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Five Forces Determining Segment Structural

Attractiveness

Number of sellers anddegree of differentiation

Entry, mobility, and exitbarriersCost structureDegree of verticalintegrationDegree of globalization

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Barriers and Profitability

Low, stablereturns

Low

High, stablereturnsHigh

Low

Low, riskyreturns

High, riskyreturns

High

EntryB

arriers

Exit barriers

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Competitive Strategy

Industry

Force

Generic Strategies

CostLeadership

Differentiation Focus

Entry

Barriers

Ability to cut price

in retaliation deters

potential entrants.

Customer loyalty can

discourage potential

entrants.

Focusing develops core competencies

that can act as an entry barrier.

BuyerPower

Ability to offerlower price to

powerful buyers.

Large buyers have lesspower to negotiate because

of few close alternatives.

Large buyers have less power to negotiate

because of few alternatives.

Supplier

Power

Better insulated from

powerful suppliers.

Better able to pass on

supplier price increases to

customers.

Suppliers have power because of low

volumes, but a differentiation-focused

firm is better able to pass on supplier

price increases.

Threat of

Substitutes

Can use low price to

defend against

substitutes.

Customer's become

attached to differentiating

attributes, reducing threat

of substitutes.

Specialized products & core competency

protect against substitutes.

RivalryBetter able to

compete on price.

Brand loyalty to keep

customers from rivals.

Rivals cannot meet differentiation-

focused customer needs.

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Analyzing Competitors

CompetitorActions

Objectives

Strengths &

Weaknesses

Reaction

Patterns

Strategies

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Strengths and Weaknesses

Share of market(The competitors share of the target market)

Share of mind(The first company that comes to mind)

Share of heart(The company from which you would prefer tobuy)

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Competitive Strategies for Market

Leaders

40%

Market

leader

30%

Market

challenger

20%

Market

follower

Expand Market

Defend Market Share

Expand Market Share

Attack leader

Status quoImitate

10%

Market

nicher

Special-ize

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Expanding the Total Market

New customers(Penetration/new marketsegmentation/geographical-expansion)

More usage(Consumption Amount/Frequency)

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Defense Strategy- Creative/Anticipative/Responsive A market leader should generally adopt a defense strategy

Six commonly used defense strategies Position Defense

e.g. Mercedes was using a position defense strategy until Toyotalaunched a frontal attack with its Lexus.

Mobile Defense By market broadening and diversification (airtel)

Flanking Defense Secondary markets (flanks) are the weaker areas and prone to

being attacked

Contraction Defense Withdraw from the most vulnerable segments and redirect

resources to those that are more defendable

Pre-emptive Defense Detect potential attacks and attack the enemies first

Counter-Offensive Defense Responding to competitors head-on attack by identifying the

attackers weakness and then launch a counter attack e.g. Toyota launched the Lexus to respond to Mercedes attack

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Market Challenger Strategies

The market challengers strategic objective is togain market share and to become the leadereventually

How? By attacking the market leader

By attacking other firms of the same size

By attacking smaller firms

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Market Challenger Strategies (contd)

Types of AttackStrategies

Frontal attack

Flank attack

Encirclement attack

Bypass attack

Guerrilla attack

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Frontal Attack

Seldom work unless The challenger has sufficient fire-power (a

3:1 advantage) and staying power, and

The challenger has clear distinctive

advantage(s)

e.g. Japanese and Korean firms launchedfrontal attacks in various ASPAC

countries through quality, price and lowcost

Surf Vs Ariel

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Flank attack

Attack the enemy at its weak points orblind spots i.e. its flanks

Ideal for challenger who does not havesufficient resources

e.g. Google v/s Wikipedia

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Encirclement attack

Attack the enemy at many fronts at thesame time

Ideal for challenger having superior

resources e.g. Seiko attacked on fashion,

features, user preferences and

anything that might interest theconsumer

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Bypass attack

By diversifying into unrelated productsor markets neglected by the leader

Could overtake the leader by using new

technologies e.g. Pepsi used a bypass attack strategy

against Coke by acquiring Tropicana Vs.Minute Maid

Instead of launching carbonated drinksNestle brought pure juices vs. thecarbonated drinks

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Guerrilla attack

By launching small, intermittent hit-and-run attacks to harass and destabilizethe leader

Usually use to precede a strongerattack

e.g. airlines use short promotions to attackthe national carriers especially when

passenger loads in certain routes are low local water brands vs. multinational water

brands

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Which Attack Strategy should a Challenger

Choose?

Use a combination of several strategies

to improve market share over time

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Market-Follower Strategies

Theodore Levitt in his article, InnovativeImitationargued that a product imitationstrategy might be just as profitable as a

product innovation strategye.g. Product innovation--Sony

Product-imitation--Panasonic

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Market-Follower Strategies (contd)

Each follower tries to bring distinctive

advantages to its target market--location,services, financing

Four broad follower strategies: Counterfeiter (which is illegal)

Cloner(emulation of leaders product, name & package)

e.g. china iphone

Imitator e.g. car manufacturers imitate the style of one

another Adapter e.g. many Japanese firms are excellent

adapters initially before developing into challengers andeventually leaders

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Market-Nicher Strategies

Smaller firms can avoidlarger firms by targetingsmaller markets orniches that are of little

or no interest to thelarger firms

e.g. Zippo

Bullet-Proof Cars

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Market-Nicher Strategies (contd)

Nichers must create niches, expand theniches and protect them

e.g. Nike constantly creates new niches--cycling, walking, hiking, cheerleading, etc

What is the major risk faced by nichers?

Market niche may be attacked by larger firms

once they notice the niches are successful