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I n the two previous chapters we examined the dynamics of consumer and business
markets. In this chapter, we examine the role of competition within markets and
industries and explore how companies can position themselves relative to competitors.
Given the ever-changing dynamics of the global marketplace and the burgeon-
ing Internet marketspace, understanding customers is no longer enough. Companies
must now pay keen attention to all kinds of competitors. The most successful compa-
nies are those that have developed and implemented systems for gathering continu-
ous intelligence about competitors.1 Moreover, companies need to design competitive
strategies geared toward their relative market position and maintain a careful balance
of customer and competitor orientations.
Potential Entrants
(Threat of
mobility)
Industry
Suppliers Competitors Buyers
(Supplier (Segment rivalry) (Buyer
power) power)
Substitutes
(Threat of
substitutes)
Exit Barriers
Low High
Low
returns returns
Identifying Competitors
It would seem a simple task for a company to identify its competitors. Coca-Cola knows
that Pepsi-Cola is its major competitor, and Sony knows that Matsushita is a major com-
petitor. But the range of a company’s actual and potential competitors is actually
much broader. In fact, a company is more likely to be hurt by emerging competitors or
new technologies than by current competitors.
In recent years, many businesses have failed to look to the Internet for their most
formidable competitors. Not long ago, Barnes & Noble and Borders bookstore chains
were competing to see who could build the most megastores. While these massive
bookstore chains were battling for retail dominance, Jeffrey Bezos was building an on-
line empire called Amazon.com with an almost unlimited selection of books. Now
both Barnes & Noble and Borders are playing catch-up in boosting traffic and sales for
their own on-line stores, even as Amazon.com expands into more product categories.3
Such “competitor myopia”—a focus on current competitors rather than latent
ones—can actually render a business extinct. Encyclopaedia Britannica, for example,
was invited but refused to provide content for Microsoft’s Encarta CD-ROM-based
encyclopedia. When introduced, the Encarta sold for only $50, making Encyclopaedia
Britannica’s $1,250 set of 32 volumes look less appealing to parents. This competitive
situation forced Encyclopaedia Britannica to change its business model by dismissing
its home sales force and offering free access to data via the Web.4
The businesses with the most to fear from Internet technology are the world’s
middlemen, such as travel agencies, car dealers, insurance brokers, real estate brokers,
stock brokers, and employee placement firms. By facilitating direct contact between
buyers and sellers, the Internet is causing disintermediation—the displacement of tradi-
tional intermediaries. At the same time, this direct contact has opened up great oppor-
tunities for new businesses, such as Amazon.com, to forge and nurture bonds with cus-
tomers. As e-commerce grows and a greater percentage of the world’s consumers and
businesses get wired, companies will feel even more competition in many markets.
Thus, it is vital for companies to correctly identify and deal with potential as well as
existing competitors.
126 CHAPTER 7 DEALING WITH THE COMPETITION
als, or distributors; and reputation requirements. Even after a firm enters an industry,
it may face mobility barriers in trying to enter more attractive market segments.
Firms often face exit barriers,6 such as legal or moral obligations to customers,
creditors, and employees; government restrictions; low asset salvage value; lack of
alternative opportunities; high vertical integration; and emotional barriers. Many
firms stay in an industry as long as they cover their variable costs and some or all of
their fixed costs; their continued presence, however, dampens profits for everyone.
Cost Structure
Each industry has a certain cost burden that shapes much of its strategic conduct. For
example, steelmaking involves heavy manufacturing and raw-material costs; toy manu-
facturing involves heavy distribution and marketing costs. Firms will strategize to
reduce these costs. The steel company with the most modern (i.e., most cost-efficient)
plant will have a great advantage over other steel companies.
Degree of Globalization
Some industries are highly local (such as lawn care); others are global (such as oil, air-
craft engines, and cameras). Companies in global industries need to compete on a
global basis if they are to achieve economies of scale and keep up with the latest
advances in technology.7
For example, five companies formerly dominated the U.S. forklift market—
Clark Equipment, Caterpillar, Allis Chalmers, Hyster, and Yale. Ultimately, debt-
burdened Clark sold its assets, and Caterpillar became a minor partner in a venture
with Mitsubishi. Only Hyster held on to its market share. By speeding up product devel-
opment, concentrating on low-end models, and moving some production to Ireland,
Hyster was able to compete against international rivals Nissan, Toyota, and Komatsu.
Hyster also filed an antidumping suit against Japanese models and won the case.
COMPETITOR ANALYSIS
Once a company identifies its primary competitors, it must analyze them by ascertain-
ing their characteristics, specifically their strategies, objectives, strengths and weak-
nesses, and reaction patterns.
128 CHAPTER 7 DEALING WITH THE COMPETITION
Strategies
A group of firms that follow the same strategy in a given target market is called a strate-
gic group.8 Suppose a company wants to enter the major appliance industry. What is its
strategic group? It develops the chart shown in Figure 7.3 and discovers four strategic
groups based on product quality and level of vertical integration. Group A has one
competitor (Maytag), group B has three (General Electric, Whirlpool, and Sears),
group C has four, and group D has two. This analysis shows that the height of the entry
barriers differs for each group. In addition, if the company successfully enters a group,
this analysis identifies the group members that will be its key competitors. However,
this is not a one-time analysis, because resourceful competitors revise their strategies
over time. Smart marketers must therefore continuously monitor their competitors’
strategies.
Objectives
Once a company has identified its main competitors and their strategies, it must ask:
What is each competitor seeking in the marketplace? What drives each competitor’s
behavior? Although one initial assumption is that competitors strive to maximize profits,
companies differ in the weights they put on short-term versus long-term profits. Most
U.S. firms seek short-term profit maximization, largely because they must satisfy their
stockholders or risk losing their confidence. In contrast, Japanese firms readily accept
lower profits because they operate largely on a market-share-maximization model.
An alternative assumption is that each competitor pursues some mix of objec-
tives: current profitability, market-share growth, cash flow, technological leadership,
and service leadership. Knowing how a competitor weighs each objective will help the
company anticipate its reactions. Many factors can shape a competitor’s objectives,
including size, history, current management, and financial situation. If the competitor
is a division of a larger company, it is important to know whether the parent company
is running it for growth or milking it.9 Finally, a company must monitor its competi-
tors’ expansion plans and, as appropriate, try to establish mobility barriers to block or
slow rivals’ growth.
Quality
High Low
High
Group A Group B
Group C
• Narrow line • Full line Group D
Vertical Integration • Lower mfg. cost • Moderate line • Low mfg. cost • Broad line
• Very high service • Medium mfg. cost • Good service • Medium mfg. costs
• High price • Medium service • Medium price • Low service
• Medium price
• Low price
Low
Competitor Analysis 129
each competitor’s strengths and weaknesses. According to the Arthur D. Little con-
sulting firm, a firm will occupy one of six competitive positions in the target market:10
➤ Dominant: This firm controls the other competitors’ behavior and has many strategic
options.
➤ Strong: This firm can take independent action without endangering its long-term
position and can maintain its long-term position regardless of competitors’ actions.
➤ Favorable: This firm has an exploitable strength and a better opportunity to improve
its position.
➤ Tenable: This firm’s performance is sufficient for it to remain in business, but it exists
at the sufferance of the dominant company and has less opportunity to improve its
position.
➤ Weak: This firm has unsatisfactory performance and an opportunity for
improvement; it must change or exit.
➤ Nonviable: This firm has unsatisfactory performance and no opportunity for
improvement.
To gauge strengths and weaknesses, a company should monitor share of market,
share of mind, and share of heart when analyzing each competitor (see Table 7.1). In
general, companies that make steady gains in share of mind and heart will inevitably make gains
in market share and profitability. Companies should also identify any assumptions that
competitors hold that are no longer valid—and take advantage of this weakness. For
example, while larger rivals such as Compaq continued to stress traditional computer
distribution channels, Michael Dell boldly pioneered direct-to-customer sales. This
allowed Dell Computer to charge less while delivering exactly what each customer
wanted. Extending this strategy to the Internet gave Dell an even more powerful com-
petitive edge.11
Reaction Patterns
Each competitor has a certain philosophy of doing business, a certain internal culture,
and certain guiding beliefs. Most competitors fall into one of four categories:
➤ The laid-back competitor: A competitor that does not react quickly or strongly to a
rival’s move. On past occasions, Gillette and Heinz reacted slowly to competitive
attacks. Laid-back competitors may feel that their customers are loyal; they may be
milking the business; they may be slow in noticing the move; they may lack the
funds to react. Rivals must try to assess the reasons for the behavior.
➤ The selective competitor: A competitor that reacts only to certain types of attacks. It
might respond to price cuts, but not to advertising expenditure increases. Shell and
Exxon are selective competitors, responding only to price cuts but not to
promotions. Knowing what sparks a rival’s reaction offers clues to the most feasible
lines of attack against that competitor.
➤ The tiger competitor: A competitor that reacts swiftly and strongly to any assault. P&G
fights back when a new detergent enters the market, as Lever Brothers found out
when it introduced “ultra,” more concentrated versions of its Wisk and Surf
detergents. In response, P&G vastly outspent Lever to support its own brands,
preventing Lever from obtaining enough shelf space to compete.
➤ The stochastic competitor: A competitor that exhibits no predictable reaction pattern;
its actions are not predictable on the basis of its economic situation, history, or
anything else. Many small businesses are stochastic competitors, competing on
miscellaneous fronts when they can afford it.
Clearly, a company that understands how its competitors react will be better able
to anticipate reaction patterns and develop strategies for minimizing the impact on its
own performance.
3. Evaluating and analyzing the data. In this step of the process, company managers check
the data they have collected for validity and reliability. Then they interpret the find-
ings and organize the results so users can conveniently find what they need.
4. Disseminating information and responding. Key information is sent to relevant decision
makers, and managers’ inquiries are answered. With a well-designed system, company
managers receive timely information about competitors via phone calls, e-mails, bul-
letins, newsletters, and reports. Managers can also request information when they
need help interpreting a competitor’s sudden move, when they need to know a com-
petitor’s weaknesses and strengths, or when they want to discuss a competitor’s likely
response to a contemplated company move.
Classes of Competitors
After the company has conducted its customer value analysis, it can focus its attack on
one of the following classes of competitors: strong versus weak competitors, close ver-
sus distant competitors, or “good” versus “bad” competitors.
➤ Strong versus weak. Most companies aim at weak competitors, because this requires
fewer resources per share point gained. Yet, in attacking weak competitors, the firm
will barely improve its own capabilities. Thus, the firm should also compete with
strong competitors to keep up with the best. Even strong competitors have some
weaknesses, and the firm may prove to be a worthy opponent.
➤ Close versus distant. Most companies compete with competitors who most resemble
them. For instance, Chevrolet competes with Ford, not with Jaguar. At the same
time, a company should avoid trying to destroy the closest competitor. One risk is
that a much larger competitor will buy out the weakened rival; another risk is that
additional, stronger competitors will enter the market.
➤ Good versus bad. Every industry contains “good” and “bad” competitors.14 A company
should support its good competitors and attack its bad competitors. Good
competitors play by the industry’s rules, make realistic assumptions about the
industry’s growth potential, set prices in reasonable relation to costs, favor a healthy
132 CHAPTER 7 DEALING WITH THE COMPETITION
Market-Leader Strategies
Many industries contain one firm that is the acknowledged market leader, with the
largest share of the relevant product market. This market leader usually leads the
other firms in price changes, new-product introductions, distribution coverage, and
promotional intensity. Some of the best-known market leaders are Microsoft (com-
puter software), Procter & Gamble (consumer packaged goods), Caterpillar (earth-
moving equipment), Coca-Cola (soft drinks), McDonald’s (fast food), Gillette (razor
blades), and America Online (Internet access).
Unless a dominant firm enjoys a legal monopoly, it must maintain constant vigi-
lance to avoid missing key developments. One development might be competitive
product innovations; Motorola’s analog cell phones, for example, suffered when
Nokia’s and Ericsson’s digital models took over. Or the leader might continue to
spend conservatively while a challenger spends liberally, it might experience higher
costs cutting into profits, or it might misjudge its competition and get left behind.
Another risk is that the dominant firm might look old-fashioned against newer, pep-
pier rivals. For example, Levi Strauss has lost ground against stylish brands like Tommy
Hilfiger and newcomers like Paris Blues.15
Remaining number one calls for action on three fronts. First, the leader must
expand total market demand. Second, it must protect its current market share
through good defensive and offensive actions. Third, the firm can try to further
increase its market share, even if market size remains constant.
baking soda had downward-drifting sales for 125 years. Then the company
discovered that consumers use the product as a refrigerator deodorant. It heavily
promoted this use and succeeded in getting half of all U.S. homes to place an open
box of baking soda in the refrigerator. When Arm & Hammer discovered that
consumers use the product to quell kitchen grease fires, it promoted that use, again
with great results.
➤ More usage. A third strategy is to convince people to use more product per use
occasion. France-based Michelin Tire, for example, wanted French car owners to
drive their cars more miles per year—thus leading to more tire replacement. The
company conceived the idea of rating restaurants around France. Once it began
promoting the names of many of the best restaurants in the south of France,
Parisians began taking weekend drives to Provence and the Riviera. Michelin also
published guidebooks with maps and lists of sights along the way to encourage
additional driving.
(2) Flank
(5)
Mobile
selling its coffee beans in supermarkets and is opening restaurants. The first Cafe
Starbucks opened to capacity crowds, and more restaurants are planned as a way to
extend traffic into the evening, because 85 percent of the company’s retail store
business is completed by 3 P.M.18
➤ Preemptive defense. A more aggressive maneuver is to attack before a rival starts its
offense, which can be done in several ways. A company can hit one competitor here,
another there, and keep everyone off balance. Or it can try to envelop the market,
as Seiko has done with 3,000 watch models distributed worldwide.19 Other strategies
focus on sustained price attacks or sending out market signals to dissuade
competitors from attacking.20 Deep-pocketed market leaders may even entice
competitors into costly attacks, as Heinz did when Hunt’s attacked the ketchup
market. Heinz was willing to lose money temporarily as Hunt’s added new flavors,
cut prices, offered inducements to retailers, and boosted ad spending to twice the
level of Heinz. This strategy failed because Hunt’s products did not deliver the same
quality and Heinz continued to enjoy consumer preference. Hunt’s finally gave up.
➤ Counteroffensive defense. Most market leaders, when attacked, will counterattack in the
face of a competitor’s price cut, promotion blitz, or product improvement. One
effective counterattack is to invade the attacker’s main market so it will have to
defend the territory. Another approach is to use economic or political clout to deter
the attacker. For example, the leader may subsidize lower prices for a vulnerable
product with revenue from more profitable products, prematurely announce a
forthcoming product upgrade to prevent customers from buying the competitor’s
product, or lobby legislators to take political action that would hurt the competition.
➤ Mobile defense. In mobile defense, the leader stretches its domain over new territories
that can serve as future centers for defense and offense, using market broadening
and market diversification. With market broadening, the company shifts its focus from
the current product to the underlying generic need. The company gets involved in
R&D across the whole range of technology associated with that need, which is how
“petroleum” companies recast themselves as “energy” companies to enter oil,
nuclear, hydroelectric, and other industries. Market diversification into unrelated
industries is the other alternative. When U.S. tobacco companies like Philip Morris
acknowledged the growing curbs on cigarette smoking, they moved quickly into
industries such as beer, liquor, beverages, and foods.
Designing Competitive Strategies 135
➤ Contraction defense. Large companies sometimes recognize that they can no longer
defend all of their territory. The best course of action then appears to be planned
contraction (also called strategic withdrawal), giving up weaker territories and
reassigning resources to stronger territories. This move consolidates competitive
strength in the market and concentrates mass at pivotal positions. Heinz, General
Mills, and Georgia-Pacific are among the companies that have used the contraction
defense to significantly prune their product lines in recent years.
Market-Challenger Strategies
Firms that occupy second, third, and lower ranks in an industry are often called runner-
up, or trailing, firms. Some, such as Colgate, Ford, Avis, and Pepsi-Cola, are quite large
in their own right. These firms can adopt one of two postures. They can attack the
leader and other competitors in an aggressive bid for further market share (acting like
market challengers). Or they can play ball and not “rock the boat” (acting like market
followers). Market challengers can use the following competitive attack strategies.
ment. Xerox wrested the copy market from 3M by developing a better copying
process; later, Canon grabbed a large chunk of Xerox’s market by introducing desk
copiers. If the attacking company goes after the market leader, its objective might be
to grab a certain share. Bic is under no illusion that it can topple Gillette in the razor
market—it is simply seeking a larger share.
A second choice for the market challenger is to attack firms of its own size that
are underperforming and underfinanced. These firms have aging products, charge
excessive prices, or are not satisfying customers in other ways. A third choice is to
attack small local and regional firms. If the attacker goes after a small local company,
its aim might be to drive that competitor out of existence.
medium- and smaller-size cities that were relatively neglected by IBM. In a segmental
attack, the challenger moves to serve uncovered market needs, as Miller Brewing
Company did when it introduced light beer.
A flanking strategy is another name for identifying shifts in market segments that
are causing gaps to develop, then rushing in to fill the gaps and develop them into
strong segments. Flank attacks make excellent marketing sense and are particularly
attractive to a challenger with fewer resources. Moreover, flank attacks are much more
likely to be successful than frontal attacks.
The encirclement maneuver is an attempt to capture a wide slice of the enemy’s
territory through a “blitz”—launching a grand offensive on several fronts.
Encirclement makes sense when the challenger commands superior resources and
believes a swift encirclement will break the opponent’s will. For example, in taking a
stand against archrival Microsoft, whose software is ubiquitous, Sun Microsystems
licensed its Java software for all types of consumer devices. Now Delphi Automotive
Systems plans to offer a Java-based system to outfit autos with such features as voice-
activated e-mail, while Motorola expects to use Java in pagers, cell phones, and much
more. In short, Sun’s encirclement strategy revolves around making Java the lingua
franca for every imaginable digital device.23
The most indirect assault strategy is the bypass. It involves bypassing the enemy
and attacking easier markets to broaden one’s resource base. This strategy offers three
lines of approach: diversifying into unrelated products, diversifying into new geo-
graphical markets, and leapfrogging into new technologies to supplant existing prod-
ucts. For example, PepsiCo used a bypass when it paid $3.3 billion for Tropicana as a
new weapon in its war against Coca-Cola. Tropicana’s 42 percent share of the orange
juice market blows away Coke-owned Minute-Maid, which has only 24 percent of the
market—giving Pepsi at least one way to beat Coke.24
Guerrilla warfare consists of waging small, intermittent attacks to harass and
demoralize the opponent and eventually secure permanent footholds. The guerrilla
challenger uses both conventional and unconventional means of attack, such as selec-
tive price cuts, intense promotional blitzes, and occasional legal actions. Consider the
way upstart The Princeton Review used guerrilla marketing against its established rival
in test preparation services, Kaplan Educational Centers. Princeton Review’s ads
brashly advised, “Friends don’t let friends take Kaplan” while touting Princeton
Review’s smaller, livelier classes. Princeton’s founder also posted horror stories about
Kaplan on the Internet. Ultimately, this guerrilla warfare paid off: Princeton eventu-
ally became the market leader in SAT preparation.
Normally, guerrilla warfare is practiced by a smaller firm against a larger one. A
guerrilla campaign can be costly, although less expensive than a frontal, encirclement,
or flank attack. Still, guerrilla warfare must be backed by a stronger attack if the chal-
lenger hopes to beat the opponent.
lower price. Firms that use this strategy, however, can be attacked by firms whose
prices are even lower.
➤ Prestige goods: A challenger can launch a higher-quality product and charge more
than the leader. Mercedes gained on Cadillac in the U.S. market by offering a
higher-quality car at a higher price.
➤ Product proliferation: The challenger can attack the leader by offering more product
variety, giving buyers more choice. Blue Mountain Arts, now owned by
Excite@Home, became the leader in on-line greeting cards by offering a dizzying
array of choices for virtually any occasion.25
➤ Product innovation: The challenger can pursue product innovation, the way 3M
enters new markets by introducing a product improvement or breakthrough.
➤ Improved services: The challenger can offer new or better services to customers.
➤ Distribution innovation: A challenger might develop a new channel of distribution.
Start-up eToys used a novel Internet-only strategy to attack Toys ‘R Us in the toy
retailing market.
➤ Manufacturing cost reduction: The challenger might achieve lower manufacturing
costs through more efficient purchasing, lower labor costs, and/or more modern
production equipment.
➤ Intensive advertising promotion: Some challengers attack by boosting advertising and
promotion spending, a strategy that can work if the challenger’s product or
advertising message is superior.
One attack strategy is insufficient. A smart challenger recognizes that success
depends on combining several strategies to improve its position over time.
Market-Follower Strategies
Why would a company choose a market-follower strategy? Theodore Levitt has argued
that a strategy of product imitation might be as profitable as a strategy of product
innovation.26 The innovator bears the expense of developing the new product, getting
it into distribution, and educating the market. The reward for all this work and risk is
normally market leadership—even though another firm can then copy or improve on
the new product. Although it probably will not overtake the leader, the follower can
achieve high profits because it did not bear any of the innovation expense.
In fact, many companies prefer to follow rather than challenge the leader. This
pattern is common in industries such as steel, fertilizers, and chemicals, where few
opportunities exist for product differentiation and image differentiation, service qual-
ity is often comparable, and price sensitivity runs high. Short-run grabs for market
share only provoke retaliation, so most firms present similar offers to buyers, usually by
copying the leader; this keeps market shares highly stable.
There are four broad strategies for market followers:
➤ Counterfeiter: The counterfeiter duplicates the leader’s product and package and
sells it on the black market or through disreputable dealers. Both Apple Computer
and Rolex have been plagued by counterfeiters, especially in the Far East.
➤ Cloner: The cloner emulates the leader’s products, name, and packaging, with slight
variations. For example, Ralcorp Holding sells imitations of name-brand cereals in
lookalike boxes at lower prices.27
➤ Imitator: The imitator copies some things from the leader but maintains
differentiation in terms of packaging, advertising, pricing, and so on. The leader
does not respond as long as the imitator does not attack the leader aggressively.
Designing Competitive Strategies 139
➤ Adapter: The adapter adapts or improves the leader’s products, perhaps for different
markets. S&S Cycle, for example, supplies engines to firms that build Harley-like
cruiser bikes. It buys a new Harley-Davidson bike every year and takes the engine
apart to see what it can improve upon.28
Normally, a follower earns less than the leader. For example, a study of food pro-
cessing companies found that only the top two firms were profitable. Thus, follower-
ship is not always a rewarding path.
Market-Nicher Strategies
An alternative to being a follower in a large market is to be a leader in a small market,
or niche. Smaller firms normally avoid competing with larger firms by targeting small
markets of little or no interest to the larger firms. For example, by focusing on hospi-
tal face masks, Tecnol Medical Products competes against two giants: Johnson &
Johnson and 3M. Tecnol transformed this ordinary product into a lucrative line of spe-
cialty masks that shield health care workers from infection. Now the company has sur-
passed Johnson & Johnson and 3M to become the top mask supplier to U.S. hospi-
tals.29
Yet cultivating a niche is only one facet of these companies’ success. Tecnol’s suc-
cess can be attributed to its ability to pick its fight carefully (surgical masks are small
potatoes to Johnson & Johnson and 3M), keep costs down by developing and produc-
ing products in-house, innovate constantly by launching new products every year, and
acquire smaller rivals to expand its product offering.
Increasingly, even large firms are setting up business units or companies to serve
niches. Through smart niching, firms with low shares of the total market can still be
highly profitable. This is because the market nicher ends up knowing the target cus-
tomers so well that it meets their needs better than other firms that are selling to this
niche casually. As a result, the nicher can charge a substantial price over costs. The
nicher achieves high margin, whereas the mass marketer achieves high volume.
The key idea in nichemanship is specialization. Table 7.2 shows the specialist
roles open to nichers. However, because niches can weaken, the firm must continually
create new niches, expand niches, and protect its niches. By developing strength in
two or more niches, the company increases its chances for survival. In fact, firms enter-
ing a market should aim at a niche initially.
EXECUTIVE SUMMARY
To prepare an effective marketing strategy, a company must study its competitors as
well as its actual and potential customers. The closest competitors are those seeking to
satisfy the same customers and needs and making similar offers; latent competitors are
Notes 141
those who may offer new or other ways to satisfy the same needs. The company should
identify competitors by using both industry and market-based analyses, then analyze
competitors’ strategies, objectives, strengths, weaknesses, and reaction patterns.
Through a competitive intelligence system, companies can continuously collect,
analyze, and disseminate competitive information to provide managers with timely
information about competitors so they can more easily formulate appropriate strate-
gies. In selecting which competitors to attack and which to avoid, managers conduct a
customer value analysis, which reveals the company’s strengths and weaknesses relative
to competitors. The aim of this analysis is to determine the benefits that customers
want and how they perceive the relative value of competitors’ offers.
A firm can gain further insight into its competitive position by classifying com-
petitors and itself according to their roles in the target market: leader, challenger, fol-
lower, or nicher. To remain dominant, the market leader (who has the highest market
share) looks for ways to expand total market demand, attempts to protect its current
market share, and perhaps tries to increase its market share.
A market challenger attacks the market leader and other competitors in an
aggressive bid for more market share. After defining their strategic objectives and
opponents, challengers can choose from five types of general attack (frontal, flank,
encirclement, bypass, guerrilla) and a number of more specific attack strategies. A
market follower is a runner-up firm that is willing to maintain its market share and not
rock the boat. A follower can play the role of counterfeiter, cloner, imitator, or
adapter. A market nicher serves small market segments that are not being served by
larger firms. The key to nichemanship is specialization; multiple niching is generally
preferable to single niching.
As important as a competitive orientation is in today’s global markets, companies
should not overdo the competitive emphasis. Instead, companies should monitor both
customers and competitors.
NOTES
1. See Leonard M. Fuld, The New Competitor Intelligence: The Complete Resource for Finding,
Analyzing, and Using Information About Your Competitors (New York: John Wiley, 1995); John
A. Czepiel, Competitive Marketing Strategy (Upper Saddle River, NJ: Prentice-Hall, 1992).
2. Michael E. Porter, Competitive Strategy (New York: Free Press, 1980), pp. 22–23.
3. Leslie Kaufman with Saul Hansell, “Holiday Lessons in Online Retailing,” New York Times,
January 2, 2000, sec. 3, pp. 1, 14; Heather Green, “Distribution: Retail,” Business Week,
January 10, 2000, p. 130.
4. Jerry Useem, “Withering Britannica Bets It All on the Web,” Fortune, November 22, 1999,
pp. 344, 348; Michael Krantz, “Click Till You Drop,” Time, July 20, 1998, pp. 34–39; Michael
Krauss, “The Web Is Taking Your Customers for Itself,” Marketing News, June 8, 1998, p. 8.
5. See Amy Doan, “Palm Flop,” Forbes, November 29, 1999, www.forbes.com.
6. See Kathryn Rudie Harrigan, “The Effect of Exit Barriers upon Strategic Flexibility,”
Strategic Management Journal 1 (1980): 165–76.
7. Porter, Competitive Strategy, ch. 13.
8. Ibid., ch. 7.
9. William E. Rothschild, How to Gain (and Maintain) the Competitive Advantage (New York:
McGraw-Hill, 1989), ch. 5.
10. See Robert V. L. Wright, A System for Managing Diversity (Cambridge, MA: Arthur D. Little,
December 1974).
11. Eric Nee, “The Geek Elite,” Fortune, November 8, 1999, pp. 220–24.
142 CHAPTER 7 DEALING WITH THE COMPETITION
12. For more discussion, see Leonard M. Fuld, Monitoring the Competition (New York: John
Wiley, 1988).
13. “Spy/Counterspy,” Context, Summer 1998, pp. 20–21.
14. Michael E. Porter, Competitive Advantage (New York: Free Press, 1985), ch. 6.
15. Bernhard Warner, “Levi’s Internet Blues Keep Keepin’ On,” The Industry Standard,
November 8, 1999, www.thestandard.com/subject/ecommerce.
16. Erika Rasmusson, “The Jackpot,” Sales & Marketing Management, June 1998, pp. 35–41.
17. These six defense strategies, as well as the five attack strategies, are taken from Philip
Kotler and Ravi Singh, “Marketing Warfare in the 1980s,” Journal of Business Strategy, Winter
1981, pp. 30–41. For additional reading, see Gerald A. Michaelson, Winning the Marketing
War: A Field Manual for Business Leaders (Lanham, MD: Abt Books, 1987); Al Ries and Jack
Trout, Marketing Warfare (New York: McGraw-Hill, 1990); Jay Conrad Levinson, Guerrilla
Marketing (Boston, MA: Houghton-Mifflin Co., 1984); and Barrie G. James, Business
Wargames (Harmondsworth, England: Penguin Books, 1984).
18. Seanna Broder, “Reheating Starbucks,” Business Week, September 28, 1998, p. A1.
19. “Seiko,” Hoover’s Capsules, January 2000, www.hoovers.com.
20. See Porter, Competitive Strategy, ch. 4.
21. Steve Hamm, “Microsoft’s Future,” Business Week, January 19, 1998, pp. 58–68; Mike
McNamee, “1999: The Triumphs and the Turkeys,” Business Week, December 27, 1999,
pp. 126, 128.
22. Philip Kotler and Paul N. Bloom, “Strategies for High Market-Share Companies,” Harvard
Business Review, November–December 1975, pp. 63–72. Also see Porter, Competitive
Advantage, pp. 221–26.
23. Robert D. Hof, “A Java in Every Pot? Sun Aims to Make It the Language of All Smart
Appliances,” Business Week, July 27, 1998, p. 71.
24. Holman W. Jenkins Jr., “Business World: On a Happier Note, Orange Juice,” Wall Street
Journal, September 23, 1998, p. A23.
25. Tom Davey, “Excite Climbs Bluemountain.com,” Redherring.com, October 26, 1999,
www.redherring.com.
26. Theodore Levitt, “Innovative Imitation,” Harvard Business Review, September–October
1966, pp. 63 ff. Also see Steven P. Schnaars, Managing Imitation Strategies: How Later Entrants
Seize Markets from Pioneers (New York: Free Press, 1994).
27. Greg Burns, “A Fruit Loop by Any Other Name,” Business Week, June 26, 1995, pp. 72, 76.
28. Stuart F. Brown, “The Company that Out-Harleys Harley,” Fortune, September 28, 1998,
pp. 56–57.
29. Stephanie Anderson, “Who’s Afraid of J&J and 3M?” Business Week, December 5, 1994,
pp. 66–68.