CHAPTER ONE

FUNDAMENTAL CONCEPTS OF MARKETING

Chapter Objectives:
Upon completion of this chapter students will be able to:
 Define marketing
 Discuss the core concepts of marketing
 Identify the various demand states and explain the respective marketing tasks
needed for each state of demand
 Discuss marketing management philosophies

Chapter Overview

Marketing is part of all of our lives and touches us in some way every day. To be
successful each company that deals with customers on a daily basis must be customer-
driven. The best way to achieve this objective is to develop a sound marketing
function within the organization. Marketing is defined as a social and managerial
process by which individuals and group obtain what they need and want through
creating and exchanging products and value with others. Marketing is a key factor in
business success. The marketing function not only deals with the production and
distribution of products and services, but it also is concerned with the ethical and
social responsibility functions found in the domestic and global environment.
Marketing must be aware and respond to changes. Marketing and its core concepts,
the exchange relationship, the major philosophies of marketing thought and practices
are the major topics presented in this introductory chapter.

1.1 What Is Marketing?

Marketing, more than any other business function, deals with customers.
Understanding, creating, communicating and delivering customer value and
satisfaction are at the very heart of modern marketing thinking and practice.

Although we will explore more detailed definitions of marketing later in this chapter,
perhaps the simplest definition is this one: Marketing is the delivery of customer
satisfaction at a profit. The twofold goal of marketing is:
(a) to attract new customers by promising superior value and
(b) to keep current customers by delivering satisfaction.

Sound marketing is critical to the success of every organization - large or small, for -
profit or not -for-profit, domestic or global companies. Today, marketing must be
understood not in the old sense of making a sale “telling and selling", but in the new
sense of satisfying customer needs.

1
What are the major differences between selling and marketing?

Selling occurs only after a product is produced. By contrast,

marketing starts long before a company has a product.
Marketing is the homework that managers undertake to assess
needs, measure their extent and intensity, and determine
whether a profitable opportunity exists.
Marketing continues throughout the product's life, trying to
find new customers and keep current customers by improving
product appeal and performance, learning from product sales
results, and managing repeat performance.
If the marketer does a good job of understanding consumer
needs, develops products that provide superior value and
prices, distributes, and promotes them effectively, these
products will sell very easily.
Thus, selling and advertising are only part of a larger “marketing
mix “a set of marketing tools that work together to affect the
marketplace.

In this course we choose the following three definitions of marketing.

1."Marketing is the process of planning and executing the conception, pricing,

promotion, and distribution of ideas, goods, and services to create exchange that
satisfy individual and organizational goals."
The American Marketing Association
This definition shows the wide-ranging dimensions of marketing. The discipline is not
limited to activities in which businesses are involved. It can involve the activities of a
non-profit organization or marketing of a idea or a service as well as a product.

2. "Marketing is the anticipation, management, and satisfaction of demand through

the exchange process"
Evans Joel R, and Berman Barry

According to Evans and Berman, marketing involves:

(a) Anticipation of demand
(b) Management of demand
(c) Satisfaction of demand

The three basic elements of marketing stated in the Evans and Berman definition are
further discussed below.

2
Anticipation of demand requires a firm to do consumer research on a regular
basis so as to develop and introduce offerings that are desired by consumers.
Management of demand involves:
Stimulation tasks
Facilitation tasks and
Regulation tasks
Stimulation tasks arouse consumers to want the firm's offering through
attractive product design, intensive promotion, reasonable prices, and
other strategies.
Facilitation is the process whereby the firm makes it easy to buy its
offering through convenient locations, availability of credit, well-
informed salespeople, and other strategies.
Regulation is needed when there are peak periods for demand rather than
balanced demand throughout the year or when demand is greater that the
availability of the offering, then the goal is to spread demand throughout
the year or to demarket a good or service (reduce demand).
Satisfaction of demand involves actual performance, safety, availability of
options, after-sale service, and other factors. For consumers to be satisfied, the
goods, services, organizations, people, places, and ideas must fulfill their
expectations.

3. "Marketing is a social and managerial process whereby individuals and

groups obtain what they need and want through creating and exchanging
products and value with others."
Philip Kotler
To explain this definition, we will examine the following important terms:
needs, wants, and demands; products and service; value, satisfaction, and
quality; exchange transactions, and relationships; and markets. Figure 1 shows
that these core marketing concepts are linked, with each concept building on
the one before it.

3
1.2 Core Concepts of Marketing

Needs, Wants
and demands

Products
Markets Core (Goods,
Marketing services etc)
Concepts

Exchange,
Value,
transactions,
satisfaction, and
and
quality
relationships

Figure 1 Core concepts of marketing

1) Needs, wants and Demands

Needs: Human needs are the most basic concept underlying marketing.
Human need is a state of felt deprivation of the basic human requirements such
as food, air, water, clothing and shelter. The following are basic issues about
human needs related to marketing.
i) Humans have many complex needs.
a) Basic, physical needs for food, clothing, shelter, and safety.
b) Social needs for belonging and affection.
c) Individual needs for knowledge and self-expression.
ii) These needs are part of the human makeup. Marketers can’t create
human needs, rather they have to understand and create a product
which can satisfy those needs.

Wants: needs directed to specific objects that might satisfy the need. A human
want is the form that a human need takes as shaped by culture and individual
personality. Wants are basically specific satisfiers of human needs. For
example, an American needs food but wants a hamburger, French fries and
soft drinks. A Mauritius needs Food but wants Mango, rice, lentils, and beans.
In short, wants are shaped by one’s society.

4
 Demands: are wants for specific products backed by buying power. Many
people want a Mercedes; only a few are able and willing to buy one.

2) Product or offering

A product is any offering that can satisfy a need or want. A product is also known as a
solution to customers’ problems. A product is also any thing that can be offered to a
market for attention, acquisition, use, or consumption and that might satisfy a need or
want. The concept of product is so broad that it doesn't include only goods and
services. The scope of product which also determines the scope of marketing is
discussed below.
Marketing people are involved in marketing ten types of product: goods, services,
experiences, events, persons, places, properties, organizations, information, and
ideas.

Goods: Constitute the bulk of most countries production and marketing effort. The
mainstays of the Economy are different in developed and developing countries.
Services: As Economies advance a growing proportions of their activities are
focused on the production of services.
Experiences: By orchestrating several services and goods, one can create stage
and market experiences.
Events: Marketers promote time - based events such as Olympics, trade shows,
sports events and artistic performances.
Persons: Celebrity marketing has become a major business.
Examples include artists, musicians, CEOs (chief executive officers) physicians,
high profile lawyers and financiers.
Places: Cities, states, regions and nations compete to attract tourists, factories,
Company head quarters, and new residents.
Properties: Intangible rights of ownership of either real property or real estate or
financial property (Stocks and bonds)
Organizations: Actively work to build a strong favorable image in the mind of
their publics. For example Philips advertises with the tagline, “let us Make Things
Better". Universities, Museums boost their public images to compete more
successfully for advances and funds.
Information: The production, packaging, and distribution of Information is a
major industry in a given society. Marketers of Information may include school,
and universities; publishers of encyclopedias, nonfiction books, and specialized
magazines; makers of CDs; and internet web sites.
Ideas: Every Market offering has a basic idea at its core. Products and Services are
platforms for delivering some idea or benefit to satisfy a core need.
3) Value and satisfaction

Value is the consumer's estimate of the product's overall capacity to satisfy his or her
needs. According to De Rose, value is the satisfaction of customer's requirements at
the lowest possible cost of acquisition, ownership, and use. The concept of value is
highly related with utility, price, satisfaction, and profit. Value is a measure of the
usefulness of a product. It is a measure of the quantitative worth of a product to attract
other product for exchange. Value is also defined as a ratio between what the
customer gets and what he gives. It is the difference between the "get" component and
the "give" component.

Value = Benefits = Functional benefits + Emotional benefits

5
 Costs Monetary costs + time costs + energy costs + psychic costs.

An increase in the value of the customer offering can be done by: -

1. Raising Benefits.
2. Reducing costs
3. Raising benefits and reducing costs
4. Raising benefits by more than the raise in costs, or
5. Lowering benefits by less than the reduction in costs.

4) Exchange and Transactions

Exchange: Marketing occurs when people decide to satisfy needs and wants through
exchange. Exchange is the act of obtaining a desired product from someone by
offering something of value in return. Exchange is only one of many ways to obtain a
desired object. Exchange allows a society to produce much more than it would with
any alternative system. The following are the major conditions for exchange.

1. There are at least two parties.

2. Each party has something that might be of value to the other party.
3. Each party is capable of communication and delivery
4. Each party is free to accept or reject the exchange offer.
5. Each party believes it is appropriate or desirable to deal with the other party.

Transaction: It takes place when the two parties reach into an agreement. A
transaction (a trade of values between two parties) is marketing’s unit of
measurement. Most transactions involve money, response and action. A transaction
also involves:
a) At least two things of value,
b) Agreed upon condition,
c) A time of agreement, and
d) A place of agreement.

5) Relationships and Networks.

Transaction in marketing is part of a larger idea of relationship marketing. Beyond

creating short-term transactions, marketers need to build long-term relationships with
valued customers, distributors, dealers, and suppliers. To build this relationship
(beyond offering consistently high value and satisfaction), the marketer can build a
marketing network (consisting of customers, suppliers, distributors, retailers,
advertising agencies, and others with whom the company has built mutually
profitable-business relationships).

Relationship Marketing aims to build long-term mutually satisfying relations with key
parties-customers, suppliers, distributors - in order to earn and retain their long-term
preference and Business. Transaction marketing is a part of relation marketing. The
ultimate outcome of relationship marketing is the building of a unique company asset
called a market network.

6
A marketing Network consists of the company and its supporting stakeholders -
customers, employees, suppliers, distributors, university Scientists and others with whom
it has built mutually profitable business relationships.

6) Markets – the concepts of exchange and relationships lead to the concept of a

market. A market is the set of actual and potential buyers of a product. Originally a
market was a place where buyers and sellers gathered to exchange goods. Economists
use the term to designate a collection of buyers and sellers who transact in a particular
product class (as in the soft drink market). Marketers see buyers as constituting a
market. Modern economies operate on the principle of division of labor, where each
person specializes in producing something, receives payment, and buys needed things
with this money. Thus, modern economies abound in markets.

7) Marketing – the concept of markets finally brings us full circle to the concept of
marketing. Marketing means managing markets to bring about exchanges and
relationships for the purpose of creating value and satisfying needs and wants.
Modern marketing system is characterized by the company and competitors sending
their respective products and messages to the consumers either directly or indirectly
through marketing intermediaries to the end users.

1.3 Marketing Management

Marketing management is defined as the analysis, planning, implementation, and

control of programs designed to cerate, build, and maintain beneficial exchanges with
target buyers for the purpose of achieving organizational objectives. It is the art and
science of choosing target markets and getting, keeping and growing superior value.
Thus, marketing management involves managing demand, which in turn involves
managing customer relationships.

1.3.1 Demand management

Some people think of marketing management as finding enough customers for the
company’s current output but this view is too limited. The organization has a desired
level of demand of demand for its products. At any point in time, there may be no
demand, adequate demand, irregular demand, or too much demand, and marketing
management is concerned not only with finding and increasing demand but also with
changing or even reducing it. In cases of excess demand, demarketing may be
required to reduce demand temporarily or permanently. The aim of demarketing is not
to destroy demand but only to reduce or shift it. Thus, marketing management seeks
to affect the level, timing, and nature of demand in away that helps the organization
achieve its objectives. Simply put, marketing management is demand management.
In order to effectively manage demand there is a need to know the products demand
states so that appropriate marketing tasks can be initiated.

1.3.1.1 Demand States and Marketing Tasks

1. Negative Demand - Majority of the market dislikes the product and avoids it.
Marketing task:
 To analyze why the market dislikes the product
 To develop marketing programs that can change consumers beliefs
and attitudes consisting of:
 product redesign,
 lower prices, and
 more positive promotion.
7
 2. No Demand - Lack of awareness or Interest in a product.
Marketing task: To find ways to connect the benefits of the product with the
person’s natural needs and interests.
3. Latent Demand – There exists a strong need that can't be satisfied by existing
products.
Marketing task: To measure the size of the potential market and develop
goods and services to satisfy the demand.
4. Declining Demand – The product has a lower demand in the market.
Marketing tasks: To reverse declining demand through creative remarketing.
5. Irregular Demand – The product has a varying demand by season, day or
hour.
Marketing task: To find ways to alter the pattern of demand through flexible
pricing, promotion and other incentives (Syncro-Marketing).
6. Full demand – The product has a satisfying level of demand in the market.
Marketing task: To maintain the current level of demand in the face of
changing consumer preferences and increasing competition. To maintain or
improve product quality and continually measure consumer satisfaction.
7. Overfull Demand – the product has more demand than can be handled or
delivered in the market.
Marketing task: To find ways to reduce demand temporarily or permanently
(Demarketing) via raising prices and reducing promotion and services.
8. Unwholesome demand – The demand for unhealthy or dangerous products.
Marketing task: To get people who like something to give it up, using fear
message, price hikes, and reduced availability.

To meet the organization's objectives, marketing managers must influence the level,
timing, nature and Composition of these various demand states. Examples of products
with various states of demand are cited below.

Negative demand – Royal Crown mineral water, K-50, etc

No demand – Bure Baguna mineral water etc
Latent demand – cigarettes without any side effect etc
Declining demand – High land mineral water etc
Irregular demand – umbrella, rain jackets, etc
Full demand – Coca Cola, St George Beer, etc
Overfull demand – Mugher cement, Wonji sugar, etc
Unwholesome demand – Heroine, cocaine, hand guns, etc

1.3.1.2 Building Profitable Customer Relationships

Managing demand means managing customers. A company's demand comes from

two groups: new customers and repeat customers. Traditionally, marketers have
focused on attracting new customers and creating transactions with them. In today’s
marketing environment, however, changing demographic, economic, and competitive
factors mean that there are fewer new customers to go around. The costs of attracting
new customers are rising. Thus, although finding new customers remains very
important, the emphasis is shifting toward retaining profitable customers and building
lasting relations with them.

8
Companies have also discovered that losing a customer means losing not just a single
sale but also lifetime’s worth of purchases and referrals. Thus, working to keep
profitable customer makes good economic sense. The key to customer retention is
superior customer value and satisfaction. With this in mind, many companies are
going to extremes to keep their customers satisfied.

1.4 Marketing Management Philosophies

Marketing management is described, as carrying out tasks to achieve desired

exchanges with target markets. What philosophy should guide these marketing
efforts? What weight should be given to the interests of the organization, customers,
and society? The five marketing philosophies that guide marketers’ behavior are:
1. the production concept
2. the product concept
3. the selling concept
4. the marketing concept
5. the societal marketing concept

1. The production concept:

It is one of the oldest concepts in business. It holds that consumers prefer products
that are widely available and inexpensive. Managers of production - oriented
businesses concentrate on achieving high production efficiency, low costs, and mass
distribution. Production oriented marketers assume that consumers are primarily
interested in product availability and low prices. The production concept is useful:
 When demand for a product exceeds the supply
 When the product’s cost is too high and improved productivity is needed to
bring it down
 In developing countries, where consumers are more interested in obtaining
the product than its features.
 When a company wants to expand its market.
The risk with this concept is in focusing too narrowly on company operations. Do not
ignore the desires of the market.

2. The product Concept

It holds that consumers will favor products that offer the most quality, performance,
and innovative features. Thus, an organization should devote energy to making
continuous product improvements. Some manufacturers mistakenly believe that if
they “build a better mousetrap”, consumers will beat a path to their door just for their
product. The product concept can lead to marketing myopia (a shortsighted view of
marketing, which focuses on the product itself rather than the customers’ benefits and
the challenges presented by other products).

3. Selling concept

Many organizations follow the selling concept, which holds that consumers will not
buy enough of the organization’s products unless it undertakes a large- scale selling
and promotion effort. The following are the common features of the selling concept.
a) This concept it typically practiced with unsought goods (goods that buyers do
not normally think of buying such as encyclopedias or insurance).
b) To be successful with this concept, the organization must be good at tracking
down prospects and selling them on product benefits.

9
 c) Most firms practice the selling concept when they have over capacity. Their
aim is to sell what they make rather than make what the market wants.
d) Such marketing carries high risks. It focuses on creating sales transaction
rather than on building long-term relationships. There are not only high risks
with this approach but low satisfaction by customers.

4. The Marketing Concept:

The marketing concept holds that achieving organizational goals depends on

determining the needs and wants of target markets and delivering the desired
satisfaction more effectively and efficiently than competitors do. The company
should be more effective than its competitors in creating, delivering, and
communicating customer value to its chosen target markets. The marketing concept
has been expressed in many colorful ways:
"Meeting needs profitably."
"Find wants and fill them."
"Love the customer, not the product."

The Marketing concept rests on four pillars: target market, customer needs, Integrated
marketing, and profitability.

i. Target Market Companies do best when they choose their target market (s)
carefully and prepare tailored marketing programs.

ii. Customer Needs: clearly, understanding customer needs and wants is not always
simple. Some customers have Needs of which they are not fully conscious; some can't
articulate these Needs or use words that require some interpretation. We can
distinguish five types of Needs: stated needs, real needs, unstated needs, delight
needs, and secret needs.

Responsive Marketing: A Responsive marketer finds a stated need

and fills it,
Anticipative marketing: Anticipative marketer looks ahead to the
needs that customers may have in the Near future.
Creative Marketing: A creative marketer discovers and produces
solutions that customers didn't ask for, but to which they
enthusiastically respond.

iii. Integrated marketing: Results when all of the company's department's work
together to serve the customers interests. Integrated marketing takes place on two
levels. First the various marketing functions (sales force, advertising, customer
service, product Management, Marketing research must work together from
customer’s point of view) second, marketing must be embraced by the other
departments. To foster team work among all departments the company must carry out
internal and external marketing.

iv. Profitability: The ultimate purpose of the marketing concept is to help

organizations achieve their objectives. In the case of private firms, the Major
objective is profit; in the case of non-profit and public organizations, it is surviving
and attracting enough funds to perform useful work.

10
The distinction basic distinction between the selling and marketing concepts is
presented below.

Theodore Levitt drew a contrast between the selling and marketing

concepts:
Selling focuses on the needs of the seller; marketing focuses on
the needs of the buyer.
The selling concept takes an “inside-out” perspective i.e.,
focuses on existing products and uses heavy promotion and
selling efforts.
The marketing concept takes an “outside-in” perspective i.e.,
focuses on customers needs, values, and satisfaction
Selling is preoccupied with the seller's need to convert his
product into cash; marketing is concerned with the idea of
satisfying the needs of the customer by the whole cluster of
things associated with creating, delivering and finally
consuming it.

The selling concept

Starting point Focus Means Ends
Factory Products Selling & promoting Profits through sales volume

The Marketing concept

Starting point Focus Means Ends

Target market Customer Integrated marketing Profit through customer
needs satisfaction

5. The Societal Marketing Concept

The societal marketing concept holds that the organization should determine the
needs, wants, and interests, of target markets. It should then deliver superior value to
customers in a way that maintains or improves the consumer's and the society's well
being. The societal marketing concept is the newest of the five marketing
management philosophies.

The societal marketing concept questions whether the pure marketing concept is
adequate in an age of environmental problems, resource shortages, rapid population
growth, worldwide economic problems, and neglected social services. It asks if the
11
firm that senses, serves, and satisfies individual wants is always doing what's best for
consumers and society in the long run. According to the societal marketing concept,
the pure marketing concept overlooks possible conflicts between consumer short-run
wants and consumer long-run welfare.
The societal concept calls upon marketers to balance three considerations in setting
their marketing policies.
a) Company profits
b) Customers wants
c) Society’s interest

It has become good business to consider and think of society’s interests when the
organization makes marketing decisions.

1.4 Types of Customers

Marketers need to study their customers closely. There are five types of customer
markets.
1. Consumer markets consist of individuals and households that buy
goods and services for personal consumption.
2. Business/industrial markets buy goods and services for further
processing or for use in their production process.
3. Reseller markets buy goods and services to resell at a profit.
4. Government markets are made up of government agencies that buy
goods and services to produce public services or transfer the goods and
services to others who need them. Finally,
5. International markets consist of these buyers in other countries,
including consumers, producers, resellers, and governments. Each
market type has special characteristics that call for careful study by the
seller.

N.B. Don’t mix up the five types of consumer markets with the various stages that
customers pass through in their relationship with a marketer. The various stages that a
customer may pass through in his/her relationship with a marketer are presented
below.

Suspects - every one who might conceivably buy the product or service
Prospects- people who have a strong potential interest in the product and the
ability to pay for it
First time Customers -qualified prospects who are converted in to trying the
product for the first time
Repeat Customers- satisfied first time customers converted in to repeat
purchase
Clients-people whom the company treats very specially and knowledgeably
Members-clients who join the membership program that offers a whole set
of benefits
Advocates-customers who enthusiastically recommend the company and its
products and services to others
Partners-the customer and the company work together actively.

1.5 Marketing Mix

12
Marketing mix is the set of marketing tools that the firm use's to pursue and achieve
its marketing objectives in the target market. According to Mc Carthy marketing mix
constitutes the 4 P‘s - product, price, place and promotion.

Components of Marketing Mix

Product Price Promotion Place

- Product Variably - List Price - Sales Promotion - Channels
- Quality - Discounts - Advertising - Coverage
- Design - Allowances - Sales Force - Assortment
- Features - Payments Period - Public Relations - Location
- Brand Name - Credit Terms - Direct Marketing - Inventory
- Packaging -Transport
- Sizes
- Services
- Warranties
- Returns

Robert Lauterborn suggested that the 4P's are seller oriented. The customer oriented
marketing mix includes the 4Cs.

4 Ps 4Cs
Product...............................................Customer Solution
Price...................................................Customer Cost
Place...................................................Convenience
Promotion...........................................Communication

Summary

Today's successful companies whether large or small, for profit or nonprofit, domestic
or global share a strong customer focus and a heavy commitment to marketing. Many
people think of marketing as only selling or advertising. But marketing combines
many activities - marketing research, product development, distribution, pricing,
advertising, personal selling, and other - designed to sense, serve, and satisfy
consumer needs while meeting the organization's goals. Marketing seeks to attract
new customers by promising superior value and to keep current customers by
delivering satisfaction. Marketing operates within a dynamic global environment.
Rapid changes can quickly make yesterday's winning strategies obsolete. Marketers
face many new challenges and opportunities. To be successful, companies will have
to be strongly market focused.

13
 CHAPTER TWO
THE MARKETING ENVIRONMENT

Chapter Objectives

Upon completion of this chapter students will be able to:

 The environmental forces that that affect the company’s ability to serve its
customers.
 Explain how changes in the demographic and economic environments affect
marketing decisions.
 Identify the major trends in the firm’s natural and technological environments.
 Explain the key changes that occur in the political and cultural environment.
 Discuss how companies can react to the marketing environment.

Chapter Overview

In order to correctly identify opportunities and monitor threats, the company must
begin with a thorough understanding of the marketing environment in which the firm
operates. The marketing environment consists of all the actors and forces outside
marketing that affect the marketing management’s ability to develop and maintain
successful relationships with its target market. Though these factors and forces may
vary depending on the specific company and industrial group, they can generally be
divided into broad micro environmental and macro environmental components. The
wise marketing manager knows that they cannot always affect environmental forces.
However, smart managers can take a proactive, rather than reactive, approach to the
marketing environment.

As marketing management collects and processes data on these environments, they

must be ever vigilant in their efforts to apply what they learn to developing
opportunities and dealing with threats. Studies have shown that excellent companies
not only have a keen sense of customer but an appreciation of the environmental
forces swirling around them. By constantly looking at the dynamic changes that are
occurring in the aforementioned environments, companies are better prepared to adapt
to change, prepare long-range strategy, meet the needs of today’s and tomorrow’s
customers, and compete with intense competition present in the market place.

2.1 Introduction

A company’s marketing environment consists of the actors and forces outside

marketing that affects marketing management’s ability to develop and maintain
successful transactions with its target customers. Changes in the marketing
environment are often quick and unpredictable. The marketing environment offers
both opportunities and threats. The company must use its marketing research and
marketing intelligence systems to monitor the changing environment.

Marketers use marketing intelligence and marketing research for collecting

information about the marketing environment. By conducting systematic
environmental scanning, marketers are able to revise and adapt marketing strategies to
meet new challenges and opportunities in the marketplace. The marketing
environment is made up of:

14
 1. A micro environment and
2. A macro environment.

2.2 The Company's Microenvironment

The micro environment consists of the forces close to the company that affect its
ability to serve its customers. Marketing management's job is to attract and build
relationships with customers by creating customer value and satisfaction. However,
marketing managers cannot accomplish this task alone. Their success will depend on
other actors in the company's microenvironment which combine to makeup the
company's value delivery system. The micro environment consists of six forces:

1. the company itself (including departments)

2. suppliers
3. market channel firms (intermediaries)
4. customer market
5. competitors
6. publics

1. The Company

In designing marketing plans, marketing management takes other company groups

into account-groups such as top management, finance, research and development
(R&D), purchasing, manufacturing, and accounting. All these interrelated groups
form the internal environment. Top management sets the company's mission,
objectives, brand strategies, and policies. Marketing mangers make decisions within
the plans made by top management, and marketing plans must be approved by top
management before they can be implemented.

Marketing mangers must also work closely with other company departments. Finance
is concerned with funding and using funds to carry out the marketing plan. The R&D
department focuses on designing safe and attractive products. Purchasing worries
about getting supplies and materials whereas manufacturing is responsible for
producing the desired quality and quantity of products. Accounting has to measure
revenues and costs to help marketing know how well it is achieving its objectives.
Together, all of these departments have an impact on the marketing department's
plans and actions. Under the marketing concept, all of these functions must "think
consumer," and they should work in harmony to provide superior customer value and
satisfaction.

2. Suppliers

Suppliers are firms and individuals that provide the resources needed by the company
and its competitors to produce goods and services. Suppliers are an important link in
the company's overall customer value delivery system. Supplier problems can
seriously affect marketing. Marketing managers must watch supply availability -
supply shortages or delays, labor strikes, and other events can cost sales in the short
run and damage customer satisfaction in the long run. Marketing mangers also
monitor the price trends of their key inputs. Rising supply costs may force price
increase that can harm the company's sales volume.

15
3. Marketing Intermediaries

Marketing intermediaries help the company to promote, sell, and distribute its goods
to final buyers. They include resellers, physical distribution firms, marketing service
agencies, and financial intermediaries.
Resellers are distribution channel firms that help the company find customers
or make sales to them. These include wholesalers and retailers, who buy and
resell merchandise. Selecting and working with resellers is not easy. No
longer do manufacturers have many small, independent resellers from which
to choose. They now face large and growing reseller organizations. These
organizations frequently have enough power to dictate terms or even shut the
manufacturer out of large markets.

Physical distribution firms help the company to stock and move goods from
their points of origin to their destinations. Working with warehouse and
transportation firms, a company must determine the best way to store and ship
goods, balancing factors such as cost, deliver, speed, and safety.

Marketing services agencies are the marketing research firms advertising

agencies, media firms, and marketing consulting firms that help the company
target and promote its products to the right markets. When the company
decides to use one of these agencies, it must choose carefully because these
firms vary in creatively, quality, services, and price.

Financial intermediaries include banks, credit companies, insurance

companies, and other businesses that help finance transactions or insure
against the risks associated with the buying and selling of goods. Most firms
and customers depend on financial intermediaries to finance their transactions.

Like suppliers, marketing intermediaries form an important component of the

company's overall value delivery system. In its quest to create satisfying customer
relationships, the company must do more than just optimize its own performance. It
must partner effectively with marketing intermediaries to optimize the performance of
the entire system.

4. Customers

The company needs to study its customer markets closely. There are five types of
customer markets.
Consumer markets consist of individuals and households that buy goods and
services for personal consumption.

Business markets buy goods and services for further processing or for use in
their production process.

Reseller markets buy goods and services to resell at a profit.

Government markets are made up of government agencies that buy goods and
services to produce public services or transfer the goods and services to others
who need them. Finally,

International markets consist of these buyers in other countries, including

consumers, producers, resellers, and governments. Each market type has
special characteristics that call for careful study by the seller.

16
5. Competitors

The marketing concept states that to be successful, a company must provide greater
customer value and satisfaction than its competitors do. Thus, marketers must do
more than simply adapt to the needs of target consumers. They also must gain
strategic advantage by positioning their offerings strongly against competitors'
offerings in the minds of consumers.

No single competitive marketing strategy is best for all companies. Each firm
should consider its own size and industry position compared to those of its
competitors. Large firms with dominant positions in an industry can use certain
strategies that smaller firms cannot afford. But being large is not enough. There are
winning strategies for large firms, but there are also losing ones. Small firms can
develop strategies that give them better rates of return than large firms enjoy.

6. Publics

The company's marketing environment also includes various publics. A public is any
group that has an actual or potential interest in or impact on an organization's ability
to achieve its objectives. There are seven types of publics.

 Financial publics influence the company's ability to obtain funds. Banks,

investment houses, and stockholders are the major financial publics.
 Media publics carry news, features, and editorial opinion. They include
newspapers, magazines, and radio and television stations.
 Government publics: management must take government developments into
account. Marketers must often consult the company's lawyers on issues of
product safety, truth in advertising and other matters.
 Citizen action publics: A company's marketing decisions may be questioned
by consumer organizations, environmental groups, minority groups, and
others. Its public relations department can help it stay in touch with consumer
and citizen groups.
 Local publics include neighborhood residents and community organizations.
Large companies usually appoint a community relations officer to deal with
the community, attend meetings answer questions, and contribute to
worthwhile causes.
 General public: A company needs to be concerned about the general public's
attitude toward its products and activities. The public's image of the
company affects its buying.
 Internal publics include workers, managers, volunteers, and the board of
directors. Large companies use newsletters and other means to inform and
motivate their internal publics. When employees feel good about their
company, this positive attitude spills over to external publics.

A Company can prepare marketing plans for these major publics as well as for its
customer markets. The company would have to design an offer to his public that is
attractive enough to produce the desired response.

2.3 The Company's Macro Environment

The company and all of the other actors operate in a larger macro environmental
forces that shape opportunities and pose threats to the company. The macro

17
environment consists of the larger societal forces that affect the microenvironment.
There are six major forces in the company's macro environment.
1. demographic environment
2. economic environment
3. natural environment
4. technological environment
5. political environment
6. cultural environment

1. Demographic Environment

Demography is the study of human population in terms of size, density, location, age,
gender, race, occupation, and other statistics. The demographic environment is of
major interest to marketers because it involves people, and people make up markets.
Demographic trends are constantly changing. Some of the more interesting trends
globally are:
a) The world’s population rate is growing at an explosive rate.
b) The most important trend is the changing age structure of the population.
c) Geographical shifts in population will also alter demographics.
d) The population is becoming better educated.

2. Economic Environment

Markets require buying power as well as people. The economic environment consists
of factors that affect consumer purchasing power and consumption pattern or
spending patterns. The major factors that affect purchasing power include:
a) Income,
b) saving, and
c) credit facilities

Nations vary greatly in their levels and distribution of income. Some countries have
subsistence economies - they consume most of their own agricultural and industrial
output. These countries offer few market opportunities. At the other extreme are
industrial economies, which constitute rich markets for many different kinds of goods.
Marketers must pay close attention to major trends and consumer spending patterns
both across and within their world markets.

3. Natural Environment

The natural environment involves the natural resources that are needed as inputs by
marketers or that are affected by marketing activities. Marketers should be aware of
several trends in the natural environment.
a) The first involves growing shortages of raw materials.
b) A second environment trend is increased pollution. Industry will almost
always damage the quality of the natural environment. Industrial damage to
the environment has become very serious. Far-sighted companies are
becoming “environmentally friendly” and are producing environmentally safe
and recyclable or biodegradable products.
c) Government intervention in natural resource management has caused
environmental concerns to be more practical and necessary in business and
industry. Instead of opposing regulation, marketers should help develop
solutions to the material and energy problems facing the world.

18
4. Technological Environment

The technological environment includes forces that create new technologies, creating
new product and market opportunities. The technological environment is perhaps the
most dramatic force now shaping our destiny. The technological environment
changes rapidly. New technologies create new markets and opportunities. However,
every new technology replaces an older technology. Transistors hurt the vacuum-tube
industry, xerography hurt the carbon-paper business, the auto hurt the railroads, and
compact disks hurt phonograph records. When old industries fought or ignored new
technologies, their businesses declined. Companies that do not keep up with
technological change soon will find their products outdated. They will miss new
product and market opportunities. Thus, marketers should watch the technological
environment closely. The following trends are worth watching:
a) Faster pace of technological change. Products are being technologically
outdated at a rapid pace.
b) There seems to be almost unlimited opportunities being developed daily.
Consider the expanding fields of ICT, robotics, etc.
c) The challenge is not only technical but also commercial - to make affordable
versions of products.
d) Higher research and development budgets.
e) Increased regulation. Marketers’ should be aware of the regulations
concerning product safety, individual privacy, and other areas that affect
technological changes. They must also be alert to any possible negative
aspects of an innovation that might harm users or arouse opposition.

5. Political Environment

Marketing decisions are strongly affected by developments in the political

environment. The political environment consists of laws, government agencies, and
pressure groups that influence and limit various organizations and individuals in a
given society. Business is regulated by various forms of legislation. With this regard:
a) Governments develop public policy to guide commerce - sets of laws and
regulations limiting business for the good of society as a whole.
b) Almost every marketing activity is subject to a wide range of laws and
regulations.
Some trends in the political environment include:
1) Increasing legislation to:
a) Protect companies from each other.
b) Protect consumers from unfair business practices.
c) Protecting interests of society against unrestrained business behavior.
2) Changing government agency enforcement.
3) Growth of public interest groups. The number and power of public
interest groups have increased during the past two decades.
4) Increased emphasis on ethics and socially responsible actions. Socially
responsible firms actively seek out ways to protect the long-run interests of
their consumers and the environment.

6. Cultural Environment

The cultural environment is made up of institutions and other forces that affect
society’s basic values, perceptions, and behaviors. Certain cultural characteristics can
affect marketing decision making. Among the most dynamic cultural characteristics
are:

19
 1) Persistence of cultural values. People’s core beliefs and values have a
high degree of persistence. Core beliefs and values are passed on from parents to
children and are reinforced by schools, churches, business, and government.
Secondary beliefs and values are more open to change.
2) Shifts in secondary cultural values. Since secondary cultural values and
beliefs are open to change, marketers want to spot them and be able to capitalize
on the change potential. Society’s major cultural views are expressed in:
a) People’s view of themselves. People vary in their emphasis on serving
themselves versus serving others.
b) People’s views of others. Observers have noted a shift from a “me-society”
to a “we-society”. Consumers are spending more on products and services
that will improve their lives rather than their image.
c) Peoples views of organizations. People are willing to work for large
organizations but expect them to become increasingly socially responsible
d) People’s views of society. This orientation influences consumption
patterns. “Buy Ethiopian products” versus buying abroad is an issue that
will continue into the next decade.

Impact of the Environment on Marketing

Throughout the planning process, the marketing manager must carefully consider the
influences and constraints imposed by environmental factors that are beyond his/her
control. Factors both external to the firm and within the organization affect the
feasibility of various marketing strategies and programs.

Environmental factors influence marketing strategies and programs in four basic

ways.

1. Environmental factors can constrain the organization’s ability to pursue certain

marketing strategies or activities. When the government declares the sale of a
product to be illegal or when a strong- competitor makes it unattractive for the
firm to enter a new market.
2. Environmental variables and changes in those variables overtime, help to
determine the ultimate success or failure of marketing strategies.
3. Changes in the environment can create new marketing opportunities for an
organization, as when the discovery of a new technology allows the
development of new products.
4. Environmental variables themselves are affected and changed by marketing
activities, as when new products and promotional programs help to change
lifestyles and social values.

Marketers must consider how proposed programs will affect the environment as well
as how the environment will affect the programs. Consequently, one of the most
important but increasingly difficult parts of a marketing managers job is to monitor
the environment, predict how it might change, and develop marketing strategies and
plans well suited to environmental conditions.

20
 CHAPTER THREE
ANALYZING COMPETITORS

Learning Objectives

Upon completion of this chapter a student will be able to:

 Describe Michael porter’s five forces model and evaluate the attractiveness of
an industry.
 Identify competitors using the industry concept approach or the marketing
concept approach.
 Analyze competitor’s strategies, objectives, strengths, and weaknesses.
 Analyze competitors competitive position in a target market
 Analyze competitor’s reaction patterns.
 Design competitors intelligence system
 Classify competitors and select competitors to attack and avoid

3.1 Michael Porter’s Five Forces Model

This chapter explains the role competition plays and how companies position
themselves relative to competitors. Michael Porter identified five forces that
determine the intrinsic long - run profit attractiveness of a market or market segment:
1. Industry competitors,
2. Potential entrants,
3. Substitutes,
4. Buyers, and
5. Suppliers.

1. Threat of intense segment rivalry

A segment is unattractive:

a) if it already contains numerous, strong, or aggressive competitors.

b) if the segment is stable or declining,
c) if fixed costs are high,
d) if exit barriers are high, or
e) if competitors have high stakes in staying in the segment.

These conditions will lead to frequent price wars, advertising battles, and new-
product introductions and will make it expensive to compete.

2. Threat of new entrants

A segment's attractiveness varies with the height of its entry and exit barriers. The
most attractive segment is one in which entry barriers are high and exit barriers
are low. Few new firms can enter the industry, and poor - performing firms can
easily exit. When both entry and exit barriers are high, profit potential is high, but
firms face more risk because poorer-performing firms stay in and fight it out.

21
 When entry and exit barriers are both low, firms easily enter and leave the
industry, and the returns are stable and low. The worst case is when entry barriers
are low and exit barriers are high: here firms enter during good times but find it
hard to leave during bad times. The result is chronic.

3. Threat of substitute products

A segment is unattractive when there are actual or potential substitutes for the
product. Substitutes place a limit on prices and on the profits that a segment can
earn the company has to monitor the price trends in the substitutes closely. If
technology advances or competition increases in these substitute industries, prices
and profits in the segment are likely to fall.

4. Threat of buyers' growing bargaining power

A segment is unattractive if the buyers possess strong or growing bargaining

power. Buyers will try to force prices down, demand more quality or services, and
set competitors against each other, all at the expense of seller profitability. Buyers'
bargaining power grows:
a) When they become more concentrated or organized,
b) When the product represents a significant fraction of the buyers' costs,
c) When the product is undifferentiated,
d) When the buyers' switching costs are low,
e) When buyers are price sensitive because of low profits, or
f) When buyers can integrate upstream.

To protect themselves, sellers might select buyers who have the least power to
negotiate or switch suppliers. A better defense consists of developing superior
offers that strong buyers cannot refuse.

5. Threat of suppliers' growing bargaining power

A segment is unattractive if the company's suppliers are able to raise prices or

reduce quantity supplied. Suppliers tend to be powerful:
a) When they are concentrated or organized,
b) When there are few substitutes,
c) When the supplied product is an important input,
d) When the costs of switching suppliers are high, and the suppliers can integrate
down stream.
The best defenses are to build win-win relations with suppliers or use multiple
supply sources

Today, competition is not only rife but also growing more intense every year.
Multinational and transnational companies are setting up production in lower-cost
countries and bringing cheaper goods to market. These developments explain the
current talk about "marketing warfare," and "competitive intelligence systems."
Because markets have become so competitive, understanding customers is no longer
enough. Companies must pay keen attention to their competitors. Successful
companies design and operate systems for gathering continuous intelligence about
competitors.

3.2 Identifying Competitors

22
In order to identify competitors; a firm can follow the following two approaches:

1. The industry concept approach

2. The market concept approach

The Industry Approach

In order to identify competitors firms should first define the industry under which they
are operating. An industry is a group of firms that offer a product or class of products
that are close substitutes for each other. Industries are classified according to:
 Number of sellers
 Degree of product differentiation
 Presence or absence of entry, mobility, exit barriers
 Cost structure
 Degree of vertical integration
 Degree of globalization
3.3 Analyzing Competitors
Once a company identifies its primary competitors, it must ascertain their
characteristics, specifically their strategies, objectives, strengths and weaknesses, and
reaction patterns.
3.3.1 Strategies
A group of firms following the same strategy in a given target market is called a
strategic group. A firm shall identify the strategic group where it belongs

3.3.2 Objectives
Once a company has identified its main competitors and their strategies, it must ask:
What is each competitor seeking in the marketplace? What drives each competitor’s
behavior? One useful initial assumption is that competitors strive to maximize profits.
However, companies differ in the weights they put on short-term versus long-term
profits. Most firms operate on a short-run profit-maximization model, largely
because their current performance is judged by stockholders who might lose
confidence, sell their stock, and cause the company’s cost of capital to rise. Other
firms operate largely on a market-share-maximization model. An alternative
assumption is that each competitor pursues some mix of objectives:
 current profitability,
 market-share growth,
 cash flow,
 technological leadership, and
 service leadership.
Knowing how a competitor weighs each objective will help the company anticipate its
reactions. Many factors shape a competitor’s objectives, including size, history,
current management, and financial situation. If the competitor is a division of a larger
company, it is important to know whether the parent company is running it for growth
or milking it. Finally, a company must monitor its competitors’ expansion plans.
3.3.3 Strengths and Weaknesses
Whether competitors can carry out their strategies and reach their goals depends on
their resources and capabilities. A company needs to gather information on each
competitor’s strengths and weaknesses. According to the Arthur D. Little consulting
firms, a firm will occupy one of six competitive positions in the target market.

23
 1. Dominant: this firm controls the behavior of other competitors and has a wide
choice of strategic options.
2. Strong: this firm can take independent action without endangering its long-
term position and can maintain its long-term position regardless of
competitors’ actions.
3. Favorable: this firm has an exploitable strength and a more-than-average
opportunity to improve its position.
4. Tenable: this firm is performing at a sufficiently satisfactory level to warrant
continuing in business, but it exists at the sufferance of the dominant company
and has a less-than-average opportunity to improve its position.
5. Weak: this firm has unsatisfactory performance, but an opportunity exists for
improvement. The firm must change or else exit.
6. Nonviable: this firm has unsatisfactory performance and no opportunity for
improvement.
This assessment helps companies to decide whom to attack in the programmable
controls market. In general, a company should monitor three variables when analyzing
each of its competitors:
 Share of market: the competitor’s share of the market either in absolute or
relative terms.
 Share of mind: the percentage of customers who named the competitor in
responding to the statement “Name the first company that comes to mind in
this industry.”
 Share of heart: The percentage of customers who named the competitor in
respondent to the statement “Name the company from whom you would prefer
to buy the product.”
Companies that make steady gains in mind share and heart share will invariably make
gains in market share and profitability. To improve market share, many companies
have begun benchmarking their most successful competitors. The technique and its
benefits are described in the Marketing Insight box, “How Benchmarking Helps
Improve Competitive Performance.’

In searching for weaknesses, we should identify any assumptions competitors hold

that are no longer valid. Some companies believe they produce the best quality in the
industry when they do not. May companies mistakenly subscribe to conventional
wisdom like “Customers prefer full-line companies,” “The sales force is the only
important marketing tool,” and “Customers value service more than price.” If we
know that a competitor is operating on such a wrong assumption, we can’t take
advantage of it.
3.3.4 Reaction Patterns
Each competitor has a certain philosophy of doing business, a certain internal culture,
and certain guiding beliefs. Most competitors fall into one of four categories:

1. The laid-back competitor: A competitor that does not react quickly or

strongly to a rival’s move. Reasons for slow response vary. Laid-back
competitors may feel:
 their customers are loyal;
 they may be milking the business;
 they may be slow in noticing the move;
 they may lack the funds to react.
Rivals must try to assess the reasons for the behavior.

24
 2. The selective competitor: A competitor that reacts only to certain types of
attacks. It might respond to price cuts, but not to adverting expenditure
increases. Knowing, what a key competitor reacts gives its rivals a clue as
to the most feasible lines of attack.

3. The tiger competitor: A competitor that reacts swiftly and strongly to any
as assault.
4. The stochastic competitor: A competitor that does not exhibit a
predictable reaction pattern. There is no way of predicting the
competitor’s action on the basis of its economics situation, history, or
anything else. Many small businesses are stochastic competitors,
competing on miscellaneous fronts when they can afford it.

Some industries are marked by relative accord among the competitors, and others by
constant fighting. Bruce Henderson thinks that much depends on the industry’s
“competitive equilibrium.” Here are his observations:

1. If competitors are nearly identical and make their living in the same way, then
their competitive equilibrium is unstable. Perpetual conflict characterizes
industries where competitive differentiation is hard to maintain, such as steel
or newsprint. The competitive equilibrium will be upset if any firm lowers its
price to relieve overcapacity. Price wars frequently break out in these
industries.

2. If a single major factor is the critical factor, then the competitive equilibrium
is unstable. This is the case in industries where costs-differentiation
opportunities exist through economies of scale, advanced technology, or
experience. Any company that achieves a cost break though can cut its price
and win market share at the expense of other firms, which can defend their
market shares only at great cost. Price wars frequently break out in these
industries as a result of cost breakthroughs.

3. If multiple factors may be critical factors, then it is possible for each

competitor to have some advantage and be differentially attractive to some
customers. The more factors that may provide an advantage, the more
competitors who can coexist. Competitors all have their competitive segment,
defined by the preference for the factor trade-offs that they offer. Multiple
factors exist in industries that can have different values on these factors, and
then many firms can coexist through specialization.

4. A ratio of 2 to 1 in market share between any two competitors seems to be the

equilibrium point at which it is neither practical nor advantageous for either
competitor to increase or decrease share. At this level, the costs of extra
promotion or distribution would outweigh the gains in market share.

3.4 Designing the Competitive Intelligence System

There are four main steps in designing a competitive intelligence system:

1. Setting up the system
2. Collecting the data
3. Evaluating and analyzing the data
4. Disseminating information and responding to queries.

1. Setting up the System

25
The first step calls for identifying vital types of competitive information, identifying
the best sources of this information, and assigning a person who will manage the
system and its services. In smaller companies that cannot afford to set up a formal
competitive intelligence office, specific executives should be assigned to watch
specific competitors. A manager who used to work for a competitor would closely
follow that competitor and serve as the in-house expert on that competitor. Any
manager who needs to know about a specific competitor would contract the
corresponding in-house expert.
2. Collecting the Data
The data are collected on a continuous basis from the field (sales force, channels,
suppliers, market research firms, trade associations), from people who do business
with competitors, from observing competitors, and from published data. In addition, a
vast store of data on both domestic and overseas companies is available via CD-ROM
and on-line services.
The Internet is creating a vast new arsenal of capabilities for those skilled at gathering
intelligence on competitors’ moves. Now companies place volumes of information on
their Web sites, providing details to attract customers, partners, suppliers, or
franchisees.
3. Evaluating and Analyzing the Data
The data collected are checked for validity and reliability interpreted, and organized.
4. Disseminating Information and Responding
Key information is sent to relevant decision makers, and managers’ inquires are
answered. With a well-designed system, company managers receive timely
information about competitors via phone calls, bulletins, newsletters, and reports.
Managers can also contact the market intelligence department when they need help
interpreting a competitor’s sudden move, when they need to know a competitor’s
weaknesses and strengths, or when they want to discuss a competitor’s likely response
to a contemplated company move.
3.5 Selecting Competitors to Attack and to Avoid

With good competitive intelligence, managers will find it easier to formulate their
competitive strategies.
3.5.1 Customer Value Analysis
Very often, mangers conduct a customer value analysis to reveal the company’s
strengths and weaknesses relative to various competitors. The major steps in such an
analysis are:

1. Identify the major attribute customer’s value. Customers are asked what
attributes and performance levels they look for in choosing a product and
vendors.

2. Assess the quantitative importance of the different attributes. Customers are

asked to rate the importance of the different attributes. If customers diverge
too much in their ratings, they should be clustered into different customer
segments.

26
 3. Assess the company and competitors’ performances on the different customer
values against their rated importance. Customers describe where they see the
company and competitors’ performances on each attribute.

4. Examine how customers in a specific segment rate the company’s

performance against a specific major competitor on an attribute-by-attribute
basis. If the company’s offer exceeds the competitor’s offer on all important
attributes, the company can charge a higher price (thereby earning higher
profits), or it can charge the same price and gain more market share.

5. Monitor customer values over time. The company must periodically redo its
studies of customer values and competitors’ standings as the economy,
technology, and features change.
3.5.2 Classes of Competitors
After the company has conducted its customer value analysis, it can focus it attack on
one of the following classes of competitors:

1. Strong versus weak competitors

2. Close versus distant competitors
3. “Good” versus “bad” competitors.

1. Strong versus Weak.

Most companies aim their shots at weak competitors, because this requires fewer
resources per share point gained. Yet, in attacking weak competitors, the firm will
achieve little in the way of improved capabilities. The firm should also compete with
strong competitors to keep up with the best. Even strong competitors have some
weaknesses, and the firm may prove to be a worthy opponent.

2. Close versus Distant.

Most companies compete with competitors who resemble them the most. At the same
time, the company should avoid trying to destroy the closest competitor.

3. “Good” versus “Bad.”

Every industry contains “good” and “bad” competitors. A company should support its
good competitors and attack its bad competitors. Good competitors:
 Play by the industry’s rules
 Make realistic assumptions about the industry’s growth potential
 Set prices reasonable in relation to costs; they favor a healthy industry;
 Limit themselves to a portion or segment of the industry
 Motivate others to lower costs or improve differentiation; and
 Accept the general level of their share and profits.

Bad competitors try to:

 Buy share rather than earn it
 Take large risks; they invest in overcapacity; and
 Upset industrial equilibrium.

27
28