Rajagopal. Marketing Dynamics: Theory and Practice

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Marketing Dynamics: Theory and Practice

and keep customers. Although rivals compete in many distinct ways, firms can make eight key

choices to distinguish and differentiate themselves in the eyes of customers and channels which may

be described as product-mix, product features, functionality, service, distribution or availability, image

and reputation, selling and relationships, and price.

Examination of the policy determinants of economic growth by exploiting a new firm

level database for ten OECD countries shows that the contribution to productivity

growth from firm level dynamic processes should not be overlooked, most notably in

high-tech industries where new firms tend to boost overall productivity. There is

evidence that burdensome regulations on entrepreneurial activity as well as high costs

of adjusting the workforce negatively affect the entry of new small firms. Overall, there

are a number of different features of entrant and exiting firms across countries. In

particular, in the United States entrant firms tend to be smaller and with lower than

average productivity, but those surviving the initial years expand rapidly. By contrast,

in Europe firms tend to enter with a relatively higher size and productivity, but

subsequently do not expand significantly. These findings tend to support the

hypothesis of greater market experimentation in the United States, compared to many

continental European countries, which is likely to be the result of differences in

regulatory settings across the Atlantic.

As the world economy becomes increasingly

integrated and globalized, U.S. companies face an unprecedented opportunity and

challenge. In the global marketplace, China has made great strides in economic and

commercial developments. China is becoming a manufacturing base for the world in

providing quality products at low prices. As more businesspeople turn their attention

to China’s progress also need to review the business trends in its neighboring country,

India. In spite of its problems, the Indian government and people are determined to

increase India’s contribution to the world economy.

Companies also maneuver the arena of customers, channels, institutions and the

geographical coverage in order to reconfigure their competitive strategy. The software

companies like Intel, Microsoft and 3M always keep extending the product line implementing

the R&D results and never let the competition stagnate in the end-customer arena. The

healthy companies feel that greater the competition higher will be challenge to establish the

brand in the market. The Suzuki collaboration with Maruti Udyog Limited in India has changed

the dominance of the popular brand holder Premier Automobiles Ltd and created new

competitive context of small city cars. The channels of supply for any company are always

vulnerable to the competition. The common practice followed by the competitors is breaking

the supply chain by offering more perks and margins than the leading brand. However, if the

13 For detailed discussion on the corporate key choices to withstand competition, see Peter Senge: The

Fifth Discipline, New York, Doubleday/Currency, 1990

14 OECD: Sources of Economic Growth in OECD Countries, Firm Dynamics, Productivity and Policy Settings,

The Sources of Economic Growth in OECD Countries, OECD, pp. 210-262 (53)

15 Anshu Saran and Guo Chiquan: Competing in Global Marketplace: The Case of India and China,

Business Horizon, March 2005

Understanding Competitors and Competition

channels are favorably treated with long-term advantages, the endeavor to build the linkages

with them would withstand any competitive rivalry. The collaboration between the Proctor

and Gamble and Wal-Mart involving strong integration of the product ordering, inventory

control and logistic may be a classic example in this context.

The factor advantage in the

competition may be defined as the relationship of the manufacturing or marketing company with

the service providers who develop loyalty towards them. The service providers may be the

suppliers of raw materials, packaging services, hiring of machines and the like. Many companies

use the legal support, government patronage etc to shape the competitive conditions to their

advantage while building the institutional arena in the business.

Premium automobiles segment has been dominated by two capital and hi-tech giants-

BMW and Mercedes. While BMW’s plants run at 95% of capacity, Mercedes’ German

factories operate at around 80%, say analysts. One reason is declining sales of the E-

Class and C-Class models, both of which have suffered quality problems. A face-lift for

the E-Class in 2006 and a new C-Class expected in late 2007 should help buoy weak sales.

But union contracts that make Mercedes workers’ work rules less flexible than rivals’ are

also to blame for the relatively low output. At BMW, employees work less during periods

of slow demand and then bank the unused hours, paying them back during peak periods,

thus eliminating a lot of overtime pay. Mercedes recently instituted more flexible schedules

and got union agreement to shuttle workers among plants, long a practice at BMW.

Improving quality is also vital. The drive to lead in new technologies has resulted in cars

packed with different electronic systems, which all must be integrated into a core system

that functions harmoniously, a devilishly hard task. By contrast, BMW has sought to

install common electronics backbones across many model lines. It also saves money by

sharing more components among models. However, some business analysts feel that the

Mercedes has been over invested in the wrong things. When the competition figured

out that the company does not have to design an entirely new car to offer, Mercedes is

still working with offer something new with its cars. Mercedes insists its cars use the

same electronic architecture but admits that many components vary across the wide

array of models. The crux of the problem lies in designing less complex cars and improving

test procedures before a model launches. Redesigning and reengineering all Mercedes

models for better quality could take two years. The major issue that remains at the

bottom line of the business is whether any brand can hold competition for its projected

gains?

Stakes in the business may be understood as the benefits of winning the game and the

cost of losing the business in the market. Many companies in the market place intend to

escalate the stakes in the business as one of their competitive strategies in various arenas as

discussed in the previous sections. The companies also redefine their market place strategies

for gaining the win-win situation in the market. Table II exhibits the parameters that are used

16 Fahe Liam : Competitors : Outwitting, Outmaneuvering and Outperforming, John Wiley and Sons, Canada,

1999

17 Gail Edmondson: Mercedes’ New Boss Rolls up his Sleeves, Business Week (Online Edition), October

17, 2005.

Marketing Dynamics: Theory and Practice

for redefining the marketplace rules by many companies in order to sustain in the market

competition. There are many competitive strategies used by the companies to get and retain

the customers and the channels. The companies desired to strengthen themselves against the

competitive threats in the market need to develop different modes of entering in the market.

The companies also re-focus their strategies to attract the customers and retain them for the

long-term benefits. Table 1.2 discusses the major issues related with redefining market place.

Many organizations are driven by one or a few overarching, long-run goals that imbue the

organization with a collective challenge, shared vision and sense of mission or purpose. Such

goals have been designated by others as strategic intent or vision and super ordinate goals.

Among goals set by many companies, a few may include as reorientation towards R&D to

products that are new to the marketplace; extend product lines to attract new segments of

customers; use alliances to build a significant marketplace position in leading Asian or European

countries; build new manufacturing facilities for new product development and introduction;

and develop new marketing capabilities to outmaneuver specific competitors across major

customer segments.

Market place strategies also determine the mergers and acquisitions of the companies for

competitive advantage. Acquisitions and alliances are two pillars of growth strategy. But

most businesses don’t treat the two as alternative mechanisms for attaining goals. Consequently,

companies take over firms they should have collaborated with, and vice versa, and make a

mess of both acquisitions and alliances. It’s easy to see why companies don’t weigh the

relative merits and demerits of acquisitions and alliances before choosing horses for courses.

The two strategies differ in many ways: Acquisition deals are competitive, based on market

prices, and risky; alliances are co-operative, negotiated, and not so risky. Companies habitually

deploy acquisitions to increase scale or cut costs and use partnerships to enter new markets,

customer segments, and regions. Moreover, a company’s initial experiences often turn into

blinders. If the firm pulls off an alliance or two, it tends to enter into alliances even when

circumstances demand acquisitions. Organizational barriers also stand in the way. In many

companies, the mergers and acquisitions group reports to the finance head and handles

acquisitions, whereas a separate business development unit looks after alliances. The two

teams work out of different locations, jealously guard turf and, in effect, prevent companies

from comparing the advantages and disadvantages of the strategies. But companies could

improve their results, the authors argue, if they compared the two strategies to determine

which is best suited to the situation at hand.

Firms, such as Cisco, which use acquisitions

and alliances appropriately, grow faster than rivals do.

18 Dyer Jaffrey H. Kale Prashant and Singh Harpreet: When to Ally and When to Acquire, Harvard Business

Review, July, 2004

Understanding Competitors and Competition

Table 1.2 Redefining the Marketplace Rules

Redefining

parameters Attributes of parameters

Modes of • Product line and width

Competition •· Logistics and supply chain aspects

• Price, sales and customer relation

• Corporate and brand image

Focus • Attracting, winning, retaining

customers and channels

Levels • Aggregate

• Segment

• Local

Trends • Product –service-value differentiation·

• Customized solutions

• Price, communication and delivery of

goods and services.

Marketplace rules can be changed at three distinct but related levels such as the aggregate

marketplace or, more narrowly, a competitive domain; a product-customer segment such as a niche

within a competitive domain; and local channel member. The marketplace rules have been discussed

in Table 1.2. All rivalry ultimately is acted out at the local or micro level. Each individual customer

selects among rivals’ offerings. At this level, the game is typically zero-sum: purchasing one rival’s

offering means lost opportunity for other competitors. The firms generally make the choices which

have been experience in the past by the competitors to accomplish three distinct, though related,

tasks which include attracting, winning, and retaining customers and channels. Attracting customers

is a prelude to winning or acquiring them. The brand name and long standing image of the product

influence and attracts customers to try a product.

Dell Computer Corporation has plans to enter the competition in the Indian market with its

subsidiary. Dell is one of the most globally preferred computers among the business class

customers. The company finds that India is growing fast in sales of personal computers and

there exists room for Dell to become a major player in the market. Its mode of entry will be

through direct selling to its clients with total product customization as a global strategy. The

company has plans to offer services to its international clients in the country and then follow

it up with large corporate units, the Government and potential institutions in future. This is

one of strategies to select the customer segment and operate safely in the market outwitting

the competitors. The company is also having alliance with a leading brand in the country -

Tata InfoTech Ltd. and plans to launch on a joint platform. The customer support is a major

thrust of the company and it is setting up customer call center to redress their needs more

efficiently, take orders from the clients as well as provide services to customers. Ever since,

the incorporation of the company in 1984 by Michael Dell, it has positioned itself in the top

five of the computer sales category across the countries in the world and hopes to replicate

the same in Indian market. The company has an idea of offering software solutions instead of

Marketing Dynamics: Theory and Practice

boxes and continues the relationship over the long term.

The company is looking for local

outsourcing for the effective delivery of the products and service and the Indian outfit will

be supported by Penang, the Malaysia production base. The company has chosen e-

commerce as one of the contemporary strategies to reduce load on the physical channels.

The deliveries are promised in a week that may turn to be a major attraction for the clients and

a tall task for the service providers. The plans of the company seems to be complex but Dell

being a big brand that has proved itself the world over and with a high brand loyalty and

image, it has all hopes to succeed in the Indian market penetrating the competition in the

computers business. Chip Sunders, the Vice President of the company says, “Though there

are successful players, we will be the winners”.

Satisfying buyer needs may be a prerequisite for industry profitability. One of the underlying

issues in developing the competitive strategy is to address the profitability in reference to the capability

of the firm whether it can capture the value in the process for retaining the buyers, or whether this

value is competed away to others. The buying power of customers determines the extent to which

they retain most of the value created for themselves. The threat of substitutes determines the extent

to which some other product can meet the same buyer needs, and thus places a ceiling on the amount

a buyer is willing to pay for an industry’s product. The power of suppliers determines the extent to

which value created for buyers will be appropriated by suppliers rather than by firms in an industry.

The intensity of rivalry acts similar to the threat of entry. It determines the extent to which firms

already in an industry will compete away the value they create for buyers among themselves, passing

it on to buyers in lower prices or dissipating it in higher costs of competing. Some companies engaged

in manufacturing automobiles and heavy trucks, create enormous value for their buyers but, on

average, capture proportionately less of it for themselves through profits. On the contrary in the

services industries such as bond rating services, medical equipment hiring, and oil field services and

equipment, firms also create high value for their buyers but have historically captured a good proportion

of it. The intensity of rivalry plays a major role in determining whether existing firms will expand

capacity aggressively or choose to maintain profitability. Industry structure also determines how

rapidly competitors will retire excess supply. Exit barriers keep firms from leaving an industry when

there is too much capacity, and prolonged periods of excess capacity.

P&G has a variety of leading brands in the Indian market such as Ariel, Tide, Head and

Shoulders, Pantene and Pringle. One more new idea, which is on schedule of the P&G

portfolio, is Febreze. This product belongs to the P&G Home Products Division which

include hair care and fabric care segment. This product has created a niche and holds a

monopoly in the fabric odor cleanser category of products across the regions in India. This

product was first taken off in the US markets in 1997 and now is available in 20 countries

across the world. P&G has launched Febreze in Chennai, Coimbatore and Madurai in mid

2000 with a turnover of over Rs 6500 Million. The R&D of the company is confident to attract

customers and enjoy the monopoly in the market for a time, as the company does not foresee

any competition to come up in the near future. The product attributes are very close to the

customer needs, as it is the first cleaning spray that safely and permanently eliminates

odours trapped in the household and other fabrics. This product helps in reaching the

19 Reviewed from the Peoples and Products, Advertising and Marketing, August 31, 2000, pp 8-12

Understanding Competitors and Competition

difficult-to-clean fabrics, upholstery, carpets, and curtains, mattresses and car seats, which

are largely unmanageable and remain unattended. This product is an outcome of the research

carried out by the company. The target customers for this product are segmented as per the

need parameters and largely constitute the car owners, housewives, hotels and airlines. The

Febreze is not a perfume and hence does not compete with perfumes of room-deodorant

brands in the market. To stand unique in the market the promotional and advertising strategies

have been developed on the conclusions drawn on the research. The product has also been

advertised on the net, print and electronic media. The strength of the brand, quality, positioning

and the promotional formulae blended with the customer needs may open up an entire new

segment depending on how its use values are perceived by the customers.

Results of an imbalance between supply and demand for industry profitability also differ widely

depending on industry structure. In some industries, a small amount of excess capacity triggers price

wars and low profitability. In view of the key role of competitive advantage in superior performance, the

centerpiece of a firm’s strategic plan should be its generic strategy. The generic strategy specifies the

fundamental approach to competitive advantage a firm is pursuing, and provides the context for the

actions to be taken in each functional area. In practice, however, many strategic plans are lists of action

steps without a clear articulation of what competitive advantage the firm has or seeks to achieve and

how. A firm’s strategy is the route to competitive advantage that will determine its performance. Build,

hold, and harvest are the results of a generic strategy, or recognition of the inability to achieve any

generic strategy and hence of the need to harvest. The multinational firms largely practice strategic

planning in reference to the market share to describe a competitive position of the firm. Market share

per se is not important competitively; competitive advantage is. The strategic mandate to business units

should be to achieve competitive advantage. Pursuit of leadership for its own sake may guarantee that

a firm never achieves a competitive advantage or that it loses the one it has.

Conceptual framework of competitive forces in the marketplace has been provided by Porter as

a five-force model for industry analysis is shown in Figure 1.3. These five forces of competition

interact to determine the attractiveness of an industry. The strongest forces become the dominant

factors in determining industry profitability and the focal points of strategy formulation. The model

identifies the key structural features that determine the strength of the competitive forces within an

industry in reference to profitability. It may be explained through the model that the degree of rivalry

among different firms is a function of the number of competitors, industry growth, asset intensity,

product differentiation, and exit barriers. Among these the most influential variables may be identified

as the number of competitors and industry growth. The industries with high fixed costs tend to be

more competitive because competing firms are forced to cut price to enable them to operate at the

economies of scale. However, with the differentiation strategy the rivalry is reduced among the

products and services offered by the competitors, in both real and perceived senses. Another significant

concept which may be explained through this model is associated difficulty of exit from an industry,

which may result into struggle for survival among the firms and intensified competition. Further, there

remains the threat of entry into the industry by new firms which may enhance competition. Several

barriers, however, make it difficult to enter an industry. Two cost-related entry barriers are economies

of scale and absolute cost advantage. In this process of competition, the new entrants face an up-hill

challenge of scaling at a high level of production or to accept a cost advantage. However, absolute

Marketing Dynamics: Theory and Practice

cost advantage remains with the long standing firms in the market which possess technological and

brand advantages for their products and services. The substitute products in the market affect the

industry potential adversely as well as pose threat to the customer preferences. Bargaining power of

buyers refers to the direct or indirect pressure tactics to force the industry to reduce prices or

increase product features, in view to optimize the customer value. Buyers gain power when they

have choices-when their needs can be met by a substitute product or by the same product offered by

another supplier. In addition, high buyer concentration, the threat of back-ward integration, and low

switching costs add to buyer power. Similarly the bargaining power of suppliers refers to their ability

to force the industry to accept higher margins or reduced services, in the interest of augmenting or

securing their profits. The factors influencing supplier power are the same as that of buyer power. In

this case, however, industry members act as buyers.

COMPETITOR STRATEGIES

Companies engaged in competitive business should aim at conducting the competitor analysis to

build competitive advantage and this cannot be done in isolation from the market and the rest of the

industry, because being better than a competitor will not guarantee success, if what is offered gives

little value to the customer. Hence, it should be understood by the firms that any inferences which

might be drawn from competitor analysis must be considered in conjunction with the other environmental

Figure 1.3 Competitive strategy: network of market forces

Understanding Competitors and Competition

factors. Every company has strategic options, although this does not mean that all options are sensible

for every company. It may choose to operate within the rules of the industry, without major change

to what it offers. The options may include a stronger focus on a niche strategy, seeking to identify

and exploit segments where its products would have an advantage, or what might be termed

improvement strategies. A competing firm may be attacked various ways by a new and prospecting

business firm in a given territory in order to optimize the market advantage. The most effective way

for a firm to attack may be through implementing a creative and entrepreneurial strategy on a sound

knowledge analysis in view of the changes the competitive arena. Alternatively, a firm may attempt

to pre-empt a competitor by getting into market first with a new product, in an area of strategic

importance. However attacking the strategy of a competitor can leave the firm in a weaker position.

The prospecting firm may also attack on the competitor’s alliance instead of direct attack on the

target. An example of this was the acquisition of Rover by BMW. There were undoubtedly many

reasons for this acquisition, but one of them was to cause Honda to withdraw from the alliance it had

operated for many years with Rover, and its predecessor British Leyland. Similar patterns of alliances

changing allegiance have been observed in the airlines industry. The basic rule of any attack strategy

is to know the industry, the market, and the competitors being attacked. If the weak points of the

competitors are known, and their likely reactions predicted, the attacker is more likely to arrive at a

successful strategy. It is this rational analysis which enables a decision to be made about whether the

rewards of success outweigh the costs, and whether the chances of success are high enough to

justify the move.

In a competitive business arena the competitors as players may be categorized as hard and soft

players. The hard competitive players in business single-mindedly pursue competitive advantage and

the benefits it includes a leading market share, great margins, and rapid growth. They pick their

shots, seek out competitive encounters, set the pace of innovation, and test the edges of the possible

success of their products and services in the market. Soft players, by contrast, may look good, but

they are not intensely serious about winning. They do not accept that you must sometimes hurt your

rivals, and risk being hurt, to get what you want. The commonly employed methods in taking up the

hard competitor strategies in bursts of ruthless intensity may include devastating rivals’ profit

sanctuaries, deceive the competition, unleash massive and overwhelming force, and raise competitors’

costs.

The soft players do not play to win; they just participate in the business and try to survive.

This approach envelops the issues such as leadership, corporate culture, knowledge management,

talent management, and employee empowerment for analysis to the soft players. Every firm is risk

averse in facing the business competition as it is a fact of business life, but many companies fail to

manage it well. Good risk management not only protects companies from adverse risk but also

confers a competitive advantage, enabling them to be more entrepreneurial and, in the end, to make

bigger profits. Companies should clearly articulate their risk strategies, understand the risks they are

taking, and build an effective risk-management organization that helps foster a responsible risk culture.

20 For detailed discussion on the hard and soft core competitor strategies see Stalk George Jr. and

Lachenauer Rob: Hardball-Five Killer Strategies for Trouncing the Competition, Harvard Business Review,

April, 2004.

Marketing Dynamics: Theory and Practice

Changing aircraft technology, big capital investments and the shifting priorities of governments

have repeatedly forced airline operators to scramble to stay air borne. Consequently, a swing

of new low-cost airlines is attacking big incumbent network carriers, some of whom will

probably not survive. Such aviation companies sparked meteoric growth by exploiting latent

demand for cheap travel, but they can’t create profitable markets indefinitely. Major sources

of traffic in Northern and Central Europe will soon be saturated. However, interestingly, the

differences go deeper as America’s budget airlines are starting to move up-market in service

quality, whereas Europe’s give every impression of moving relentlessly down-market. They

emphasize dirt-cheap tickets, yet they are also expanding as they try to fend off start-up

competitors. The competition from low-cost carriers has increased the customer’s price

sensitivity, undermining the ability of the incumbents to charge a premium not only on

routes where they compete with these carriers. In order to cope, scheduled carriers must

choose their battles carefully and revise their business designs. The adaptation might be

subtle for stronger players; for others, it might resemble the radical transformation Aer

Lingus has begun. Most of the expansion in America has come from JetBlue, Frontier and

AirTran; Southwest, which accounts for nearly half the sector, has been obliged by the wider

air-travel recession to check its expansion, although it is now returning to its former growth

path of 10% a year. While in Europe after the liberalization of Europe’s domestic airline market

was completed in 1997, Ryanair and EasyJet, the pioneers, explicitly and expertly mimicked

American budget airlines such as Southwest and ValuJet (now AirTran). The Indian skies are

also experiencing the boom of low-cost airlines like Air Deccan. The low-cost carriers find

success by stimulating and exploiting pent-up demand for cheap travel. Their entry into a

market brings out people who would otherwise travel by train or car, if at all. In 2002, low-cost

carriers and network carriers went head-to-head on 80 routes in Europe and America; since

then, the former have increased their capacity on those routes by 15 percent, while the

incumbents’ capacity has shrunk by 4 percent. The biggest difference between low-cost

carriers in America and Europe is that they have existed in Europe for less than ten years. In

many markets, growth has stagnated after an initial spurt in demand. On these more established

routes, growth for low-cost carriers (as for incumbents) now ranges from 4 to 6 percent.

However, as they move up-market in America to fill the void left by big network carriers, and

as they move to more expensive airports in Europe, the risk is that low-cost carriers everywhere

will start to acquire the very same high costs that made their network competitors so

vulnerable.

Markets involve many competitors, are compromised of active terrain in the way of customers

and offer the opportunity of access to alternative resources by means of supply market mechanisms.

Perhaps this is why IBM have been attempting to change the warfare metaphor they have been

using to one of gardening, where customers are to be cultivated.

There are four major competitor attack strategies which are implemented by the companies at

international, national and regional levels. These strategies include the frontal attack, flanking attack,

21 For details see Urs Binggeli and Lucio Pompeo: The Battle for Europe’s Low-fare Flyers, McKinsey

Quarterly (Online edition), August 2005. Also refer The Economist: Turbulent Skies, July 08, 2004.

Understanding Competitors and Competition

encirclement and guerilla attack. The following fundamental principles are involved in planning and

implementation of competitor attacks:

1. Competing company needs to assess the strength of the target competitor and consider

the amount of support that the target might congregate from allies. It would be appropriate

to choose only one target at a time.

2. Competing company should explore weaknesses in the target’s position and launch attack

on the core of weakness.

3. It is necessary to work out the time-span as how long it will take for the target to realign

their resources so as to reinforce this weak spot.

4. Competitor may then launch the attack on as narrow a front (frame of weaknesses) as

possible. Whereas a defender must defend all their borders, an attacker has the advantage

of being able to concentrate their strategic and tactical tools at one place.

Frontal attack implies a head-on confrontation where the defense is at its strongest. Some such

attacks mirror the defendant’s marketing strategy, and hope to achieve results through sheer

perseverance. Others have only one point of difference on price. By cutting price for what is otherwise

a matched offering, the attacker hopes to be able to persuade customers to switch. Only in markets

where there are many niches is it possible to use the full-frontal attack selectively. In markets where

the products are nearer each other, an attack on one competitor is really an attack on all of them. In

full-frontal attacks, the victory usually goes to the strongest. However, a dominant competitor is less

likely to make a full-frontal attack on a competitor, unless it is a niche operator where the effects of

the warfare can be isolated. The main consideration in the frontal attack is the strength of the

leader’s position and a company entering into such warfare may find a weakness in the leader’s

strength and attack at that point. The company may launch the attack on as narrow a front as

possible. The frontal attacks may be strategically fit and lead to an advantage in the business situations

as described below:

• Market is relatively homogeneous

• Brand equity is low

• Customer loyalty is low

• Products are poorly differentiated

• Target competitor has relatively limited resources

• Attacker has relatively strong resources

Frontal attacks have appeal in industries where very large cost reductions can be gained from

increases in volume, and where price reductions may stimulate growth in the market as well as

stealing share from competitors. However, frontal attacks are often unsuccessful. If defenders are

able to re-deploy their resources in time, the attacker’s strategic advantage is lost. The frontal

attacks are very expensive and risky for the companies of any status.