Marketing - Lesson 6

1. Michael Porter’s 5 forces:

•          Threat of intensity segment rivalry (competition within the industry)

•          Buyers’ power

•          Suppliers’ power

•          Threat of potential entrants (threat of mobility)

•          Threat of substitutes

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

More modern equipment, greater efficiency, lower costs

6. 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.

7. Degree of globalization

Compete on a global basis in order to achieve economies of scale and keep up with the latest advances in technology

8. 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 – dominant, strong (can take independent action without endangering its long term position regardless of competitors’ actions), favourable (more than average opportunity to improve), tenable (satisfactory enough to continue, but improvement opportunity is less than average), weak (change or exit), non-viable (divest).

Three variables to monitor while analyzing its competitors – Share of market, share of mind, share of heart.

Reaction patterns of competitors – Laidback competitor, Selective competitor (reacts to certain types of attacks), Tiger competitor (reacts to every move), and Stochastic competitor (no predictable behaviour)

“The fewer the number of critical factors, the fewer the number of competitors”

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

Market Leader Strategy

•          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

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

•          Market broadening – shift focus from the current product to the underlying generic need.

•          Market Diversification – shift focus to unrelated industries. E.g.: Tobacco companies moving into beer, liquor, soft drinks, etc, as a result of curbs on the cigarette industry.

Market challenger strategies

·         First define strategic objective and opponent(s)

·         Attack the market leader: high risk-high payoff strategy. Makes sense if the leader isn’t serving the market well.

·         Targeting unsatisfied customers

·         Attack firms of its own size that are under performing and are under financed

·         Attack small & regional firms

General Attack Strategy:

·         Frontal Attack: match opponent’s products, pricing, advertising & distribution.

·         Modified Frontal Attack: price cutting vis-à-vis opponent.

·         Flank Attack

o   Geographical – challenge opponent in spot areas where he is underperforming

o   Segmental – serve uncovered market needs

·         Encirclement manoeuvre: capture a wide slice of opponent’s market through a ‘blitz’. Launch a grand offensive on several fronts.

·         Bypass Strategy: bypass the enemy and attack easier markets to broaden resource base. 3 ways:

o   Diversifying into unrelated products

o   Diversifying into new geographical markets

o   New technologies to supplant existing products

·         Guerilla Attack: small intermittent attacks to harass and demoralize opponents and secure permanent footholds.

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

Market-Follower Strategies

Product imitation could be better than product innovation. Market follower –

o   know to hold on to current customers

o   win a fair share of new customers

o   distinctive advantages in location, services, financing  

o   low manufacturing costs

o   high product & service quality

o   new market penetration

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.

•          End user specialist – customized computer hardware and software.

•          Vertical level specialist- copper firm producing raw material or component or finished product

•          Customer size spec- small customer neglected by others

•          Specific customer spec- selling entire output to GM or Sears

•          Geographic spec – selling in one particular location

•          Product line spec – lenses of microscope or ties

•          Job shop spec – customizing for individuals, Customized cars

•          Quality price spec – HP operated on high price and high quality

•          Service spec – bank accepting loans on phone and hand delivery of money

•          Channel spec – soft drink selling thru only gas stations

Levels of market segmentation

•          Segment Marketing

•          Niche Marketing

•          Local Marketing

•          Customerization or segments of one or customized marketing or one to one marketing