1. 2/18/2010
Lecture 7
Brand Competition
Demand-side Brand competition
• Consumption of many products and services
flattens and hits the maturity stage of PLC
(even decline stage)
• Sales growth for brands can only be
achieved by taking away some of the
market share of competing brands
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Supply-side Brand competition
New competitors have emerged due to a
number of factors:
• Brand extensions – add more products
within same product category
• Brand leveraging – enter new product
categories with same brand name
• Deregulation
• Globalisation
• Low-priced competitors- generics, private
labels, clones
Definition
Strategic Competition may be defined as “studied
deployment of resources based on a high degree
of insight into the systematic cause and effect in
the business system or environment
Jain p74
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Elements of Strategic Competition
• the ability to understand competitive interactions
(competitors, customers, money, people, and
resources)
• an understanding of cause & effect, actions &
consequences, risks & outcomes
• the ability to defer consumption for future benefits
• the willingness to deliberately act to make the
commitment
SOURCES OF COMPETITION
• Customer Need
• Industry Competition
How can I satisfy this need? (options)
• Product-Line Competition
What form of product do I want?
• Organisational Competition
What brand do I want?
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Example
• Liquid for the body
ANALYSING INDIVIDUAL
COMPETITORS
1 Size, growth and profitability
2 Objectives and assumptions
3 Current and past performance
4 Other Criteria:
Cost structures (difficult to obtain)
Exit barriers
Raw material costs
Financial position
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Levels of Competition
Beers
Ice
cream Tea Regular
colas Diet
lemon
limes
Diet-Rite
Wine cola
Diet Product form
Pepsi competition:
Diet Diet colas
Fast food Coke Juices
Fruit
Product
flavore
Lemon category Video
Bottled d colas
limes competition: rentals
water
Soft drinks
Generic
Coffee competition:
Baseball
cards Beverages
Budget
competition:
Food and
entertainment
Levels of Competition: Implications
for Product Strategy
Competitive Level Product Management Task
Product Convince Customers that the
Form Brand is Better than Others
Product Convince Customers that the
Product Form is Best in the
Category Category
Convince Customers that the
Generic Product Category is the Best
Way to Satisfy Needs
Convince Customers that the
Budget Generic Benefits are the Most
Appropriate Way to Spend
their Money
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Defining Competition with Brand Choice
Data
All brands
National Regional
Family Family
Diet Regular
brand 1 brand 2
Cola Non-Cola
SOURCES OF COMPETITIVE
INFORMATION
1 Public domain (media)
2 Trade Professionals (manuals, patents)
3 Investors (annual meeting, reports)
Other Sources:
• Unions
• Recruiting firms
• Suppliers
• Customers
• Government
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What we should know about our
competitors
• Who we compete with now and who we
will compete with in the future
• Likely sources of competition in the future
• Competitors strategies and goals
• Their strengths and weaknesses
• How they are likely to react
• How will they impact on our operations
INDUSTRY STRUCTURE MODELS &
COMPETITIVE STRATEGY
1 Micro-economic theory has well developed models
of:
• industry structure and
• competitive behaviour
2 Economists identify 4 structural groups
• pure competition
• monopoly
• monopolistic competition
• oligopolistic competition
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Porter on industry structure
The five forces of industry determine industry
structure because they influence prices,
costs and the required investment of firms
in an industry- the elements of return on
investment.”
Porter, 1985, p.6
Porter deals with the underlying structural factors
affecting a product category
Threats of New Entrants
If the threats of new entrants into the product category
is high, the attractiveness of the category is
diminished.
Unless the product is in the early stages of market
development
(Introductory and Growth Stages)
So how can product managers reduce the likelihood
of new competitors entering the market?
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Threats of New Entrants
Erecting barriers to entry
Economies of Scale:
eg cars - plant size & efficiency
Service centres to service a few or many
Size allows you to spread fixed costs and offer lower
prices & better service.
Applies equally in service sector – eg. Cost of filling
large vs small orders; a service centre that can
service many clients or only a few
Threats of New Entrants
Erecting barriers to entry (2)
Product Differentiation:
Well established brand names and company
reputation can make it difficult to enter
In the ready-to-eat breakfast cereal industry, the big
four – Kelloggs, Kraft-GF, General Mills &
Quaker Oats – are well established brands.
Difficult for new branded competitors to enter
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Threats of New Entrants
Erecting barriers to entry(3)
Capital requirements: to establish manufacturing
facilities, chain store locations, or marketing
programs
egChemical & aircraft. Also fast-food categories
have large fixed costs for promotion &
distribution
Switching Costs are costs of moving from one
supplier to another
eg Nintendo & Sega link hardware and games
cartridges (lock-in)
Threats of New Entrants
Erecting barriers to entry (4)
Distribution. New products can find it difficult to
obtain shelf space.
Slotting allowances (payments by manufacturers
to retailers) creates barriers to entry.
Barriers change over time eg When Xerox’s patent
expired many competitors entered the copier
market. Also when drug patents expire generic
with lower prices are introduced
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Threats of New Entrants
What can the Product Manager do to make it
difficult for competitors
If it is easy for competitors to enter the market:
(1) Differentiate more
(2) Raise the capital requirement to compete
effectively
(3) Build switching costs (make it hard
for consumers to switch brands
(4) Lock up distribution or supply
(5) Signal your intention to
retaliate strongly.
Bargaining Power of Buyers
Buyers can be distributors, manufacturers or end customers
Suppliers are those that supply the factors of production (labour,
capital, raw materials, machinery)
If buyer power is high they can:
Force down prices
Play competitors against one another
Organisational customers who spend large amounts can wield
much power. For individual customers to wield power they
need to group
eg Retired persons association
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Bargaining Power of Buyers (2)
• If buyers have high bargaining power the industry
is less attractive.
• Buyers can force down prices.
• Play competitors against one another for benefits
and extra services
What happens if buyer bargaining power is high?
• When the product bought is a large percentage of
the buyer’s costs; eg car industry’s demand for
steel
• When product bought is undifferentiated eg
chemicals or bulk semiconductors – where buyers
see various offerings as indistinguishable
• When buyers earn low profits
• When buyers threaten to backward intergrate
• When buyers have full information
• When substitutes exist for the seller’s product or
service
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What can the Product Manager do to decrease
buyer power?
(1) Increase product differentiation, making your
product essential to buyer (customised)
(2) Provide technical support or manufacturing
related consulting. Good quality service
relationships builds switching costs
Bargaining Power of Suppliers
If companies that supply you (raw materials,
machines, etc) have power they can dictate price,
delivery dates etc.
When would this happen?
(1) Only a few suppliers exist
(2) No suitable substitute for product
(3) When supplier has customised to your needs,
making it hard for you to switch
(4) When supply is limited
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What conditions lead to Intensive Rivalry
(1) Many or balanced competitors (fast-food, cars,
computers, soft-drinks, mobile phones)
(2) Markets are mature and growth slow
(3) High fixed costs puts pressure to have scale
economies eg paper and chemical companies are
very competitive
(4) Lack of product differentiation. Products are
commodities to customers (fuel)
Impact of Category Factors
on Attractiveness
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Threats of substitute products or services
If there are a large number of substitutes the product
category is less attractive.
Higher rates of return are earned in product
categories where the range of substitutes is small
PORTER’S GENERIC STRATEGIES
How a firm can develop a competitive
advantage and create a defendable position:
1 Overall cost leader
2 Differentiation
3 Coverage (Focus)
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COST LEADERSHIP
Policy Choices
1 Product configuration, performance &
feature.
2 Mix and variety of products offered
3 Level of service offered
4 Channels employed
COST LEADERSHIP (2)
• To compete on price as the major marketing tool.
• Good for market leaders who can use economies of
scale.
NOT APPROPRIATE where:
1 The leader is already committed to an extensive product
range.
2 Products are very similar (product parity)
3 Service and channel distribution are critical factors of
competitive advantage.
4 Should not be the strategic focus for market leaders in
declining markets.
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FOCUS STRATEGY (1)
In essence is a niche marketing strategy
Focus is indicated when:
• the firm has a unique understanding of
market needs
• high switching costs exist
• customers are prepared to pay higher prices
for customised products
FOCUS STRATEGY (2)
Basis for focus
• Product Focus e.g. Athlete’s Foot
• Segment Focus e.g. Women’s Hospital or
Men’s Magazine
• Geographic Focus e.g. Nelson Bros
Funerals
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Competitor Analysis System
Secondary data Primary data
Key questions:
- Who are they?
- What are the competing
product features?
- What do they want?
- What is their current
strategy?
Differential competitor
advantage analysis i.e. Who
has the competitive product
advantage?
What are they going to do?
Secondary Sources of Competitor
Information
Customer Internal
Communications Sources Local
Consultants Newspapers
Annual
Trade Press Reports
Patent
Internet Secondary data Filings
Promotional 10Ks
Literature
Business
Trade
Press
Associations
News Electronic Government
Releases Databases
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Primary Sources of Competitor
Information
Investment
Bankers
Consultants/
Specialized
Firms Sales Force
Primary
Data
Suppliers
Employees
Customers
Other Sources of Competitor
Information
Help-Wanted
Advertisements
Hiring Key
Employees Trade Shows
Primary
Data
Monitoring Plant Tours
Test Markets
Reverse
Engineering
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Sources with Ethical Considerations
• Aerial reconnaissance
• Buying/stealing trash
• Bribing printers
• Running phony want ads
• Snooping on airplanes
Assessing Competitors’
Strategies
• Marketing strategy
–Comparing value chains
–Marketing mix
• Pricing
• Promotion
• Distribution
• Product/Service capabilities
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Criteria to Assess Technological
Strategy
1. Technology selection or specialization
2. Level of competence
3. Sources of capability: internal versus
external
4. R&D investment level
5. Competitive timing: initiate versus respond
6. R&D organization and policies
Competitor Information to
Collect
• Ability to conceive and design
• Ability to produce
• Ability to market
• Ability to finance
• Ability to manage
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