Lecture 6: Dealing with the Competition; Prepared by Zaved Mannan 1 | P a g e
Dealing with the Competition
At the completion of this lecture, you should be able to:
• Distinguish the difference between an industry and market concept of
• Identify competitor’s strategies;
• Determine competitor’s objectives and estimate competitor’s reaction
• Select competitors to attack or avoid; and
• Appreciate what is means to balance a customer and competitor orientation.
A vital skill for any marketer is the capacity to understand the nature of the
competitive environment surrounding the organization and how these evolve over
time. This lecture examines the forces that shape the competitive environment,
then discusses how organizations go about monitoring competition and finally, how
organizations select which markets to compete in and which markets to avoid.
Textbook: Kotler et al. (2009), Chapter 9
Reading 6.1: Porter, M. E. (1980). The structural analysis of industries. In
Competitive Strategy (pp. 3-33). New Your: The Free Press.
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Kotler et al. (2009, pp. 227-228) make the point that intuitively one would think it
simple to identify a company’s actual or potential competitors, citing clear examples
such as Coca Cola/Pepsi rivalry. However, probably the most significant threat is
that from emerging competitors or new technologies. The music recording industry
badly underestimated the threat posed by the peer-to-peer music sharing networks
and the popularity of the MP3 format that collectively resulted in a 25% decline in
world-wide sales of music CDs since 1999.
• Industry analysis refers to the assessment of attractiveness of an industry
based on its economic structure.
• Comparative analysis assesses how each firm in an industry is likely to
perform within the structure of the industry.
We can examine competition from both an industry and a market point of view.
Industry Concept of Competition
According to Kotler et al., “an industry is a group of firms that offer a product or
class of products that are close substitutes for each other” (2009, p. 228).
Marketers classify industries according to number of sellers; degree of product
Lecture 6: Dealing with the Competition; Prepared by Zaved Mannan 3 | P a g e
differentiation; presence or absence of entry; mobility; and exit barriers; cost
structure; degree of vertical integration; and degree of globalization.
Market Concept of Competition
The market concept of competition focuses on the needs of the customer, and sees
competition in the form of those organizations that satisfy the same need. This
rather broader view is more ‘latent’ in its approach, and alerts companies to
possible unheard or un-thought of competitors. Thus for Kodak the competition was
not Fuji but the rise of digital cameras.
The famous business guru, Michael Porter argues that there are five forces
determining the structural attractiveness of an industry or market segment.
1. Potential new entrants: A segment’s attractiveness is determined by the
nature of entry and exit barriers. A segment with high entry barriers and low
exit barriers is more attractive that one with low entry barriers and high exit
Most attractive segments:
a. High entry barriers & low exit barriers.
b. Few companies can enter & poor performing companies exit easily.
c. High entry barriers and high exit barriers- high profit potential.
Companies face high risk.
d. Low entry and exit barriers – returns low but stable.
e. Low entry barriers & high exit barriers – depressed earning for all.
2. Buyers: segments with concentrated, powerful buyers are unattractive as
their economic power may force prices down and demand even greater levels
of support. Major retailers throughout the world use this power against their
suppliers – e.g. in Australia, both Coles Myer and Woolworths exert strong
price pressure on their suppliers.
a. Buyers possess strong bargaining power.
b. Dominating buyer (Agora/Shopno/Meenabazar)
Buyer’s bargaining power grows:
c. Whey they become more concentrated
d. When product is undifferentiated
e. When product represents a significant fraction of the buyer’s costs.
f. When buyers switching costs are low
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3. Substitutes: Where substitutes are available of sufficient quality, this tends to
exert a downward pressure on the price that suppliers can obtain.
A segment is unattractive:
a. Actual or potential substitutes
b. Substitute places a limit on prices & profits
c. If technology advances or competition increases, prices & profits fall.
d. Camera film/digital camera.
4. Suppliers: A segment is unattractive if it has concentrated, organized
suppliers, few substitutes, the product is important and the cost of switching
supplier is high.
A segment is unattractive:
a. Suppliers are able to raise prices or reduce the quantity.
b. Example: Mobile, BP, Shell or OPEC
Suppliers are concentrated
c. When they are concentrated or organized
d. Few substitutes
e. Supplied product is important product.
f. Costs of switching supplier is high
g. Build win-win relationships with suppliers or use multiple supply
5. Segment rivalry: A segment may be unattractive if there are a number of
strong competitors, require large capital expenditure, declining market size
and aggressive competitors. This leads to price wars, advertising battles and
frequent new-product introductions.
A segment may be unattractive
a. A number of strong competitors,
b. Require large capital expenditure,
c. aggressive competitors
A segment may be more unattractive
d. declining market size
e. If fixed costs or exit barriers are high
f. If competitors have high stakes in the segments.
This leads to price wars, advertising battles and frequent new-product
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Example: Mobile operator in BD & ISPs (689, march 2005) in Aust.
Figure 6.1: Porter’s five forces analysis. Source: Internet.
Porter’s model is very useful as it applies sound economic theory to the dynamic of
Reading 6.1: Porter, M. E. (1980). The structural analysis of industries. In Competitive Strategy (pp. 3-
33). New York: The Free Press.
This is opening chapter to Porter’s seminal book, and is definitely worth reading.
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In this section, let us briefly examine the main theories regarding the analysis of
Companies that either make the same product or make products that satisfy the
same needs can be considered as a competitor. Remember that the main threat
may be from latent competitors, rather than current competitors.
• It’s not simple to identify a company’s actual or potential competitors.
• Coca Cola/Pepsi rivalry. Eastern Bank/HSBC Bank rivalry. Or,
Biman/Emirates rivalry or Biman/Malaysia.
• The most significant threat is that from emerging competitors or new
technologies. Example: music recording industry has been loosing huge
market share because of the emergence of MP3 technology.
• ‘Emerging Giants’ from developing countries by exploiting knowledge of local
factors of production. Example: Indian software companies. (Infosys, Wipro,
Satayam Computer) or Inventec: Taiwan based notebook, PC & servers
Once a company identifies its primary competitors, it must analyse their
• Strengths & Weaknesses
• Selecting Competitors to Attack and Avoid
• Estimating Competitors’ Reaction Patterns
Determining Competitors’ Strategies
Organizations need to monitor constantly the strategies of their competitors, and
attempt either to outperform them using the same type of strategy, or develop an
opposing strategy that is more in ‘tune’ with consumer needs.
– A group of companies following the same strategy in a given target
market is a strategic group.
– Kotler identifies four groups (2009, fig 11.3).
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– The height of the entry barriers differs for each group.
– If the company successfully enters a group, the members of that
group become its key competitors.
Determining Competitors’ Objectives
Determining the objectives of competitors is useful because it gives one an insight
into how competitors may respond to differing types of competition. Kotler et al.
(2009, p. 319) cites the often heard argument that Western type organizations are
more concerned with short-term profits compared to their Japanese counterparts
who focus on the long-term, especially increasing market share.
– What is each competitor seek in market?
– What drives competitor’s behavior?
– Short-run or long-run profit?
• Objective mix:
– Current profitability
– Market share growth
– Cash flow
– Technological leadership
– Service leadership
• What is competitor’s expansion plan?
Assessing Competitors’ Strengths and Weaknesses
The above heading is basically a prerequisite in any competitive situation, be that in
business, politics or in the sporting arena. It is through the constant gathering of
market intelligence that companies are able to analyse the strengths and
weaknesses of their competitors, and also the values and assumptions of their
competitors. Note that kotler et al. (2009, P. 320) argue that there are three
important variables: share of market, share of mind, share of heart. In summary,
“Companies that make steady gains in mind share and heart share will inevitably
make gains in market share and profitability”. Figure: SWOT analysis
• Strengths & Weaknesses:
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– Rate the competitor according to – Customer awareness, product
quality, product availability, technical assistance & selling staff.
– SWOT analysis is the best tool.
– You need to do SWOT analysis for each competitor including your
company (Google offers).
• Company should also monitor 3 variables:
– Share of market
– Share of mind: “Name the first company that comes to mind in this
– Share of heart: “Name the company from which you would prefer to
buy the product.”
• “Companies that make steady gains in mind share and heart share will
inevitably make gains in market share and profitability.”
Selecting Competitors to Attack and Avoid
One of the most effective ways to position your company against its competitors is
to undertake a customer value analysis. Essentially, this involves the following.
1. Discover what customer value.
2. Determine how your company and your competitors measure up on such
3. Constantly monitor the above.
After the company has conducted customer value analysis, company should focus
its attack on one of the following classes of competitors:
Strong versus Weak: Most companies aim their shots at weak competitors,
because this requires fewer resources. Yet, the firm should also compete with
strong competitors to keep up with the best. Even strong competitors have
Close versus Distant: Most companies compete with the competitors that
resemble them the most. Banglalink complete with GrameenPhone, not with
Varati airtel. Coca-Cola recognizes that its number-one competitor is tap
water, not Pepsi. Bangladesh Museums now worry about theme parks (such
Good versus Bad: Every industry contains good and bad competitors. Good
competitors play by the industry’s rules; they set prices in reasonable
relationship to costs; and they favour a healthy industry. Bad competitors try
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to buy share rather than earn it; they take large risks; they invest in
overcapacity; and they upset industrial equilibrium. A company may find it
necessary to attack its bad competitors to reduce or end their dysfunctional
Estimating Competitors’ Reaction Patterns
If an organization is considering making an important strategic move, it is vital that
it understands the possible reactions of competitors and likely scenarios from such
reactions. For example, Qantas and Virgin Blue currently are very quick to react to
each other’s marketing strategies, matching and responding very quickly to
changes in each other’s prices. Grameen Phone and Banglelink currently are very
quick to react to each other’s marketing strategies, matching and responding very
quickly to changes in each other’s prices.
At this stage, company must evaluate its customer base and think about which
customers it’s willing to lose and which it wants to retain. One way to divide up the
customer base is in terms of whether a customer is valuable and vulnerable,
creating a grid of four segments as a result, see table 6.1 (Kotler, p. 232).
Vulnerable Not vulnerable
Valuable These customers are
profitable but not
completely happy with the
company. Find out and
address their sources of
vulnerability to retain
These customers are loyal
and profitable. Don’t take
them for granted but
maintain margins and
reap the benefits of their
Not valuable These customers are likely
to defect. Let them go or
even encourage their
customers are happy. Try
to make them valuable
Table 6.1: Customer selection grid (Kotler et al. (2009), p. 232)
Balancing Customer and Competitor Orientations
The main point here is that despite all of the previous discussion being concerned
with focusing on competitors, there is a danger that this can lead the company to
ignore its customers. Moreover, a constant focus on competitors, without a balance,
can lead to the organization reacting to competitor moves as opposed to being
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innovative and making its own decisions. Kotler et al (2009) explain in detail a
comparative analysis of competitor-centred companies and customer-centred
companies in page 245-246.
• Only focusing on competitors can lead the company to ignore its customers.
• Competitor Centred Companies
– Positive side: Develop fighter orientation
– Negative side: Determines it’s moves based on competitor’s moves.
• Customer Centred Companies
– Better position to identify new opportunities
– Better monitor customer’s needs.
Textbook: Kotler et al. (2009), Chapter 11, pp. 233-244
This section classifies firms based on their market share into market leaders, market challengers,
market followers and niche players. Certain strategies are more appropriate based on a firm’s
strategic position, level of resources, capabilities and cash position. Kotler et al. provide an extended
discussion on the type of strategies suitable for each market share position.
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Companies must gather information on competitors to understand their strengths,
weaknesses, strategies, objectives and reaction patterns. While it is important to
focus on your closest competitors, you cannot ignore latent competitors. It is
essential that companies identify competitors using both an industry and market-
based analyses. Finally, it is important t identify the attributes that customers value
as it provides a basis for determining whether it is possible to steal your
Adjunct Faculty Member
University of Liberal Arts Bangladesh (ULAB)