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Dealing With Competition

Competitive Forces Identifying Competitors Analyzing Competitors Competitive Strategies

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Competitive Forces

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Identifying Competitors
Industry Concept of Competition
Industry is a group of firms that offer a product or class of products that are close substitutes for one another. Industry can be classified on the following parameters:

Number of Sellers and Degree of Differentiation Pure Monopoly Oligopoly Monopolistic Competition Pure Competition Entry, Mobility and Exit Barriers Cost Structure Degree of Vertical Integration Degree of Globalization

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Identifying Competitors
Industry Structures

Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition

Only one firm offers an undifferentiated product or service in an area


Unregulated Regulated

Example: Most utility companies

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Identifying Competitors
Industry Structures

Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition

A few firms produce essentially identical commodities and little differentiation exists Lower costs are the key to higher profits Example: Crude Oil

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Identifying Competitors
Industry Structures

Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition

A few firms produce partially differentiated items Differentiation is by key attributes Premium price may be charged Example: Mobile Companies

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Identifying Competitors
Industry Structures

Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition

Many firms differentiate items in whole or part Appropriate market segmentation is key to success Example: Beer, Restaurants

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Identifying Competitors
Industry Structures

Pure Monopoly Pure Oligopoly Differentiated Oligopoly Monopolistic Competition Pure Competition

Many competitors offer the same product Price is the same due to lack of differentiation Example: Farmers selling milk, crops

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Identifying Competitors
Entry, Mobility and Exit Barriers - Industries differ greatly in the ease of entry, mobility and exit. Entry barriers include high capital investments, requirement of patents and licenses, economies of scale, raw materials availability. A firm may face mobility barriers while trying to enter more attractive market segments such as local legislation, specialized requirements and so on. Exit barriers are in the form of legal or moral obligations to customers, creditors, employees, government regulations, low asset salvage value, high vertical integration. Cost Structure Each industry has its associated cost structure and the companies strive to reduce their largest costs. E.g A steel manufacturing company has the largest cost in the form of manufacturing and raw materials. The integrated steel company with most cost efficient manufacturing plan will have an advantage over other integrated steel manufacturing companies. Degree of Vertical Integration Backward or forward integration defines the competitive edge for the companies. Oil companies carry on oil exploration, drilling, refining and even retailing. These companies are in a better position to manipulate costs in different parts of the value chain and earn profits where ever possible. Degree of Globalization Companies in global industries need to compete on a global basis if they are to achieve economies of scale and 9 keep up with the latest advances in technology.

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Analyzing Competitors
Strategies
Service levels Pricing Line Length Mix Width

Objectives
Current Profitability Market Share Cash Flow Market Leadership Long Term Short Term

You & Your Company

Strengths & Weaknesses


Share of Market Share of Mind Share of Heart 12/16/2012

Reactions
Strong vs Weak Close vs Distant Good vs Bad

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Competitive Strategies
All the firms operating in the market can be classified on the basis of the share they hold. This is described as follows:

40%

Market Leader

30% 20% 10%


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Market Challenger
Market Follower

Market Nichers
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Competitive Strategies
Competitive Strategies for Market Leaders Expanding the Total Market New Customers More Usage Defending the Market Share Position Defense Flank Defense Preemptive Defense Counteroffensive Defense Mobile Defense Contraction Defense
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Competitive Strategies
Competitive Strategies for Market Challenger
Defining Strategic Objective and Opponents Attacking the Market Leader Attacking the firms of own size Attacking the local and regional firms Choosing a General Attack Strategy Frontal Attack Flank Attack Guerilla Warfare

Choosing a Specific Attack Strategy


Price Discount Lower Price Goods Value Priced Goods and Services

Prestige Goods

Product Proliferation

Product Innovation Improved Services Distribution innovation Manufacturing-cost Reduction intensive Advertising Promotion
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Competitive Strategies
Competitive Strategies for Market Follower
Cloner Imitator Adaptor

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Competitive Strategies
Competitive Strategies for Market Nicher Instead of following leaders in a large market, smaller firms try to be leader in smaller markets or niche. Nichers have three tasks

Creating Niches Expanding Niches Protecting Niches

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