2/18/2010

1

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

2/18/2010

2

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

2/18/2010

3

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?

2/18/2010

4

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

2/18/2010

5

Levels of Competition

Diet

lemon

limes

Baseball

cards

Fruit

flavore

d colas

Coffee

Diet

Coke

Diet

Pepsi

Diet-Rite

cola

Bottled

water

Lemon

limes

Regular

colas

Beers

Juices

Wine

Fast food

Tea

Video

rentals

Ice

cream

Product form

competition:

Diet colas

Product

category

competition:

Soft drinks

Generic

competition:

BeveragesBudget

competition:

Food and

entertainment

Levels of Competition: Implications for Product Strategy

Budget

Generic

Product

Category

Product

Form

Competitive Level

Convince Customers that the

Brand is Better than Others

Convince Customers that the

Product Form is Best in the

Category

Convince Customers that the

Product Category is the Best

Way to Satisfy Needs

Convince Customers that the

Generic Benefits are the Most

Appropriate Way to Spend

their Money

Product Management Task

2/18/2010

6

Defining Competition with Brand Choice

Data

Regular

All brands

RegionalNational

DietFamily

brand 1

Family

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

2/18/2010

7

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

2/18/2010

8

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?

2/18/2010

9

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

2/18/2010

10

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

2/18/2010

11

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.

22

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

2/18/2010

12

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

2/18/2010

13

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

2/18/2010

14

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

2/18/2010

15

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)

2/18/2010

16

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.

2/18/2010

17

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

2/18/2010

18

Competitor Analysis System

What are they going to do?

Differential competitor

advantage analysis i.e. Who

has the competitive product

advantage?

Key questions:

- Who are they?

- What are the competing

product features?

- What do they want?

- What is their current

strategy?

Primary dataSecondary data

Secondary Sources of Competitor

Information

Internal

Sources Local

Newspapers

Annual

Reports

Patent

Filings

10Ks

Business

Press

GovernmentElectronic

Databases

News

Releases

Trade

Associations

Promotional

Literature

Internet

Trade Press

Consultants

Customer

Communications

Secondary data

2/18/2010

19

Primary Sources of Competitor

Information

Sales Force

Investment

Bankers

Suppliers

Customers

Employees

Consultants/

Specialized

Firms

Primary

Data

Other Sources of Competitor

Information

Trade Shows

Help-Wanted

Advertisements

Plant Tours

Reverse

Engineering

Monitoring

Test Markets

Hiring Key

Employees

Primary

Data

2/18/2010

20

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

2/18/2010

21

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