Title: Dealing with
1Chapter 9
Dealing with the Competition
Dr. S. Borna
MBA 671
2There is nothing more exhilarating than to be
shot at without result.
Winston Churchill
Induce your competitors not to invest in those
products, markets and services where you expect
to invest the most that is the fundamental rule
of strategy. Bruce Henderson,
Founder of BCG
3Industry and competitor analysis process
1. Identify relevant Industry and specify
strategic groups
2. Industry structure analysis
43. Examine bases of Competition
4. Individual competitor analysis
5What is the benefit (s) of industry and
competitor analysis?
Industry attractiveness or unattractiveness and
a firms competitive position within an industry
have profound impact on strategy formulation.
6What do we mean by the term industry?
Soft drink industry
7A Definition of Industry
Firms that produce similar products
(product substitution)
8Four Levels of Competition Based on the Degree of
Substitutability
1. Generic competition 2. Form competition 3.
Industry competition 4. Brand competition
9What desire do I want to satisfy?
What do I want to eat?
Generic competition
Desire Competition
Socializing Exercising Eating . .
Potato chips Candy soft drink .
10What type of candy?
Which brand do I want?
Form competition
Brand competition
Chocolate bars Licorice Sugar drops .
. .
Hershey Nestle Mars .
11Identification of Strategic Groups
A strategic group consists of firms pursuing
similar strategies, i.e., employing a similar mix
of strategy elements.
12How to classify firms?
H
?
quality
L
D
?
I
Markets served
13Strategic Groups in the Major Appliance Industry
- Group A
- Narrow line
- Lower mfg. cost
- Very high service
- High price
- Group C
- Moderate line
- Medium mfg. cost
- Medium service
- Medium price
- Group B
- Full line
- Low mfg. cost
- Good service
- Medium price
- Group D
- Broad line
- Medium mfg. cost
- Low service
- Low price
14Bases for classification
(Strategic groups)
1. Markets served BMW Mercedes-Benz etc. 2.
Products full line, limited line etc. Coke
and Pepsi, 7 up 3. Distribution channels
Goodrich vs. Dunlop (own retailers vs indpt
R.)
15Identification of Potential Competitors
1. Firms expanding their geographical
markets examples Wal-mart, Meijer
16Firms expanding their Product line Example, IBM
entering the PC market
S P W R
Firms integrating Forward And backward
A supermarket manufacturing its own private labels
17Firms seeking merger or buyout Hicks and Hass
Acquiring Dr. Pepper, Seven-up, and AW
18INDUSTRYSTRUCTURE ANALYSIS
Michael Porters Model
19Five Forces Determining Segment Structural
Attractiveness
20Potential Competitors And Industry attractiveness
Experience effect (economies of scale and
experience effect) Capital requirements Product
differentiation Distribution channels (Retailer
reluctance, Mature products etc.) Switching costs
(ex. new software for new computers)
21Present Competitors
Investment intensity Product differentiation Switc
hing Costs Industry growth Industry
structure Exit barriers
22Investment Intensity By investment intensity,
we mean the amount of fixed and working capital
required to produce a dollar sales.
23A Note on Industry Structure
Monopoly Oligopoly Monopolistic competition Pure
competition (in pure competition there is no
competition!)
24Less differentiated an industry less attractive
is that industry! Switching costs, or the
costs of changing suppliers- inhibit competition.
25Threat of Substitute Products
Actual or potential substitute product
ELECTRICITY BUTTER GLASS
GAS MARGARINE PLASTIC
26Bargaining Strength of Suppliers
SUPPLIER CONCENTRATION NO. OF suppliers Supplier
product is a large part of buyers value
added SWITCHING COSTS
27Suppliers Cont.
SUBSTITUTE RAW MATERIALS (soft drinksugar cans
etc) THREAT OF FORWARD INTEGRATION
28Bargaining Power of Buyers
Buyers Concentration Threat of backward
integration Product importance Buyer
profitability Substitutes Switching costs (e.g.
food, beer, soft-drink metal cans)
29Analyzing Competitors
30Individual Competitor Analysis
Competitor Characteristics
Competitor Objectives
Competitor Strategy
Competitor Success Today
Competitor Strength and weakness
Competitor Future Behavior
31Competitor Characteristics
- Information related to
- Size of Sales
- Profitability
- Market Share
- Growth
- Relation of SBU to the parent
- Company, etc.
32Competitor Objectives
- Market Growth Objectives
- Price Objectives
- Product Technology Objectives
- Human Resource Objectives
- etc.
33Competitors Strategy
Review of past and present strategies
Companys current marketing mix strategy (BIC as
an example strategy of low cost, mass produced
and disposable products)
34Competitors Strengths and Weaknesses
Marketing Product Quality Brand Names
Distribution Promotion skills Salesforce
cont.
35 Innovation RD Technologies New
Product Capabilities
Management Quality of top management
Loyalty-turnover Quality of Middle- management
36How to Develop a Response Policy?
37Estimating the Competitors Reaction Patterns
The laid-back competitors The selective
competitors The tiger competitors The Stochastic
competitors
38Designing the Competitive Intelligence System
1. Setting up the system What type of
information? What is the best source of
information? Who will manage the system?
392. Collect Information Sales force
Channel members Trade association etc.
40Other sources of Information
1. Company Financial 10-k, annual reports
Moodys, State Filing Published articles
2. Company Background
Standard Poors F S Indexes Newspaper Index
413. Management Personnel Whos who Local
Newspapers College alumni association
4. Foreign Information Consulates
Embassies International Trade
Commission
423. Evaluate and analyze the information
check validity and reliability of the information
434. Dissemination and Response
44Review
- Identifying Competitors
- Evaluating Competitors
- Competitive Intelligence Systems
- Competitive Strategies (not discussed)
- Customer vs. Competitor Orientation