Beruflich Dokumente
Kultur Dokumente
Unit 11
Unit 11
Structure
11.1 Introduction
11.2 Caselet
Objectives
11.3 Definition of Industry
11.4 Industry Types and Structure
11.5 Industry Structure and Competitive Strategy
11.6 How to Conduct Industry Analysis
11.7 Identifying Competitors
11.8 Models of Competition
11.9 Porters Competitive Threat Model
11.10 Competitive Advantage Analysis
11.11 Case Study
11.12 Summary
11.13 Glossary
11.14 Terminal Questions
11.15 Answers
11.16 References
11.1 Introduction
Selection of corporate strategy by an organization should be guided by three
sets of factors: organizational mission, objectives or goals (discussed in Unit
5), internal competences and resources and the external environment factors.
Given the mission, objectives or goals based on organizational philosophy or
priorities, the choice of strategy should depend, among other things, on company
competences or capabilities (that is, strengths and weaknesses) and the
environmental factors; or, more correctly, on compatibility or balancing between
the two which is attempted through SWOT analysis. The final selection of
strategy, however, depends on some additional selection criteria including
benchmarking and best practices. These are discussed in the next chapter.
One of the most important components of the environment is competition
or competitors. This would be analysed here. As we talk of competition, we also
imply the industry to which the company belongs. Analysis of industry and
competition leads to the determination of competitive advantage or competitive
Sikkim Manipal University
Unit 11
11.2 Caselet
There are numerous well-documented reasons why the Japanese
automobile firms were able to penetrate the US market successfully,
especially during the 1970s. One important reason, however, is that they
were much better than U.S. firms at doing competitor analysis. David
Halberstam, in his account of the automobile industry, graphically described
the Japanese efforts at competitor analysis in the 1960s. They came in
groups. . . . They measured, they photographed, they sketched, and they
tape-recorded everything they could. Their questions were precise. They
were surprised how open the Americans were.
The goal of competition analysis is insight that influences the development
of successful business strategies. The analysis should focus on the
identification of threats, opportunities, or strategic uncertainties created by
emerging or potential competitor moves, weaknesses, or strengths.
Competitor analysis starts with identifying current and potential
competitors.This is an exercise that was successfully done by the Japanese
automobile firrms.
Source: D Halberstam, The Reckoning (New York: William Morrow, 1986), 310.
Unit 11
Objectives
After studying this unit, you should be able to:
Discuss the different industry types and structures
Analyse industry structure and competitive strategy
Show how to conduct industry analysis
Identify and analyse competitors existing and potential
Conduct competitive advantage analysis
Unit 11
Self-Assessment Questions
1. The group of firms producing products that are close substitutes for each
other are known as_________.
2. Definition of an industry should not be thought to be same as definition of
the ________in which a company wants to compete.
Unit 11
Unit 11
Self-Assessment Questions
3. The existence of a large number of small and medium units is found in
(a) Mature industry
(b) Declining industry
(c) fragmented industry
(d) Emerging industry
Sikkim Manipal University
Unit 11
4. An industry that has passed through transition from period of fast growth
to more modest or stable growth is known as
(a) mature industry
(b) declining industry
(c) Emerging industry
(d) None of the above
Step 2
Step 3
Step 4
Step 5
The five steps or the answers to the five questions indicate a logical process
for formulation of competitive strategy in fragmented industry. Step 1 consists
of undertaking a thorough industry and competitor analysis to identify sources
of competitive forces in the industry and positions of important competitors.
Step 2 is to identify cause or sources of fragmentation. Once the causes of
Unit 11
Unit 11
market. In such situations, the pioneer leader should be prepared for shifts in
strategy orientation including redefinition of roles of linkage agents like suppliers
and distributors or distribution channels.
Companies which enter emerging industries during the course of their
development also have a choice to make about which industries to enter. Here,
again, they often have a choice between alternative emerging industries. The
choice in such cases would depend on current returns or profitability and likely
future growth of the industry. The best alternative is one which promises highest
long-term growth and profitability.
Unit 11
Niche
Harvest
Divest quickly
Seek a leadership
position in terms of
market share
Create or defend a
strong position in a
particular segment
Manage a controlled
disinvestment using
strengths
Liquidate the
business or
investment as early
as possible
Unit 11
Unit 11
Self-Assessment Questions
5. In ________ industry, the pioneering leader faces problems as the industry
develops, competitors emerge and the course of competition becomes
unpredictable.
6. In ________ industries, the problem faced is that of competitive
overcrowding and its impact on formulation of strategy.
7. Global strategy suits companies that make highly standardized
sophisticated products. (True/False)
8. Transnational strategy is quite an easy strategy to follow. (True/F alse)
Unit 11
To conduct such an analysis, the industry analyst has to find answers to many
important questions:
What should be the starting point?
Which types of data one looks for?
Should one look for only published or secondary data?
Or, should one also generate primary data from industry observers
(participants)?
What are the analytical techniques to be used for data processing and
analysis?
Answers to these questions would make possible an appropriate industry
analysis. This is about complete or comprehensive industry analysis. If, however,
one is interested in a particular aspect of an industry, say, only industry growth,
one can also conduct a partial industry analysis with respect to the particular
object. In that case, data requirements would be less, and data processing and
analysis also would be much easier.
Porter (1980) has suggested some detailed guidelines for conducting
industry analysis. These are contained in How to Conduct an Industry Analysis
(Appendix B) in Competitive Strategy (1980). Porter discusses sources of
published or secondary data, generation or collection of primary data, various
categories of data, scheme of data processing and strategy for industry analysis.
He has also suggested a broad framework for industry analysis in terms of
categories of data and competition. The framework is shown in Box 11.1
Industry analysis should follow a number of logical or strategic steps.
These are shown below:
Step 1 : Determine or specify the objective or objectives so that there
is no lack of focus.
Step 2 : Collect and scan through available published or secondary data.
Step 3 : Identify data or information gaps for generation of primary data.
Step 4 : Generate primary data (through survey, interviews, meetings,
etc.,) to fill the data information gap.
Step 5 : Process/tabulate various data as mentioned in Box 11.1
Step 6 : Prepare a general overview of the industry using the processed/
tabulated data/information.
Unit 11
Compilation
Product lines
By company
By year
Complementary products
By functional area
Substitute products
Growth
Rate
Pattern (seasonal, cyclical)
Determinants
Technology of production and distribution
Cost structure
Economies of scale
Value added
Logistics
Labour
Marketing and Selling
Market segmentation
Marketing practices
Suppliers
Distribution channels (if indirect)
Innovation
Types
Sources
Rate
Economies of scale
Unit 11
Unit 11
Self-Assessment Questions
9. Competition analysis can be divided into two main parts: (1) identifying
the existing and potential competitors, and (2) __________.
10. Japanese automobile companies were able to penetrate the US market
successfully in the 1970s as they were much better at doing _______
than US companies.
Unit 11
Unit 11
the analysis easy and more usable from strategy formulation point of view. Let
us take the Indian detergents market. In this market, Surf (with brand extensions)
and Ariel may be placed in one strategic group; Tide, Rin, Wheel, Sunlight and
Nirma may be classified into a second strategic group; Ghadi and similar regional
brands can be in a third group; and, many local brands can be put together in
the fourth group. Each of these groups will show some distinct features or
characteristics like resource base, ability to compete, marketing skills, etc., and,
such grouping will give a company a clear strategic perspective to analyse
competition.
Unit 11
Self-Assessment Questions
11. While identifying competitors, the ________ approach analyses the
preferences of customers who make their choices among competing
suppliers of products.
12. The ________ approach for competitor identification attempts to classify
competitors into strategic groups on the basis of their competitive
strategies.
13. Primary competitors, i.e., competitors in the same product category and,
not in substitute product category, are clearly visible and more easily
identifiable. (True/ false)
14. Existing competitors are the most immediate threats to a company.
(True/False)
Unit 11
Unit 11
At the introduction stage, that is, when a new product enters the market,
it starts as a monopoly and competition is nil. As the product moves to the
growth stage, competitors start entering the market and competition begins. As
the product matures, competition intensifies and competitive rivalry reaches its
peak. Sales and profit also peak during this period. In the decline phase,
competitive pressure decreases because sales and profit start declining, and
many companies withdraw from the market or close down. Between introduction
Sikkim Manipal University
Unit 11
and growth, and, in the decline phase, competitive pressures are low, but,
mortality rates of products or businesses are high (Figure 11.4).
The lifespan of a product, and also speed or steepness in growth, maturity
and decline vary according to its nature or category. (This is what explains the
relative flatness (Figure 11.5) and relative steepness [of different PLC curves.)
Most electronic products have a shorter lifespan and also a steep PLC compared
to electrical or mechanical appliances. During the PLC, most markets witness
one market leader, one or a couple of market challengers and a number of
market followers. During the PLC, some niche players also develop in the market
who stay away from mainstream competition. In the toothpaste market, Colgate
is the leader, Pepsodent and Close-Up the challengers and Promise the follower.
Some say Vicco and Neem are niche players, but, there may be difference of
opinion on this.
Different studies have hypothesized different market structures, particularly
during the maturity phase, in terms of market shares of different players. These
studies indicate different types and levels of competition. The first of these studies
is by the Strategic Planning Institute, Cambridge, Massachusatts, popularly
known as PIMS Study. The second study is by Kotler, and, the third by Boston
Consulting Group (BCG). Buzzel (1981) has done consolidation and a
comparative analysis of these studies. The study results for market structures
in mature industries are summarized in Table 11.3.
Table 11.3 Market Structure in Mature Industries: Market Shares
Market Player
Kotler
BCG
Market leader
52.7
40.0
50.0
Market challengers
28.8
30.0
25.0
Market followers
11.6
20.0
15.0
6.9
10.0
10.0
Market nichers
Unit 11
are defensive warfare, offensive warfare, flanking warfare and guerrilla warfare.
Ries and Trout (1986) are among the greatest exponents of marketing warfare
based on military strategies. Principles of marketing warfare enunciated by them
are given in the following:
Principles of Defensive Warfare
1. Only the market leader should adopt a defensive strategy
2. The best defensive strategy is the courage to attack yourself
3. Strong competitive moves should always be blocked
Principles of Offensive Warfare
1. The strength of the leader is the most important consideration for mounting
an offensive attack
2. Find the leaders weakness and attack it
3. Launch the attack on as narrow a front as possible
Principles of Flanking Warfare
1. A good flanking move is made into an uncontrolled area of the opposition
2. Tactical surprise should be an important element of the strategy
3. The pursuit is as crucial as the attack itself
Principles of Guerrilla Warfare
1. Find a small segment for intermittent attack; avoid confrontation
2. However successful you may be, never act like the leader
3. Be prepared to quit/exit at very short notice
Offensive and defensive strategies signify different competitive moves
and are of almost universal application in strategic business management today.
Self-Assessment Questions
15. According to classical economic theory, markets begin as _________,
move towards ______, then to monopolistic competition and ultimately
towards pure or perfect competition.
16. In a competitive environment, businesses can be classified into four
different categories: specialized businesses, volume businesses,
fragmented businesses and _______businesses.
Sikkim Manipal University
Unit 11
17. The Economic Model, Life Model and War Model are models of
(a) Competition
(b) Production
(c) Marketing
(d) Business strategy
18. Music records (HMV and others) black and white TV are examples of
(a) specialized businesses
(b) stalemated business
(c) volume businesses
(d) fragmented businesses
Unit 11
Unit 11
Self-Assessment Questions
19. Ongoing battles between Coca-Cola and Pepsi is a good example of
_____ competitors.
20. Air conditioner manufacturers competing with colour televisions or music
systems or home theatres for snatching a share in fixed household income
is an example of ________ substitution.
Sikkim Manipal University
Unit 11
Unit 11
Unit 11
Self-Assessment Questions
21. A position of superiority of an organization in relation to its competitors is
called __________.
22. Various individual strategies like product strategy, pricing strategy,
promotion strategy, distribution strategy, competition strategy make up
the ________. strategy
23. According to Hamel and Prahalad (1990), advantages of companies and
businesses are based on core competence of these companies.
(True/False)
24. While securing competitive advantage, the product-making route and the
marketing route are exclusive to each other. (True/ False)
Unit 11
Neville Isdell is fully seized with the challenges that his company is facing.
He, however, claims that the system isnt broken; but, some analysts may
not agree with him. One analyst pointed out that Coca-Cola has not produced
a successful new soda since 1982. Consultant Tim Pirko has suggested
that the company should invest heavily in developing new brands. He feels
that the company needs to take some new risks, if necessary, to ensure
that the consumers again become excited about Coke products. ****
The company is also aware of it. Coca-Cola has been investing heavily to
rejuvenate the companys stronger brands, and also in new products/drinks.
During 2005, the company invested in the growing non-calorie soda market
with Coca-Cola Zero; it acquired a stake from Danone in bottled water joint
venture; it bought a majority stake in a milk drink company; it started
distributing the Rockstar energy drink. In response to all this, Pepsi gave a
big push to its new products through Pepsi One, Pepsi Lime and Propel
fitness water.
In this scenario, will Coca-Cola be able to recover lost grounds and fully
rehabilitate itself?
* The Coca-Cola company announces changes to senior management and operating
structure,www.2.coca-cola.com, March 2005.
** D Faust, Gone Flat, Business Week, December 20, 2004.
*** B Morris, Coca-Cola: The Real Story, Fortune, May 17, 2004.
**** B Morris (2004).
Unit 11
11.12 Summary
Let us recapitulate the important concepts discussed in this unit:
Competition is one of the most important components of business
environment.
Industries can be of various typesalmost each major product group
constitutes an industry. Industries can also be classified in terms of size
of the constituent units or companies, state or pace of development of the
industry, spread of the market, etc.
Various industries can be classified into five categories fragmented
industry, emerging industry, mature industry, declining industry and global
industry.
Competition can be understood better by analysing competitor actions.
More important factors which govern competitive action are objectives or
goals, size and growth, organizational culture, strengths and weaknesses,
cost structure, profitability, image and positioning, and current and past
strategies.
Various models of competition are mentioned in strategic marketing
literature. Competition takes various forms and can be of different
intensities. Different models of competition try to analyse this. Three
important models of competition are: the economic model, the life model
and the war model.
Porters competitive threat model (Five Forces Model) analyses five major
types of competitive threats a company can face in the marketplace. These
are: industry (existing) competitors, threat of substitutes, bargaining power
of buyers (backward integration), bargaining power of suppliers (forward
integration) and threat of new entrants.
11.13 Glossary
Competitive advantage: A position of superiority of an organization in
relation to its competitors
Industry: A group of firms producing products that are close substitutes
for each other
Monopoly: A condition in which there is single seller with no close
substitute product
Oligopoly: A condition in which there are few sellers
Sikkim Manipal University
Unit 11
11.15 Answers
Answers to Self-Assessment Questions
1. Industry
2. Business
3. (c) fragmented industry
4. (d) mature industry
5. Emerging
6. Mature
7. True
8. False
9. understanding and evaluating competitors
10. competitor analysis
11. customer-based
12. strategic
Unit 11
13. True
14. True
15. Monopolies, oligopoly
16. Stalemated
17. (a) Competition
18. (b) stalemated business
19. Industry
20. Generic
21. Competitive advantage
22. Corporate
23. True
24. False
Unit 11
11.16 References
1. Aaker, D A, 1995. Strategic Market Management. 4th ed. New York: John
Wiley & Sons.
2. Day, G S. 1984. Strategic Market Planning: The Pursuit of Competitive
Advantage. St. Paul, Minnesota: West Publishing Co.
3. Day, G S. 1990. Market Driven Strategy. New York: The Free Press.
4. Porter, M E. 1990. Competitive Strategy: Techniques for Analysing
Industries and Competitors. New York: The Free Press.
5. Porter, M E. 1990. The Competitive Advantage of Nations. New York: The
Free Press.
6. Thompson Jr, A A, A J Strickland III, and J E Gamble. 2005. Crafting and
Executing Strategy: The Quest for Competitive Advantage. New Delhi:
Tata McGraw Hill Publishing Co.
Endnotes
1
A Aaker, Strategic Market Management, 4th ed. (New York: John Wiley & Sons, 1995),
65.
10
11
S E South, Competitive Advantage: The Art of Strategic Thinking, The Journal of Business
Strategy, 4 (Spring 1981).