Chapter Three

Dealing with Competition

Today, understanding customers is not enough. This is a period of intense competition,

both foreign and domestic. Under the marketing concept, companies gain competitive

advantage by designing offers that satisfy target-consumer needs better than competitors

offers. They might deliver more customer value by offering consumers lower prices than

competitors for similar products and services, or by providing more benefits that justify

higher prices. Marketing strategies must consider the strategies of competitors as well as

the needs of target consumers. The first step is competitor analysis: the process of

identifying key competitors; assessing their objectives, strengths and weaknesses, strategies

and reaction patterns; and selecting which competitors to attack or avoid. The second step

is developing competitive strategies that strongly position the company against competitors

and give the company the strongest possible competitive advantage.

3.1. Competitive Forces

One fundamental question must be asked when undertaking competitive analysis: Which

competitors are going after which market segments with what marketing strategies? The

focus is on specific market segments that have been isolated through consumer analysis.

At this point, managers should already know the size (potential) and the characteristics of

each segment. The analysis begins to deal with competition on a segment-by-segment basis.

Managers must uncover segments that are not currently being served, or segments that are

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not being served well by competition. In markets where competitors do not have clearly

identifiable strategies and each seems to be using a strategy similar to the others, there are

usually several segments that can be better served through strategies aimed directly at their

needs.

3.1.1. Importance of Understanding Competition

Consider the example of a manufacturer of heart pacemakers that came up with a new line

of products whose technology was better than anything else on the market. However, sales

did not improve; in fact, in some territories they got worse. The company was puzzled, so

it asked its sales representatives to investigate the tactics being used against them.

Salespersons learned that competitors were plying physicians with cars, boats, and lavish

junkets. The company claimed to be surprised to find that such promotions could sway

cardiologists. They found that sales were deteriorating most where its competitors’

giveaways were most aggressive. So, the company increased its educational support for

doctors, began fielding many more service representatives, and actually matched some of

the giveaways—not boats, but equipment related to pacemakers and their use. The effort

helped make sales soar.

Many companies fail to see available opportunities due to lack of attention to immediate

zones and areas of interest. But some companies do a very good job. A famous example of

this is when Gillette noticed that Bic, which had previously been a formidable competitor in

the disposable lighter market, and pioneered disposable razors in Europe in 1975, then

introduced the disposable razor in Canada. Thus, it became clear to Gillette that a major

potential competitor was closing in on the U.S. market. Gillette responded by racing its

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Good News disposable razor into production and onto the national market that same year,

which paved the way for its dominance of this market.

Businesses have made increasing use of the Freedom of Information Act (FOIA) as an

intelligence source. The experience of one company illustrates both the threats and

opportunities provided by this act. When Air Cruisers Co. received Federal Aviation

Administration (FAA) approval of its forty-two-person inflatable life raft designed for

commercial aircraft it was the largest raft ever to gain FAA approval, and provided a

substantial competitive advantage to the firm. Six months later, however, it learned that the

FAA was about to release an eighteen-inch stack of confidential technical documents to

a competitor, which had submitted an FOIA request. The list included results of

performance tests and construction designs, which would enable the competitor to

compress costly design, testing, and certification procedures. Although Air Cruisers was

able to block the FAA from releasing all of the data, some documents were provided. This

information helped the competitor design its own large raft with which it defeated Air

Cruisers in a contest for an important European contract.

3.1.2. The Nature of Competition

To be complete, an analysis of competition must consider existing and potential

competition. Trying to anticipate the moves of competitors can become the basis of

choosing to go after a given segment and what strategy to use if the effort is made. This

section begins with a discussion of the nature of competition and then develops basic tools

for analyzing competitors.

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3.1.2.1. Types of Competition

Marketers must understand some types of competitive conditions that they may face: pure

competition, monopolistic competition, oligopolistic competition, and monopoly. Each of

these situations calls for different marketing strategy decisions.

1. Pure Competition

One of the earliest types of competition identified by economists is called pure competition.

Although all the characteristics of this type of competition are seldom found in the

marketplace, it sometimes occurs in some market environments and serves as a useful

concept in analysis. An industry or a local market which could be described as

pure competition usually has the following characteristics: (1) a large number of relatively

small competitors, (2) little or no differences between strategies, and (3) ease of entry by

new competitors. The large number of small competitors means the actions of one

competitor may be unnoticed by the others. Differences among strategies may be small, and

good location may be of prime importance in attracting customers. The ease of entry may

mean new competitors continually coming into the market or old ones leaving. Unless a

well-financed competitor enters the market and alters the competitive environment,

the market tends to be unorganized, even fragmented, with the number of customers and

competitors within the geographic bounds of the firm determining both sales and strategies.

Similarities in prices, products or services offered, distribution, and promotion are common.

2. Monopolistic Competition

In the market characterized by monopolistic competition, the individual images of the

various firms begin to emerge in terms of more clearly differentiated strategies. Although

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there may still be many competitors and relative ease of entry, each firm has attempted to

differentiate itself in some way from its competitors. It may be a market with much

diversity of price, distribution, products and services, and promotional activities, or it can

also be characterized by similarities among two or three variables in the marketing mix and

variety in the other promotion. In this competitive environment each competitor has more

control over the marketing mix variables, and therefore a diversity of strategies is possible.

3. Oligopolistic Competition

In an oligopolistic, competitive environment, the number of competitors and ease of entry

are both decreased. In this market, there are a few relatively large competitors, and perhaps

a few smaller ones. The actions of one competitor are clearly recognized in both nature

and impact by other competitors, and retaliation to competitive moves is anticipated. There

is still a diversity of strategies in this type of environment, but it is most likely of the non-

price variety; price competition is not easily copied and must be responded to if customers

readily substitute one firm’s products for another. Price leadership may develop as one firm

is allowed to set the pace for others.

4. Monopoly

A monopoly is a market environment characterized by one seller. There are usually legal

restrictions to entry if it is considered a natural monopoly (e.g., electric utility company).

Natural monopolies are regulated by government in terms of prices and distribution, and

non-natural monopolies, if successful, usually attract other competitors who are willing to

overcome barriers to entry because of a potentially large return. Therefore, non-natural

monopolies are usually short-lived. In global markets, competitors may be government-

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owned and operated, as in the oil industry. A government may support a company or group

of companies’ activity as a monopoly to compete in foreign markets. Japan has been

especially successful in this approach to global competitors

3.1.3. Levels of Competition

Competition must be understood at the level at which it is analyzed. At the manufacturing

level, there may be only a few large producers (oligopoly) but many retailers reselling the

products in highly competitive markets (monopolistic or purely competitive). Therefore, the

planner must analyze the market in terms of where his or her own firm faces competition. If

the marketing plan is being developed for a retail firm, the retail market is of prime

consideration, whereas a manufacturer may be more concerned about competition at the

manufacturing level.

In some instances it may be appropriate to look at competition vertically, with one channel

system competing against another channel system, rather than only horizontally. This

would be especially true where vertical integration is involved. Instead of trying to define

what is meant by “many” in the case of number of firms, and “ease of entry” in the case of

how easy it is to enter a market, attention should be focused on the overall nature of the

market as collectively described by the factors. Most economic reality lies somewhere

between pure competition and monopoly. Identifying the nature of competition helps in

understanding not only how firms compete in a market but also whether or not retaliatory

actions can be expected.

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3.1.4. Competitive Advantages

To understand the concept of competitive advantage and why it plays such a central role in

marketing strategy, one must understand how marketers view competition. The most

successful marketers do not wish to “beat the competition”; they wish to make competitors

totally irrelevant to their customers. That is, marketers want to establish such a close,

satisfying, long-term relationship with their customers that those customers have no interest

in considering alternatives. The strength of the relationship makes movement to a

competitor so inconvenient, risky, and unnecessary that the customer exercises a

“willful suspension of choice” and continues to give the company his or her business. In a

sense, marketers are trying to satisfy the customers so completely that the barriers to exit

from the relationship are too high in their minds to justify seeking alternative means of

addressing their needs. A marketer successful in establishing such a relationship

with a customer has made competition irrelevant. Accomplishing this goal requires the

identification and exploitation of a significant competitive advantage.

Competitive advantages are those factors in which a particular organization excels over

competitors or have the potential to excel over them. Some strategic planners actually insist

that the strategic planning process must identify some competitive advantage for the

organization. A competitive advantage is a wish instead of reality until the market

acknowledges its existence. Several conditions must be met before a competitive advantage

can be exploited. The advantage must be:

 Real: It must actually exist and not be just a wish.

 Substantial: It must be great enough to make a difference in the market.

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  Important: It must translate into a benefit that the customer seeks and values.

 Specific: It must explain “what” and “why” to avoid being perceived simply as

puffery.

 Promotable: It must be able to be communicated frequently enough in relevant

language which is understandable and motivating to the customer.

 Sustainable: It must be able to be maintained as changes occur in various facets of

the environment.

Some examples of areas where competitive advantages may be found include the

following:

 Production: A superior ability to turn out a product is a critical competitive

advantage that many companies have capitalized upon. The advantage may also be

in a firm’s ability to maintain superior production quality over competitors.

 Technology: Initial innovative research and development, as well as properly

managed scientific application, can establish and preserve competitive advantages.

 Natural resources: Quite often, valuable or scarce resources are appropriate assets

on which to base a strategy. Tremendous advantage can be given to organizations,

cartels, and nations that control natural resources or that are located in favorable

proximity to them.

 Marketing: Market advantage usually refers to the advantage one firm has over

another because it is more positively positioned in the minds of customers. Those

firms having greater awareness, higher preference, or stronger loyalty have a

distinct marketing advantage over their competitors.

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  Management: Management advantage comes in the form of positive personnel

relations, effective planning and information systems, and overall managerial

competence.

3.2. Identifying Competitors

Although the answer to the question of who it is that a company is competing against

might appear straightforward, the range of actual and potential competitors faced by a

company is often far broader than appears to be the case at first sight. The strategist

should therefore avoid competitive myopia both by adopting a broad perspective and

recognizing that, in general, companies tend to overestimate the capabilities of large

competitors and either underestimate or ignore those of smaller ones.

In the 1970s, for example, the large manufacturers of computers were preoccupied with

competing against one another and failed for some time to recognize the emergence and

growing threat in the PC market posed by what were at the time small companies such as

Apple. More recently, we have seen companies such as BA being taken by surprise by

much smaller organizations such as easyJet. Equally, book retailers have been forced to

rethink their strategies, often in a radical way, as the result of Amazon.com having

changed the competitive dynamics of book selling.

In a more general sense, business history is full of examples of companies that have

seemingly been taken by surprise by organizations they had failed to identify as

competitors, or whose competitive capability they drastically underestimated. In Chapter 4,

for example, we discussed the experiences of the Swiss watch industry, which was

brought to its knees in the late 1960s and early 1970s by new manufacturers of inexpensive

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watches that incorporated digital technology, a technology that, ironically, the Swiss

themselves had developed. Equally, in the reprographic market, companies such

as Gestetner suddenly and unexpectedly found themselves in the 1970s having to fight

aggressive new entrants to the market such as Xerox. Xerox entered this market with a

new, faster, cleaner and infinitely more convenient product to which Gestetner, together

with a number of other companies in the market at the time, experienced difficulties in

responding. Similarly, the British and US television and motorcycle manufacturers

either failed to recognize the Japanese threat or underestimated their expansionist

objectives. The result today is that neither country has a domestic manufacturing industry

of any size in either of these sectors. Less drastic, but in many ways equally fundamental,

problems have been experienced in the car industry.

3.2.1. Industry Concept of Competition

The industry perception of competition is implicit in the majority of discussions of

marketing strategy. Here, an industry is seen to consist of firms offering a product or class

of products or services that are close substitutes for one another; a close substitute in

these circumstances is seen to be a product for which there is a high cross-elasticity of

demand. An example of this would be a dairy product such as butter, where if the price

rises a proportion of consumers will switch to margarine. A logical starting point

for competitor analysis therefore involves understanding the industry’s competitive pattern,

since it is this that determines the underlying competitive dynamics.

From this it can be seen that competitive dynamics are influenced initially by conditions of

supply and demand. These in turn determine the industry structure, which then influences

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industry conduct and, subsequently, industry performance. Arguably the most significant

single element in this model is the structure of the industry itself, and in particular the

number of sellers, their relative market shares, and the degree of differentiation that exists

between the competing companies and products.

The interrelated issue of the number of sellers and their relative market shares has

long been the focus of analysis by economists, who have typically categorized an

industry in terms of five types: (1) An absolute monopoly, in which, because of patents,

licenses, scale economics or some other factor, only one firm provides the product or

service; (2) A differentiated oligopoly, where a few firms produce products that are

partially differentiated; (3) A pure oligopoly, in which a few firms produce broadly the

same commodity; (4) Monopolistic competition, in which the industry has many firms

offering a differentiated product or service; and (5) Pure competition, in which numerous

firms offer broadly the same product or service.

Although industries can at any given time be categorized in these terms, competitive

structures do of course change. A substantial increase in levels of import penetration are in

many ways the most conspicuous causes of a change in competitive structures, a series of

other factors exist that can have equally dramatic implications for the nature and bases of

competition. These include:

 Changes within the distribution channels – the emergence of very powerful retail

chains such as Tesco and Sainsbury with groceries, B&Q in the DIY (do-it- ourself)

sector, PC World with computers, and Toys ‘R’ Us with toys – has led to a

significant shift in the balance of power between manufacturers and retailers, with

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 the retailers adopting an ever more proactive stance regarding product acceptance,

new product development, price points, promotional activity and advertising

support.

 Changes in the supplier base

 Legislation

 The emergence of new technology.

3.2.2. Market Concept of Competition

As an alternative to the industry perspective of competition, which takes as its starting

point companies making the same product or offering the same service, we can focus on

companies that try to satisfy the same customer needs or that serve the same customer

groups. Theodore Levitt has long been a strong advocate of this perspective and it was this

which was at the heart of his classic article ‘Marketing Myopia’. In this article, Levitt

(1960), pointed to a series of examples of organizations that had failed to recognize how

actual and potential customers viewed the product or service being offered. Thus, in the

case of railways, the railway companies concentrated on competing with one another and

in doing this failed to recognize that, because customers were looking for transport, they

compared the railways with planes, buses and cars. The essence of the market perspective

of competition therefore involves giving full recognition to the broader range of products

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or services that are capable of satisfying customers’ needs. This should, in turn, lead to the

marketing strategist identifying a broader set of actual and potential competitors, and

adopting a more effective approach to long-run market planning.

3.3. Analyzing Competitors

To plan effective competitive marketing strategies, the company needs to find out all it can

about its competitors. It must constantly compare its products, prices, channels and

promotion with those of close competitors. In this way the company can find areas of

potential competitive advantage and disadvantage. It can launch more effective marketing

campaigns against its competitors and prepare stronger defenses against competitors'

actions. What do companies need to know about their competitors? They need to

know: Who are our competitors? What are their objectives? What are their strategies? What

are their strengths and weaknesses? What are their reaction patterns?

The figure shows the main steps in analyzing competitors.

Source: Kotler et al. (1999: pp: 507). Principles of Marketing. 2nd European Edition

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3.3.1. Steps in Analyzing competitors

1. Identifying the Company's Competitors

Normally, it would seem a simple matter for a company to identify its competitors. Coca-

Cola knows that Pepsi is its strongest competitor; and Caterpillar knows that it competes

with Komatsu. At the most obvious level, a company can define its product category

competition as other companies offering a similar product and services to the same

customers at similar prices. Thus Volvo might sue Saab as a foremost competitor, but not

Fiat or Ferrari. In competing for people's money, however, companies actually face a much

wider range of competitors. More broadly, the company can define its product competition

as all firms making the same product or class of products. Even more broadly, competitors

might include all companies making products that supply the same service. Finally and still

more broadly, competitors might include all companies that compete for the same

consumer's money. Here Volvo would see itself competing with companies that sell major

consumer durables, foreign holidays, new homes or extensive home repairs or alterations.

2. Determining Competitors' Objectives

Having identified the main competitors, marketing management now asks: What does each

competitor seek in the marketplace? What drives each competitor's behavior?

The marketer might at first assume that all competitors would want to maximize their

profits and choose their actions accordingly. However, companies differ in the emphasis

they put on short-term versus long-term profits, and some competitors are oriented towards

'satisfying' rather than 'maximizing' profits. They have profit goals that satisfy them, even if

the strategic could produce more profits. Marketers must look beyond competitors' profit

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goals. Each competitor has a mix of objectives, each with differing importance. The

company wants to know the relative importance that competitors place on current

profitability, market share growth, cash flow, technological leadership, service leadership

and other goals. Knowing a competitor's objectives reveals if it is satisfied with its current

situation and how it might react to competitive actions. For example, a company that

pursues low-cost leadership will react much more strongly to a competitor's cost-reducing

manufacturing breakthrough than to the same competitor's advertising increase. A company

must also monitor its competitors' objectives for attacking various product/market segments.

3. Identifying Competitors' Strategies

The more that one firm's strategy resembles another firm's strategy, the more the firms

compete. In most industries, the competitors sort into groups that pursue different strategies.

A strategic group is a group of firms in an industry following the same or a similar strategy

in a given target market. For example, in the major appliance industry, Electrolux, Ilotpoint

and Zanussi all belong to the same strategic group. Each produces a full line of medium-

price appliances supported by good service. Quality-oriented Bosch and stylish AJessi, on

the other hand, belong to a different strategic group. They both produce a narrow line of

appliances and charge a premium price. Some important insights emerge from strategic

group identification. For example, if a company enters one of die groups, the members of

that group become its key competitors. Thus, if the company enters the first group against

Electrolux, Ilotpoint and Zanussi, it can succeed only it' it develops some strategic

advantages over these large competitors.

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4. Assessing Competitors Strengths and Weaknesses

Can a company's competitors carry out their strategies and reach their goals? This depends

on each competitor's resources and capabilities. Marketers need to identify accurately each

competitor's strengths and weaknesses. As a first step, a company gathers key data on each

competitor's business over the last few years. It wants to know about competitors' goals,

strategies and performance. Admittedly, some of this information will be hard to collect.

Companies normally learn about their competitors' strengths and weaknesses through

secondary data, personal experience and hearsay. They can also increase their knowledge

by conducting primary marketing research with customers, suppliers and dealers.

Recently, a growing number of companies have turned to benchmarking, comparing the

company's products and processes to those of competitors or leading firms in other

industries to find ways of improving quality and performance. In searching for competitors'

weaknesses, the company should try to identify any assumptions they make about their

business and the market that are no longer valid.

5. Estimating Competitors' Reaction Patterns

A competitor's objectives, strategies and strengths and weaknesses explain its likely actions,

and its reactions to moves such as a price cut, a promotion increase or a new product

introduction. In addition, each competitor has a certain philosophy of doing business, a

certain internal culture and guiding beliefs. Marketing managers need; deep understanding

of a given competitor's mentality if they want to anticipate how that competitor will act or

react. Each competitor reacts differently. Some do not react quickly or strongly to a

competitor's move: they may feel that their customers are loyal; they may be slow in

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noticing the move; they may lack the funds to react. Some competitors react only to certain

types of assault and not to others. They might always respond strongly to price cuts in order

to signal that these will never succeed. But they might not respond at all to advertising

increases, believing these to be less threatening. Other competitors react swiftly and

strongly to any assault. Knowing how key competitors react gives the company clues on

how best to attack competitors or how best to defend the company's current positions.

6. Selecting Competitors to Attack and Avoid

Management has already largely determined its main competitors through prior decisions

on customer targets, distribution channels and marketing-mix strategy. These decisions

define the strategic group to which the company belongs. Management must now decide

which competitors to compete against most vigorously. The company can focus its attack

on one of several classes of competitors. Example, Johnson & Johnson acquired Vistakon,

a small nicher that served the tiny portion of the contact-lens market for people with

astigmatism. Racked by J & J's deep pockets, however, Vistakon proved a formidable

opponent. When the small but nimble Vistakon unit introduced its innovative Acuvue

disposable lenses, the much larger Bausch & Lomb had to take some of its own medicine.

7. Designing the Competitive Intelligence System

We have described the main types of information that company decision-makers need to

know about their competitors. This information needs collecting, interpreting, distributing

and using. Although the cost in money and time of gathering competitive intelligence is

high, the cost of not gathering it is higher. Yet the company must design its competitive

intelligence system in a cost-effective way. The competitive intelligence system first

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identifies the vital types of competitive information and the best sources of this information.

Then the system continuously collects information from the field (sales force, channels,

suppliers, market research firms, trade associations) and from published data (government

publications, speeches, articles). Next the system checks the information for validity and

reliability interprets it and organizes it in an appropriate way. Finally, it sends key

information to relevant decision-makers and responds to enquiries from managers about

competitors. With this system, company managers will receive timely information about

competitors in the form of phone calls, bulletins, newsletters and reports. In addition,

managers can contact the system when they need an interpretation of a competitor's sudden

move, or when they require to know a competitor's weaknesses and strengths or how a

competitor will respond to a planned company move. Smaller companies that cannot afford

to set up a formal competitive intelligence office can assign specific executives to watch

specific competitors. Thus a manager who used to work for a competitor might follow

closely all developments connected with that competitor; he or she would be the 'in-house'

expert on that competitor. Any manager needing to know the thinking of a given competitor

could contact the assigned in-house expert.

3.4. Competitive Strategies for Market Leaders, Followers, Challengers

and Niche

In this chapter we take the analysis a stage further by examining how the organization’s

position in the market, ranging from market leader through to market nicher, influences

strategy and planning. Having identified and evaluated the main competitors, the company

must now design competitive marketing strategies that best position its offer against

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competitors' offerings. What broad marketing strategies can the company use? Which ones

are best for a particular company or for the company's different divisions and products? No

one strategy is best for all companies. Each company must determine what makes the most

sense, given its position in the industry and its objectives, opportunities and resources.

Even within a company, different businesses or products need different strategies. Johnson

& Johnson uses one marketing strategy for its leading brands in stable consumer markets

and a different marketing strategy for its new high-tech healthcare businesses and products.

3.4.1. Market Leader Strategies

Most industries contain an acknowledged market leader. The leader has the largest market

share and usually leads the other firms in price changes, new product introductions,

distribution coverage and promotion spending. The leader may or may not be admired, but

other firms concede its dominance. The leader is a focal point for competitors, a company

to challenge, imitate or avoid.

A leading firm's life is not easy. It must maintain a constant watch. Other firms keep

challenging its strengths or trying to take advantage of its weaknesses. The market leader

can easily miss a turn in the market and plunge into second or third place. Sometimes

leading firms grow fat and slow, losing out against new and more energetic rivals - Xerox's

share of the world copier market fell from over 80 per cent to less than 35 per cent in just

five years when Fuji and Canon challenged it with cheaper and more reliable copiers.

Leading firms want to remain number 1. This calls for action on four fronts. First, the firm

must find ways to expand total demand. Second, the firm can try to expand its market share

further, even if market size remains constant. Third, a company can retain its strength by

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reducing its costs. Fourthly, the firm must protect its current market share through good

defensive and offensive actions.

3.4.2. Market Challenger Strategies

Firms that are second, third or lower in an industry are sometimes quite large, such as

Colgate, Fiat, Toyota, Roche, Sandoz, HSBC (Hong Kong and Shanghai Banking Corp.),

Carlsberg and PepsiCo. These runner-up firms can adopt one of two competitive strategies:

they can attack the leader arid other competitors in an aggressive hid for more market share

(market challengers): or they can play along with competitors and not rock the boat (market

followers).

1. Defining the Strategic Objective and the Competitor

A market challenger must first define its strategic objective. Most market challengers seek

to increase their profitability by increasing their market shares. The strategic objective

chosen depends on who the competitor is. In most cases, the company can choose which

competitors it will challenge. The challenger can attack the market leader - a high-risk but

potentially high-gain strategy that makes good sense it' the leader is not serving the market

well. To succeed with such an attack, a company must have some sustainable competitive

advantage over the leader — a cost advantage leading to lower prices or the ability to

provide better value at a premium price.

2. Choosing an Attack Strategy

How can the market challenger best attack the chosen competitor and achieve its strategic

objectives?

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(i) Frontal Attack: In a full frontal attack, the challenger matches the competitor's product,

advertising, price and distribution efforts. It attacks the competitor's

strengths rather than its weaknesses. The outcome depends on who

has the greater strength and endurance.

(ii) Flanking Attack: Rather than attacking head on, the challenger can launch a flanking

attack. The competitor often concentrates its resources to protect its

strongest positions, but it usually has some weaker flanks. By

attacking these weak spots, the challenger can concentrate its

strength against the competitor's weakness. Flank attacks make good

sense when the company has fewer resources than the competitor.

(iii) Encirclement Attack: An encirclement attack involves attacking from all directions,

so that the competitor must protect its front, sides and rear at

the same time. The encirclement strategy makes sense when

the challenger has superior resources and believes that it can

break the competitor's hold on the market quickly.

(iv) Bypass Attack: A bypass attack is an indirect strategy. The challenger bypasses the

competitor and targets easier markets. The bypass can involve

diversifying into unrelated products, moving into new geographic

markets or leapfrogging into new technologies to replace existing

products. Technological leapfrogging is a bypass strategy used often

in high-technology industries. Instead of copying the competitor's

product and mounting a costly frontal attack, the challenger patiently

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 develops the next technology. When satisfied with its superiority, it

launches an attack where it has an advantage.

(v) GL'errilla Attack: A guerrilla attack is another option available to market

challengers, especially smaller or poorly financed ones: When

entrepreneur Freddie Laker frontally attacked the established

airlines (then BOAC and TWA) by offering cheap transatlantic

flights, they fought back and bankrupted him. Now TWA has all

but disappeared and British Airways is facing Virgin Atlantic run

by a much wilier entrepreneur. In these attacks the agile

challenger typically makes small, periodic attacks to harass and

demoralize the competitor, hoping eventually to establish

permanent footholds. It might use selective price cuts, novel

products, executive raids, intense promotional outbursts or

assorted legal actions.

3.4.3. Market-Follower Strategies

Not all runner-up companies will challenge the market leader. The effort to draw away the

leader's customers is never taken lightly by the leader. If the challenger's lure is lower

prices, improved service or additional product features, the leader can quickly match these

to diffuse the attack. The leader probably has more staying power in an all-out battle. A

hard fight might leave both firms worse off and this means the challenger must think twice

before attacking. Many firms therefore prefer to follow rather than attack the leader.

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A follower can gain many advantages. The market leader often bears the huge expenses

involved with developing new products and markets, expanding distribution channels, and

informing and educating the market. The reward for all this work and risk is normally

market leadership. The market follower, on the other hand, can learn from the leader's

experience and copy or improve on the leader's products and marketing programs, usually

at a much lower investment. Although the follower will probably not overtake the leader, it

can often be as profitable.

In some industries - such as steel, fertilizers and chemicals – opportunities for

differentiation are low, service quality is often comparable and price sensitivity runs high.

Price wars can erupt at any time. Companies in these industries avoid short-run grabs for

market share because the strategy only provokes retaliation. Most firms decide against

stealing each other's customers. Instead they present similar offers to buyers, usually by

copying the leader. Market shares show a high stability.

This is not to say that market followers are without strategies. A market follower must

know how to hold current customers and win a fair share of new ones. Each follower tries

to bring distinctive advantages to its target market - location, services, financing. The

follower is a primary target of attack by challengers. Therefore, the market follower must

keep its manufacturing costs low and its product quality and services high. It must also

enter new markets as they appear. Following is not the same as being passive or a carbon

copy of the leader. The follower has to define a growth path, but one that does not create

competitive retaliation.

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3.4.4. Market Niche Strategies

Almost every industry includes firms that specialize in serving market niches. Instead of

pursuing the whole market or even large segments of the market, these firms target

segments within segments or niches. This is particularly true of smaller firms because of

their limited resources. The main point is that firms with low shares of the total market can

be highly profitable through clever niching. One study of highly successful mid-size

companies found that, in almost all cases, these companies niched within a larger market

rather than going after the whole market.

Why is niching profitable? The main reason is that the market nicher ends up knowing the

target customer group so well that it meets their needs better than other firms which

casually sell to this niche. As a result, the nicher can charge a substantial mark-up over

costs because of the added value. Whereas the mass marketer achieves high volume, the

nicher achieves high margins.

Nichers try to find one or more market niches that are safe and profitable. An ideal market

niche is big enough to be profitable and has growth potential. It is one that the firm can

serve effectively. Perhaps most importantly, the niche is of little interest to large

competitors. The firm has to specialize along market, customer, product or marketing-mix

lines. Here are several specialist roles open to a market nicher:

• End-use specialist. The firm specializes in serving one type of end-use customer. For

example, Reuters provides financial information and news to professionals and Moss Bros'

strength is in clothes hire.

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Vertical-level specialist: The firm specializes at some level of the production-distribution

cycle. For example, the Dutch-based Anglo-Italian company, EVC, is Europe's leading

manufacturer of polyvhiylchloride (PVC), while Country Homes' niche is as an

intermediary between owners of country cottages and people who want to hire them for

holidays. Customer-si.se specialist The firm concentrates on selling to cither small,

medium or large customers. Many nichers specialize in serving small customers neglected

by the large companies, Fuji gained its initial success in the photocopying market by

specializing on small firms neglected by Xerox. Many regional advertising agencies also

specialize in serving medium-sized clients.

Specific-customer specialist: The firm limits its selling to one or a few large customers.

Geographical specialist: The firm sells only in a certain locality, region or area of the

world.

Product or feature specialist: The firm specializes in producing a certain product, product

line or product feature.

Quality-price specialist: The firm operates at the low or high end of the market.

Service specialist: The firm offers one or more services not available from other firms.

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