Monopoly
Only one firm provides product/service
Oligopoly
Small group of firms provide differentiated or identical product/service at comparable prices.
Monopolistic competition
Many competitors offering products. They try to target different segments and differentiate themselves from others.
Pure competition
Many competitors offering the same undifferentiated product at same prices.
Porter’s 5 model of competition
- Threats of new entrants
- Bargaining power of suppliers
- Intel’s the sole processor supplier for Dell - Bargaining power of buyers - Negotiation
- Threat of substitutes
- Rivalry among existing firms
Red ocean’s framework for analyzing competitors
- Identify (Who)
- Target (How are they a competitor?)
- Assess own behaviour and competitor’s behaviour (Becnhmark, Predicting, and analyzing)
Level of competition
Diet Pepsi (Example)
- Product form competition: Diet colas
- Product category competition: Soft drinks
- Generic competition: Beverages
- Budget competition: Food and entertainment
Methods for identifying competitors
- Levels
- Forms
- Category
- Generic
- Budget - Substitutability
- Customer judgment
- Similarity
- Consideration sets
- Substitution by use for oral hygiene
- Opportunity costs - Purchase records
- Switching
- Cross-elasticity
Targeting competitors
Considerations:
- Own and competitor strategies and resoures
- Customer segment
- Time horizon
- Rate of technology change
Assessing competitors
Assess their:
1. Objectives
2. Strategies
3. Strengths
4. Weaknesses
Assess competitors shares of…
- Share of Market: Volume, value
- Share of Mind: Awareness
- Share of Heart: Preference
Gains in mind share and heart share will inevitably lead to gains in market share
How to find out about competitors
- What they say about themselves
- Annual reports, SEC filings
- Press quotes, announcements, speeches - What others say about them
- Talk to customers, distributors, and suppliers - What we can observe
- Triangulate observations
Reaction patterns of the competitors
- The laid-back competitors
- Slow to respond
- Do not notice
- Loyal customers - Selective competitors
- Respond to only specific kinds of attacks, e.g. price cuts, not ads. - The Tiger competitor
- Reacts swiftly and strongly to new entrants, e.g. P&G. - The Stochastic Competitor
- No predictable pattern
- Small businesses based on affordability
Anticipating competitive response
- Prisoner’s dilemma
- Number, concentration, and size distribution of players
- Watch for strategies consistent with the market share
- Understand nature of buying decision
- Scrutinize competitors
Market leader’s strategy (40%)
To remain the leader:
1. Expand the market (increase the size of the pie)
- Find new users
- Find new uses (new products)
- More usage
2. Protect current market share
- Plug holes
- Build strengths
- Pre-emptive attack against competitors
- Continuous innovation (Improved product quality)
- Increase marketing expenditure
3. Increase current market share
Market Challenger (30%)
To increase market share: Who should be attacked?
- Market Leader: High-risk high-return. Good idea if the leader not serving the market well
- Other market challengers: Not doing job-well, under-financed, poor products high prices.
- Small local/regional players: Gobble up local competition
Attack strategies of market challenger
- Price-discount: Comparable product, price-sensitive
buyers, market leader does not cut price - Cheaper goods: Offer lower quality at a much lower price
- Prestige goods: Offer higher quality at a higher price
- Product proliferation: Launch a wide variety
- Product innovation: Breakthrough and improve
- Intensive advertising: Increasing ad expenditures to gain
mind share
Market Follower (20%)
- Follow the market leader: product imitation
- Low differentiation, do not go for share-grabbing
- Homogenous product industries like chemicals, steel, and fertilizers, capital intensive,
Strategies of market followers
- Adapter: Take market leader’s products and improve -> may become future challenger
- Cloner: Emulate leader’s products with slight variations.
Market Nicher (<10%)
The key idea of market niche is specialization and targeting really specific segments
- Avoid competing with large firms.
- Larger shares of small markets or segment
- Meet customer’s need at best (High value, premium prices, high profitability)
- Logitech & Microbrewers
Blue Oceans Strategy
Increase size of the pie
- Focus on needs
- innovate new ways of satisfying existing need
- Blending multiple needs
