Session 17 MG 220 Marketing Management BBA 09 Sec C

1. Part 4: Building Strong Brands > Competitive forces > Identifying Competitors > Analyzing Competitors > Competitive Strategies for Market Leaders Class Presentation | Session 17 | 13 Oct 2010

2. Competitive Forces Michael Porter’s Five Forces Model Threat of intense segment rivalry INDUSTRY COMPETITORS’ intense rivalry can make a segment unattractive Threat of new entrants Depending on what kind of entry & exit barriers exist If both are high: profits are high and risks are high too If entry is high but exit is low: firms enter If both are low: returns are low and stable Threat of substitute products If there are actual or potential substitute products Threat of buyer’s growing bargaining power If buyers possess strong or even growing bargaining power, it can erode margins Threat of suppliers’ growing bargaining power If suppliers can raise prices or reduce quantity supplied and have bargaining power it can make an industry unattractive MG 220 Marketing Management 2

3. Identifying Competitors Taking a broad view of competitors is very important - examples Two key views of Competition Industry concept of competition Industry is a group of firms that offer a product or class of products that are close substitutes for one another Industries are classified according to: Number of sellers & Degree of Differentiation Pure Monopoly Only one firm provides product/service in a category or area E.g. PTCL (previously) or LESCO in Lahore etc. Oligopoly Few (generally large) companies in same category E.g. OMCs in Pakistan Monopolistic Competition Many competitors able to offer and differentiate their offer Fast food industry in Pakistan Pure Competition Too many competitors offer same product and compete at same level Commodity market / stock market etc. MG 220 Marketing Management 3

4. Identifying Competitors Industry concept of competition (…contd) Entry, mobility & Exit barriers Entry barriers (how easy it is to enter a market) Mobility barriers (how easy it is to move to attractive segments) Exit barriers (how easy it is to move out) Cost Structure Some industries are capital intensive e.g. steel manufacturing Degree of Vertical Integration Degree of Globalization Market Concept of Competition Marketers need to stay away from ‘marketing myopia’ and identify direct & indirect competitors A broad set of competitors exist need to be profiled carefully Examples MG 220 Marketing Management 4

5. Analyzing Competitors Strategies Strategic Group: a group of firms following same strategy in a given market Objectives Generally competitors try to maximize profits But other concepts may also exist and may be followed e.g. short-term or long-term profits An alternative assumption: Companies pursue a mix of strategies, profit, market share growth, tech leadership etc. MG 220 Marketing Management 5

6. Analyzing Competitors Strengths & Weaknesses Monitoring competitors’ strengths & weaknesses Three variables Share of market (%age share) Share of mind (name brand coming to your mind for a category) Share of heart (brand you ll prefer to buy for a category) Companies gaining share of mind and share of heart eventually gain share of market Selecting Competitors How to select competitors Strong vs. weak Close vs. Distant “Good” vs. “Bad” MG 220 Marketing Management 6

7. Competitive Strategies for Market Leaders Different roles firms can have in a target market: Leader Challenger Follower Nicher In most of industry, there is an established market leader. Mobilink (Celcos), Gillette (Razors), TCS (Courier) etc. Although they have distinct place but unless they are a legal monopoly, they face tough time always! Staying a leader requires careful strategic action: Finding ways to Expand Total Market Size Must Protect current Market Share Try to increase Market Share (even if current market size is not increasing) MG 220 Marketing Management 7

8. Competitive Strategies for Market Leaders Expanding the Total Market If overall market size increases, biggest gainer is Market Leader Different ways of doing it: New Customers Market Penetration strategy Users who might use it but don’t New-Market segment strategy Users who have never used it Geographical-expansion strategy Users who live elsewhere More Usage Increase level/quantity of consumption Increase frequency of consumption Identify other uses (food products finding new recipes) Communicating effectively as to when it should be replaced Product development can also spur new uses Consider Maggi MG 220 Marketing Management 8

9. Competitive Strategies for Market Leaders Protecting/Defending Current Market Share Leader is like a large elephant swarmed by bees While increasing share and market size, it must also continuously defend its current business Continuous innovation – to keep increasing its competitive strength and value to consumers In this process of satisfying customer needs, a firm may be engaged in: Responsive marketing – finding needs and fulfilling them Anticipative marketing – looking ahead into what needs a customer may have in future Creative marketing – Discovering & creating solutions not asked for! Sony is a market-driving firm not a market-driven firm. Sony doesn’t serve markets, Sony creates markets MG 220 Marketing Management 9

10. Competitive Strategies for Market Leaders Protecting/Defending Current Market Share (…contd.) Defending is just like military defensive strategy. Any of these six positions can be taken All of these points have examples in branding strategies by brands. If their strategies are observed carefully, these patterns of defensive strategy can be seen clearly Position defense – Occupying most desirable position in market & minds of consumers and making it impregnable Flank defense – Creating outposts to protect weak fronts or even launch counterattacks Preemptive defense – Attack before enemy does Counteroffensive defense – Responding to attack by launching own strategy against rival Mobile defense – Leader can stretch its domain and move into new territories Contraction defense – Companies at times realize that they cannot defend all of their territory and go for a planned contraction (also known as strategic withdrawal) MG 220 Marketing Management 10

11. Competitive Strategies for Market Leaders Increase/Expand Market Share Gaining one share point can be worth millions in revenue Leader must always focus on carefully increasing market share Market share increase may not always imply increased profitability and has its own share of problems Key considerations Possibility of provoking anti-trust Economic cost – Concept of optimal market share. Ahead of this value, profitability may actually decline Pursuing wrong marketing-mix strategy Effect of increased market share on actual perception and perceived quality MG 220 Marketing Management 11

12. Part 4: Building Strong Brands > Other Competitive Strategies > Balancing Customer & Competitive Orientations > LEFTOVER TOPIC FROM CHAP 10: Devising Brand Strategy > Quiz 5: Part 4 (Chap 9 & 10 – 12/ed. OR Chap 10 & 11 – 13/ed.) Class Presentation | Session 18 | 18 Oct 2010