stated need and fills it.
!( $n anticipative marketer looks ahead to needs customers may have in the near future.
D( $ creative marketer discovers solutions customers did not ask for but to which they
enthusiastically respond.
E( !reative marketers are proactive market-driving firms, not .ust market-driven ones.
#( 3any companies assume their .ob is .ust to adapt to customer needs. They are reactive
mostly because they are overly faithful to the customer-orientation paradigm and fall victim
to the 1tyranny of the served market.2
7( /uccessful companies instead proactively shape the market to their own interests. 6nstead of
trying to be the best player, they change the rules of the game.
8( $ company needs two proactive skills&
'. responsive anticipation to see the writing on the wall, as when 653 changed from a hardware
producer to a service business
*. creative anticipation to devise innovative solutions, as when 9epsi!o introduced 8*:8 0a
soft drink-bottled water hybrid(.
6( -ote that responsive anticipation is performed before a given change, while reactive response
happens after the change takes place.
;( 9roactive companies create new offers to serve unmet"and maybe even unknown"
consumer needs.
<( 9roactive companies may redesign relationships within an industry, like Toyota and its
relationship to its suppliers. :r they may educate customers, as 5ody /hop does in
stimulating the choice of environmental friendly products.
)( !ompanies need to practice 1uncertainty management.2 9roactive firms&
a. $re ready to take risks and make mistakes
b. 8ave a vision of the future and of investing in it
c. 8ave the capabilities to innovate
d. $re fleible and non-bureaucratic
e. 8ave many managers who think proactively
3( !ompanies that are too risk-averse wont be winners.
De(ensi'e Marketing
Even when it does not launch offensives, the market leader must not leave any ma.or flanks
eposed.
The aim of defensive strategy is to reduce the probability of attack, divert attacks to less-
threatened areas, and lessen their intensity. /peed of response can make an important difference
to profit.
$ dominant firm can use the si defense strategies&
'. 9osition Defense - 9osition defense means occupying the most desirable market space in
consumers minds, making the brand almost impregnable.
*. #lank Defense - The market leader should erect outposts to protect a weak front or
support a possible counterattack.
+. 9reemptive Defense - $ 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.
,.
,. !ounteroffensive Defense - 6n counteroffensive defense the market leader can meet the
attacker frontally, hit its flank, or launch a pincer movement so it will have to pull back to
defend itself.
=. 3obile Defense - 6n mobile defense, the leader stretches its domain over new territories
through market broadening and market diversification.
a. market broadening shifts focus from the current product to the underlying generic
need.
b. 3arket diversification shifts into unrelated industries.
>. !ontraction Defense - /ometimes large companies can no longer defend all of their
territory.
a. 6n planned contraction 0also called strategic withdrawal(, they give up weaker
markets and reassign resources to stronger ones.
In*reasing Market Share
7aining increased share, does not automatically produce higher profits, especially for labor-
intensive service companies that may not eperience many economies of scale.
5ecause the cost of buying higher market share through acquisition may far eceed its revenue
value, a company should consider four factors first&
$( The possibility of provoking antitrust action. #rustrated competitors are likely to cry
1monopoly2 and seek legal action if a dominant firm makes further inroads.
5( Economic cost. #igure ?.+ shows that profitability might fall with market share gains after
some level. 6n the illustration, the firms optimal market share is =@A. The cost of gaining
further market share might eceed the value if holdout customers dislike the company, are
loyal to competitors, have unique needs, or prefer dealing with smaller firms.
!( The danger of pursuing the wrong marketing activities. !ompanies successfully gaining
share typically outperform competitors in three areas& new-product activity, relative product
quality, and marketing ependitures.
D( The effect of increased market share on actual and perceived quality. Too many customers
can put a strain on the firms resources, hurting product value and service delivery.
OTHER COMPETITIVE STRATEGIES
#irms that occupy second, third, and lower ranks in an industry are often called runner-up, or
trailing firms.
These firms can adopt one of two postures.
Each can attack the leader and others in an aggressive bid for further market share 0market
challengers(, or they can play ball and not 1rock the boat2 0market followers(.
Market-Cha&&enger Strategies
$( 3any market challengers have gained ground or even overtaken the leader.
De(ining the Strategi* O./e*ti'e an+ O%%"nents0s1
$ market challenger must first define its strategic ob.ective. The challenger must decide whom to
attack&
$( 6t can attack the market leader
5( 6t can attack firms of its own si4e that are not doing the .ob and are underfinanced
!( 6t can attack small local and regional firms
Ch""sing a Genera& Atta*k Strateg2
%e can distinguish among five attack strategies&
$( #rontal
5( #lank
!( Encirclement
D( 5ypass
'( Diversifying into unrelated products.
*( Diversifying into new geographical markets.
+( Technological leapfrogging into new technologies.
E( 7uerrilla %arfare
The wide geographical spread of the market and variations in tastes, preferences, and habits in
/outh $sia have encouraged the growth of regional brands in a wide range of product categories.
Beputed international brands face stiff competition from regional champions who understand the
local and regional tastes, customs, and preferences well. These firms also tend to be
entrepreneurial in their strategic and tactical initiatives and quick in decision making.
Ch""sing a S%e*i(i* Atta*k Strateg2
The challenger must go beyond the five broad strategies and develop more specific strategies. $
challengers success depends upon combining several strategies to improve its position over time.
Market-F"&&",er Strategies
9roduct imitation might be as profitable as product innovation. 3any companies prefer to
follow rather than challenge the market leader.
$( 1!onscious parallelism2
5( $ market follower must know how to hold current customers and win a fair share of new
customers.
!( Each follower tries to bring distinctive advantages to its target market"location, services,
andCor financing.
D( #our broad strategies can be distinguished&
'( !ounterfeiter
*( !loner
+( 6mitator
,( $dapter
Marketing Insight C"$%etiti"n in R#ra& Markets3Fake "r Rea&4
discusses the problem of fake brands in rural markets in 6ndia.
Market-Ni*her Strategies
$n alternative to being a follower in a large market is to be a leader in a small market, or niche.
$( #irms with low shares of the total market can be highly profitable through smart niching.
5( /uch companies tend to offer high value, charge a premium price, achieve lower
manufacturing costs, and shape a strong corporate culture and vision.
!( %hy is niching so profitableD
'( The main reason is that the market nicher ends up knowing the target customers so well
that it meets their needs better than other firms selling to this niche. The nicher achieves
high margin, whereas, the mass marketer achieves higher volume.
D( -ichers have three tasks&
'( !reating niches
*( Epanding niches
+( 9rotecting niches
Marketing Me$" Ni*he s%e*ia&ist r"&es
The key idea in successful nichemanship is speciali4ation and some roles are& end-user specialistE
vertical-level specialistE customer-si4e specialistE specific-customer specialistE geographic
specialistE product or product-line specialistE .ob-shop specialistE quality-price specialistE service
specialistE and channel specialist.
PRODUCT LIFE-CYCLE MARKETING STRATEGIES
$ companys positioning and differentiation strategy must change as the product, market, and
competitors change over the product life cycle 09)!(.
$( 9roducts have a limited life.
5( 9roduct sales pass through distinct stages, each posing different challenges, opportunities, and
problems to the seller.
!( 9rofits rise and fall at different stages of the product life cycle.
D( 9roducts require different marketing, financial, manufacturing, purchasing, and human
resource strategies in each life-cycle stage.
Pr"+#*t Li(e C2*&es
$( The product life cycle is divided into four stages&
'( 6ntroduction
*( 7rowth
+( 3aturity
,( Decline
5( The 9)! concept can be used to analy4e a product category, a product form, a product, or a
brand.
!( #igure ?.= 0a( shows a growth-slump-maturity pattern.
D( #igure ?.= 0b( shows a cycle-recycle pattern.
E( #igure ?.= 0c( shows a common pattern called scalloped.
St2&e5 Fashi"n5 an+ Fa+ Li(e C2*&es
$( $ style is a basic and distinctive mode of epression appearing in a field of human endeavor.
5( $ fashion is a currently accepted or popular style in a given field.
!( #ashions pass through four stages&
'( Distinctiveness
*( Emulation
+( 3ass-fashion
,( Decline
D( The length of a fashion cycle is hard to predict.
E( #ads are fashions that come quickly into public view, are adopted with great 4eal, peak early,
and decline very fast.
#( #ads do not survive because they do not normally satisfy a strong need.
Marketing Strategies Intr"+#*ti"n Stage an+ Pi"neer A+'antage
$( 9rofits are negative or low in the introduction stage.
5( 9romotional ependitures are at their highest ration to sales because of the need to&
'( 6nform potential consumers.
*( 6nduce product trial.
+( /ecure distribution in retail outlets.
!( !ompanies that plan to introduce a new product must decide when to enter the market.
D( To be first can be rewarding, but risky and epensive.
E( To come in later makes sense if the firm can bring superior technology, quality, or brand
strength.
#( /peeding up innovation time is essential in an age of shortening product life cycles.
7( 3ost studies indicate that the market pioneer gains the most advantage.
8( %hat are the sources of the pioneers advantageD
'( Early users will recall the pioneers brand name if the product satisfies them.
*( The pioneers brand also establishes the attributes the product class should possess.
+( The pioneers brand normally aims at the middle of the market and so captures more
users.
,( There are producer advantages&
a. Economies of scale.
b. Technological leadership.
c. 9atents.
d. :wnership of scarce assets.
e. :ther barriers to entry.
6( The pioneers advantage is not inevitable.
;( /teven /chnaars studied industries where imitators surpassed the innovators. 8e found several
weaknesses among the failing pioneers&
'( -ew products were too crude.
*( %ere improperly positioned.
+( $ppeared before there was a strong demand.
,( 9roduct-development costs were high.
=( )ack of resources to compete.
>( 3anagerial incompetence or unhealthy complacency.
<( 7older and Tellis raise further doubts about the pioneer advantage. They distinguish between
an&
'( 6nventor& first to develop patents in a new-product category.
*( $ product pioneer& first to develop a working model.
+( $ market pioneer& first to sell in the new-product category.
)( 7older and Telliss five factors underpinning long-term market leadership&
'( Fision of a mass market
*( 9ersistence
+( Belentless innovation
,( #inancial commitment
=( $sset leverage
Marketing Strategies Gr",th Stage
The growth stage is marked by a rapid climb in sales. Early adopters like the product, and
additional consumers start buying it. -ew competitors enter, attracted by the opportunities.
$( 9rices remain where they are or fall slightly.
5( !ompanies maintain their promotional ependitures at the same or at a slightly increased level
to meet competition and to continue to educate the market.
!( /ales rise much faster than promotional ependitures.
D( 9rofits increase.
E( 3anufacturing costs fall faster than price declines owing to the producer learning effect.
#( During this stage, the firm uses several strategies to sustain rapid market growth&
'( 6t improves product quality and adds new product features and improved styling.
*( 6t adds new models and flanker products.
+( 6t enters new market segments.
,( 6t increases its distribution coverage and enters new distribution channels.
=( 6t shifts from product-awareness advertising to product-preference advertising.
>( 6t lowers prices to attract the net layer of price-sensitive buyers.
7( $ firm in the growth stage faces a trade-off between high market share and high current
profits. 5y spending money on product improvement, promotion, and distribution, it can
capture a dominant position.
Marketing Strategies Mat#rit2 Stage
$t some point, the rate of sales growth will slow, and the product will enter a stage of relative
maturity.
This stage normally lasts longer than the previous stages and poses big challenges to marketing
management. 3ost products are in the maturity stage of the life cycle.
$( The maturity stage divides into three phases&
'( 7rowth, where the sales growth rate starts to decline
*( /table, where sales flatten on a per capita basis because of market saturation
+( Decaying maturity, where the absolute level of sales starts to decline, and customers begin
switching to other products
5( The sales slowdown creates overcapacity in the industry that leads to intensified competition
!( The industry eventually consists of well-entrenched competitors whose basic drive is to gain
or maintain market share
D( Dominating the industry are a few giant firms that serve the whole market and make their
profits mainly through high volume
E( /urrounding these dominant firms is a multitude of market nichers
#( The issue facing a firm in a mature market is whether to become one of the 1big three2 or
pursue a niching strategy
7( /ome companies at this stage abandon weaker products and concentrate on products that are
more profitable and on new products
Market M"+i(i*ati"n
The company might try to epand the market for its mature brand by working with the two
factors that make up sales volume& FolumeGnumber of brand users H usage rate per user.
$( 6t can try to epand the number of brands users by converting nonusers.
5( 6t can also try to epand the number of brand users by entering new market segments.
!( $ third way to epand the number of brand users is winning competitors customers.
D( Folume can also be increased by convincing current users to increase their brand usage&
'( Ise the product on more occasions.
*( Ise more of the product on each occasion.
+( Ise the product in new ways.
Pr"+#*t M"+i(i*ati"n
3anagers also try to stimulate sales by modifying the products characteristics through quality
improvement, feature improvement, or style improvement.
$( Juality improvement aims at increasing the products functional performance.
5( #eature improvement aims at adding new features that epand the products performance,
versatility, safety, or convenience.
'( This strategy has several advantages&
a. -ew features build the companys image as an innovator.
b. %ins the loyalty of market segments that value these features.
c. 9rovide an opportunity for free publicity.
d. 7enerate sales force and distributor enthusiasm.
*( The chief disadvantage is that feature improvements might not pay off in the long run.
!( /tyle improvement aims at increasing the products aesthetic appeal.
Marketing Pr"gra$ M"+i(i*ati"n
$( 9roduct managers might also try to stimulate sales by modifying other marketing program
elements.
'( 9rices
*( Distribution
+( $dvertising
,( /ales promotion
=( 9ersonal selling
>( /ervices
5( 3arketers often debate which tools are most effective in the mature stage.
Marketing Strategies De*&ine Stage
/ales decline for a number of reasons, including technological advances, shifts in consumer
tastes, and increased domestic and foreign competition. $ll lead to overcapacity, increased price-
cutting, and profit erosion.
$( $s sales and profits decline, some firms withdraw from the market. Those remaining may
reduce the number of products they offer.
5( 6n handling aging products, a company faces a number of tasks and decisions.
E'i+en*e ("r the Pr"+#*t Li(e-C2*&e C"n*e%t
$( The 9)! concept helps marketers interpret product and market dynamics, conduct planning
and control, and do forecasting.
5( -ew consumer durables show a distinct takeoff, after which sales increase by roughly ,=A a
year, but they also show a distinct slowdown, when sales decline by roughly '=A a year.
!( /lowdown occurs at +,A penetration on average, well before most households own a new
product.
D( The growth stage lasts a little over eight years and does not seem to shorten over time.
E( 6nformational cascades eist, meaning people are more likely to adopt over time if others
already have, instead of by making careful product evaluations. :ne implication is that
product categories with large sales increases at takeoff tend to have larger sales declines at
slowdown.
Criti6#e "( the Pr"+#*t Li(e-C2*&e C"n*e%t
$( 9)! theory has its share of critics, who claim life-cycle patterns are too variable in shape and
duration to be generali4ed, and that marketers can seldom tell what stage their product is in.
5( $ product may appear mature when it has actually reached a plateau prior to another upsurge.
!( !ritics also charge that, rather than an inevitable course, the 9)! pattern is the self-fulfilling
result of marketing strategies, and that skillful marketing can in fact lead to continued
growth.
D( Market E'"&#ti"n
5ecause the 9)! focuses on whats happening to a particular product or brand rather than the
overall market, it yields a product-oriented rather than a market-oriented picture.
MARKETING IN AN ECONOMIC DO!NTURN
7iven economic cycles there will always be tough times, like *@@?-*@'@ were in many parts of
the world.
Despite reduced funding for marketing programs and intense pressure to .ustify them as cost
effective, some marketers survived"or even thrived"in the recession.
8ere are five guidelines to improve the odds for success during an economic downturn&
$( Eplore the Ipside of 6ncreasing 6nvestment
5( 7et !loser to !ustomers
!( Beview 5udget $llocations
D( 9ut #orth the 3ost !ompelling Falue 9roposition
#ine-Tune 5rand and 9roduct :fferings