Chapter-by-Chapter Instructional Material

Advanced Marketing Management

Module II

Creating Competitive Advantage & Competitive Strategies

What is Competitive Advantage?

Competitive advantage is a business concept that describes the attribute of allowing

an organization to outperform its competitors . These attributes may include access
to natural resources , such as high grade ores or a low cost power source, highly
skilled labor, geographic location, and high entry barriers, etc. Access to new
technology can also be considered another such attribute of competitive advantage.

Competitive advantage is a property that a business can have over its competitors.
This can be gained by offering clients better and greater value. Advertising products
or services with lower prices or higher quality interests consumers. Target markets
recognise these unique products or services. This is the reason behind brand loyalty,
or why customers prefer one particular product or service over another.

To prepare an effective marketing strategy, a company must study competitors as

well as actual and potential customers. Companies need to identify competitors
strategies, objectives, strengths, and weaknesses.

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Step 1 SWOT
Step 2 Porters Five Force Model of Industry attractiveness
Step 3 Porters Generic Strategies
Step 4 Basic Competitive Strategies

1. SWOT Analysis

2. Porters Five Forces - COMPETITIVE FORCES

Michael Porter has identified five forces that determine the intrinsic long-run
attractiveness of a market or market segment: industry competitors, potential entrants,
substitutes, buyers, and suppliers. The threats these forces pose are as follows:

A) Threats of intense segment rivalry.

B) Threat of new entrants.
C) Threat of substitute products.
D) Threats of buyers growing bargaining power.
E) Threat of suppliers growing bargaining power.

The Porter's Five Forces Model is a simple but powerful tool for understanding where
power lies in a business situation. This is useful, because it helps you understand both the

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strength of your current competitive position, and the strength of a position you're
considering moving into. Conventionally, the tool is used to identify whether new
products, services or businesses have the potential to be profitable.

Five Forces Analysis assumes that there are five important forces that determine
competitive power in a business situation. These are:

Supplier Power:

Markets where there are few suppliers means the suppliers retain the power

Here you assess how easy it is for suppliers to drive up prices. This is driven by the
number of suppliers of each key input, the uniqueness of their product or service, their
strength and control over you, the cost of switching from one to another, and so on. The
fewer the supplier choices you have, and the more you need suppliers' help, the more
powerful your suppliers are.

Examine how many suppliers are in the market?

Are there a few who control prices?
Or many so prices are lower?
How easy is it to switch, whats the cost?

Some sectors have monopolistic (one) or oligopolistic (few) suppliers, such as utility
companies.

In the jewellery sector, diamond suppliers often hold the power and can set prices,
withhold supply and restrict sales.

In the PC industry, where Microsoft and Intel are the suppliers to companies such as HP,
Dell and Lenovo. You will find that the suppliers enjoy a huge margin advantage
compared to the PC manufacturers, since they are practically monopolies.

Buyer Power:

Where there are fewer buyers, they often control the market.

Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven
by the number of buyers, the importance of each individual buyer to your business, the
cost to them of switching from your products and services to those of someone else, and
so on. If you deal with few, powerful buyers, then they are often able to dictate terms to
you.

Questions here include:

How powerful are the buyers?

How many are there?
Can the buyers get costs down?

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Do they have the power to dictate terms?

If you are selling website development services, you are forced to take low margins as
your industry is a lot more fragmented and commoditized.

Competitive Rivalry: What is important here is the number and capability of your
competitors. If you have many competitors, and they offer equally attractive products and
services, then you'll most likely have little power in the situation, because suppliers and
buyers will go elsewhere if they don't get a good deal from you. On the other hand, if no-
one else can do what you do, then you can often have tremendous strength.

Threat of Substitution: This is affected by the ability of your customers to find a

different way of doing what you do for example, if you supply a unique software
product that automates an important process, people may substitute by doing the process
manually or by outsourcing it. If substitution is easy and substitution is viable, then this
weakens your power.

Threat of New Entry: Power is also affected by the ability of people to enter your
market. If it costs little in time or money to enter your market and compete effectively, if
there are few economies of scale in place, or if you have little protection for your key
technologies, then new competitors can quickly enter your market and weaken your
position. If you have strong and durable barriers to entry, then you can preserve a
favorable position and take fair advantage of it.

Is there a brand premium? For instance, if you are selling a new Cola, you have to
fight the brand power of Coke and Pepsi

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3. Porters Generic Strategies Notes

4. Basic Competitive Strategies

We can gain further insight by classifying firms by the roles they play in the target market:
1) Leader 40%
2) Challenger 30%
3) Follower 20%
4) Nicher 10%

A market leader has the largest market share in the relevant product market. To
remain dominant, the leader 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. Challengers can choose from five types of general attack;
challengers must also choose specific attack strategies.

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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 not being served by larger firms. The
key to nichemanship is specialization. Nichers develop offerings to fully meet a
certain groups of customers needs, commanding a premium price in the process.
As important as a competitive orientation is in todays global markets, companies
should not overdo the emphasis on competitors. They should maintain a good
balance of consumer and competitor monitoring.

COMPETITIVE STRATEGIES FOR MARKET LEADERS

Expanding the Total Market

The dominant firm normally gains the most when the total market expands.

New Customers
A) Every product class has the potential of attracting buyers who are unaware of the
product or who are resisting it because of price or lack of certain features.
B) A company can search for new users among three groups: (Ansoffs
Product Market Expansion Grid)

More Usage

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Usage can be increased by increasing the level of quantity of consumption or

increasing the frequency of consumption.
A) Increasing the amount of consumption can sometimes be done through packaging or
product design.
B) Increasing frequency of use involves identifying additional opportunities to use the
brand in the same basic way or identifying completely new and different ways to use
the brand.
C) To generate additional usage opportunities, a marketing program can communicate the
appropriateness and advantages of using the brand more frequently in new or existing
situations and /or remind consumers to actually use the brand as close as possible to
those situations.
D) Another potential opportunity to increase frequency of use is when consumers
perceptions of their usage differ from the reality of their usage.
E) The second approach is to identify completely new and different applications.
F) Product development can spur new uses.

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Defending Market Share

While trying to expand total market size, the dominant firm must continuously defend
its current business.

A dominant firm can use the six defense strategies

1) Position defense.
2) Flank defense.
3) Preemptive defense.
4) Counteroffensive defense.
5) Mobile defense.
6) Contraction Defense.

Position defense

Position defense is a defensive strategy employed by established companies

to strengthen or sustain current market position. In other words, firms resort
to position defense to ensure a new companys market entry doesnt impact
or weaken their brand. The strategy involves revving up market reputation
and image, making the brand close to invincible. For example, reputed
brands like Coke, Samsung, Toyota, etc. still promote their offerings despite
being household names, as they know the average consumer has a short
memory span and who needs to be constantly reminded of the brands
presence.
Position defense tactics also entail acquiring patents, signing exclusive
distribution agreements, erecting entry barriers, etc. Long story short, the
market leaders aim is to create a monopoly-like scenario. Unfortunately, in
the bid to strengthen their positioning, most established brands do not focus
much on sprucing up the brands internal attributes such as improving
product or service quality, focusing on product portfolio and pricing strategy,
etc.

Flank Defense

Flank defense is a defensive strategy used by established companies to

counterattack competitor or new company moves that aim at targeting their
weaknesses or strengths. For the established firm, a flank defense strategy is
imperative to ensure the new company does not succeed in exposing its
weakness.

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For example, Nokias budget-oriented Asha phones have always been a

major hit with Indian consumers. When some new Indian and Chinese
brands entered the budget phone market with feature phones priced lower
than Nokias budget offerings, it was viewed as a direct attack at Nokias
inexpensive feature phone portfolio. Nokia took cognizance of this matter
and retaliated by selling their budget phones for an even cheaper price to
make sure the newer companies do not gain significant ground within Indias
feature phone segment, thereby sustaining its market share and reputation.

Preemptive Defense

In general terms, preemptive defense is attacking an enemy before the

enemy could attack you. Within the marketing realm, its a defensive
strategy wherein companies target the competition before they could become
the target. The preemptive defense strategy may entail new product
launches, spending more money on advertising, or any other business move
that helps achieve the purpose.

For instance, many successful private banks in India are yet to surpass State
Bank of Indias huge market share. SBI has commanded market leadership
for several decades, and it keeps thumping its footprint time and again with
new products or services, or by increasing its branches and ATMs
wherever and whenever possible.

Counteroffensive Defense

Counteroffensive defense is a defensive strategy that entails responding to a

business competitors offensive tactics. The response is usually a
counterattack wherein the victim firm tries hampering its competitors major
business segment(s), forcing the competitor firm to spend considerable time
and resources to recover that particular aspect of the business. This keeps the
competitor deviated, and also the move serves as a warning.
Lets understand this with an example. There are two motorbike
manufacturing companies one makes higher-end bikes; and the other
commuter motorcycles. The commuter vehicle producer now considers
foraying into the higher-end bike segment, turning into a potential threat to
the high-grade bike manufacturer. If the premium bike manufacturer
retaliates by launching its own commuter bikes, the move will be seen as a
counteroffensive defense.

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Besides venturing into new business domains or product categories,

companies may resort to counteroffensive defense strategies such as cutting
their current product prices, intensifying existing promotion plans,
enhancing products, and expanding their geographical reach. The targeted
company may implement one or more of these strategies based on the
attackers challenge or weakness.

Mobile defense

Mobile defense is a diversification or defensive strategy embraced by

companies when current segment operations are likely to take a hit in the
near future. Companies take a prevention is better than cure approach and
create a buffer for possible losses going forward. A cigarette manufacturing
company entering dairy business sensing an impending government ban on
cigarettes is a form of mobile defense.
This expansion could be in a related or non-related industry. For example, a
car tyre manufacturer may start manufacturing car batteries if the company
senses saturation and dwindling sales in the tyre industry. This is expanding
business into related territories. An unrelated expansion, for instance, is a
pen manufacturer entering the beer industry.

Contraction Defense

Established companies, over a period, realize they cannot remain market

leaders in every market segment they enter or have enjoyed presence in. As a
result, they abandon unprofitable market segments or territories, for financial
and branding reasons. This defensive strategy is called contraction defense.
A firm would typically withdraw its resources from its weaker footholds and
channelize the saved energy into its stronger or profitable market segments.

For example, Samsung has its presence in multiple consumer electronics

divisions: mobile phones, televisions, cameras, computers, etc. Samsung
dominates the mobile phone and television industry, but not the camera and
laptop computers segment. This could be due to huge competition from
Nikon and Canon (camera) and Apple, Asus, Lenovo, etc. (laptops).

Samsung, under these scenarios, may choose to focus more on its stronger
markets by taking a voluntary exit from its not-so-profitable domains so that
it can focus more on its TVs and mobile phones, ensuring the newer

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companies that enter the industries its dominating do not turn into a major
threat.

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Expanding Market Share

Market leaders can improve their profitability by increasing market share.
A) Gaining increased share in the served market does not automatically produce higher
profits.
B) A company should consider four factors before pursuing increased market share:
1) The possibility of provoking antitrust action.
2) Economic cost.
3) Pursuing the wrong marketing-mix strategy.
4) The effect of increased market share on actual and perceived quality.

OTHER COMPETITIVE STRATEGIES

Market-Challenger Strategies
Many market challengers have gained ground or even overtaken the leader.
A market challenger must first define its strategic objective. The challenger must
decide whom to attack:

A) It can attack the market leader.

B) It can attack firms of its own size that are not doing the job and are underfinanced.
C) It can attack small local and regional firms.

Choosing a General Attack Strategy

We can distinguish among five attack strategies:

A) Frontal.
B) Flank.
C) Geographic.
D) Segmental.
E) Encirclement.
F) Bypass.
1) Diversifying into unrelated products.
2) Diversifying into new geographical markets.
3) Technological leapfrogging into new technologies .
G) Guerrilla Warfare

Frontal Attack - a frontal attack is seen when a competitor attacks another based on the
strengths of the competitor.

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Example Pepsi introduces Diet Pepsi when Coke introduces Diet coke. Both have
strength of product expansion and a diverse product portfolio. So in a direct frontal
attack, Pepsi also launches a product in response to its market challenger.

HUL, P&G, ITC are some big players in FMCG that launch the frontal attack on each
other.

Amul adopted this strategy when it launched Amul Kool and Amul Masti Dahi at a low
price with the same level of the quality as that of other competitors in the market.

Flank Attack - The Flank attack is the marketing strategy adopted by the challenger firm
and is intended to attack the weak points or blind spots of the competitor, especially a
leader. It is a marketing strategy employed by firm to capture the market which is not
well served by established players. Flank attack targets competitors weak spots.

Large companies offer wide range of products and services. They may not be leader in
every category. There are some markets in which they are under performers and thus
susceptible to flanking attacks. Flank attack can be used to replace the competitors not so
strong product or to serve uncovered needs of the market.

Salient features of flank attack:

It does not confront competitors in open

Gains market presence stealthily before competitor realizes (surprise element)
Flank attack does not require new product, but different enough to capture latent
needs of the market

Examples:
Auto-industry in 1970, when Japanese car-makers exploited the vulnerability of US car-
makers in small, fuel-efficient car segment

LG outflanked the other colored TV producers in India, by launching a rural-specific

color TV Sampoorna, thereby becoming the first one to tap the rural areas.

Woodland outflanked the other big players like Bata, Liberty by introducing the robust,
durable, rough and tough outdoor shoes, and hence captured the untapped market
segment.

Encirclement

The Encirclement Attack is a war strategy adopted by the challenger firm intended to
attack the competitor on all the major fronts. Under this strategy, the challenging firm
considers both the strengths and weaknesses of the opponent and then launch the attack
simultaneously.

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The encirclement maneuver is an attempt to capture a wide slice of the enemys territory
through a blitz. It involves launching a grand offensive on several fronts.

The e-commerce industry is the best example of an encirclement attack, wherein the
companies are ready to do anything for the huge turnovers and are even selling their
products at negative margins.

Bypass Attack: The bypass attack is the indirect attack, wherein the market challenger
does not attack the leader directly, but broaden its market share by attacking the easier
markets.
The challengers can bypass the leader by following any of the strategies viz. Expanding
into the untapped markets, diversifying into the unrelated products, leapfrogging into
new technologies to supplant existing products

E.g. Pepsi adopted this strategy when it launched its mineral water brand Aquafina
very well before the Coca Colas mineral water brand.

Guerrilla warfare - is the marketing strategy adopted by the challenger firm intended to
launch the intermittent attacks with an intention to harass or demoralize the competitor.
Normally Guerrilla warfare is practiced by smaller firm against larger one. This
alternative advertising style relies heavily on unconventional marketing strategy, high
energy and imagination. Guerrilla Marketing is about taking the consumer by surprise,
make an indelible impression and create copious amounts of social buzz. Guerrilla
marketing is said to make a far more valuable impression with consumers in comparison
to more traditional forms of advertising and marketing.

Felix Baumgartner Jumps At 128k feet! Red Bull Stratos - freefall from the edge of space

https://www.youtube.com/watch?v=ZyIVaZXDhho&list=RDZyIVaZXDhho#t=35

https://www.youtube.com/watch?v=7f-K-XnHi9I

Market-Follower Strategies

Many companies prefer to follow rather than challenge the market leader.

A) A market follower must know how to hold current customers and win a fair share of
new customers.
B) Each follower tries to bring distinctive advantages to its target marketlocation,
services, and/or financing.
C) Four broad strategies can be distinguished:

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1) Counterfeiter.
2) Cloner.
3) Imitator.
4) Adapter.

Counterfeiter The best example of counterfeiting is selling the originals via piracy.
Where cloning involves manufacturing of slightly altered products, counterfeiting
involves thieving and is a black market follower strategy. The best example is pirated
DVDs and CDs of movies and music. If you notice, time and time again the movie
industry wakes up against piracy. This is because, piracy and counterfeiting steals their
work. Similarly, you can find shoes from Reebok and Adidas as well as numerous other
products in the market which are counterfeited.

Cloners - If you get watches made from Rado, or bags of Gucci, with Rado spelled as
RADA and Gucci spelled as GUCCA, than thats cloning. Cloning means making the
same product as yours, but with very subtle difference. Cloning makes advantage of the
top brands and makes same to same products.

Imitators - make use of your hard earned brand equity and give a product which has the
same characteristics as yours, albeit at a lower price. The difference might be that the new
product is made from poor material or that it does not have the service or promise that
your brand can offer. Nonetheless, there is a huge market for imitators where people want
to buy products at lower cost as they can't afford the higher one. Imitation jewellery is
probably the best and largest example of imitation as a market follower strategy.

Adapter - is white collared market follower strategy. Cars like Alto, Ritz, Brio, etc are all
adapters and they adapt the best qualities from each other by changing the style of
the automobile. Similarly, there are technology adapters like the Dell laptop and Sony
Vaio laptop. These market followers have similar products but they try to adapt from their
closest competition. Adapters can soon become leaders as well because they can adapt,
learn and make a better product than the higher competition.

Market-Nicher Strategies

An alternative to being a follower in a large market is to be a leader in a small market,

or niche.

A Niche is a small segment that has distinctive needs and is, mostly, ready to pay high
price.

Niche Marketing is especially effective for reaching consumers who can be targeted
based on certain characteristics, such as demographic, hobby, occupation, or commitment
to social or political causes.

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Some examples of customers who could be the focus of Niche Marketing include:

Couples planning for a wedding

Young professionals
Pet lovers
Environmentalists
New homeowners

For example, a footwear company can create niches by designing shoes for
different sports (like crickets, hockey, athletes, golf, etc.), exercises (like cycling,
running,jogging, waking, etc).

A Niche may operate for one-type of end-use customers, for example, a legal
advisory firm can handle only criminal cases, or a fashion designer can work only for a
few film stars or a firm can specialize at producing only raw-materials for specific
companies.

A Niche Firm may supply its products only to distinct group of buyers. For example,
designing special two-wheeler for handicapped people or serving special foods to people
who are suffering from certain diseases like diabetes.

Nichers can gain comparatively high returns. They can achieve high margin while large
companies can achieve high volume.

Why is niching so profitable?

The main reason is that the market nicher ends up knowing the target customers so well that it
meets their needs better than other firms selling to this niche. The nicher achieves high margin,
whereas, the mass marketer achieves higher volume.
Nichers have three tasks:
1) Creating niches.
2) Expanding niches.
3) Protecting niches.
Multiple niching is preferable to single niching.

Ansoffs Product Market Expansion Grid

Mc Donalds

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Ansoffs Product Market Expansion Grid

The objective of every business is to grow, be it a start-up thats just closed its first deal
or an established market leader seeking to further increase profitability. But how does a
business decide upon the best strategy for growth? The Ansoff Matrix management tool
offers a solution to this question by assessing the level of risk considering whether to
seek growth through existing or new products in existing or new markets.

To demonstrate the robustness and legitimacy of Ansoffs Matrix, it has been applied to
Coca-Cola, the most well-known trade name in the world and a company today operating
in over 200 countries; and a brand that has undertaken countless growth strategies in its

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100+ year history.

Market Penetration: (EXISTING Market, EXISTING Product)

This strategy involves an attempt to increase market share within existing industries,
either by selling more product to established customers or by finding new customers
within these markets typically by adapting the Promotion element of the Marketing
Mix.

Product Development: (EXISTING Market, NEW Product)

This involves developing new products for existing markets by thinking about how new
products can meet customer needs more closely and outperform competitors. A prime
example of this was the launch of Cherry Coke in 1985 Coca-Colas first extension
beyond its original recipe and a strategy prompted by small-scale competitors who had
identified a profitable opportunity to add cherry-flavoured syrup to Coca-Cola and resell
it. The company has since gone on to successfully launch other flavoured variants
including lime, lemon and vanilla.

Market Development: (NEW Market, EXISTING Product)

Thirdly, the market development strategy entails finding a new group of buyers for an
existing product. The launch of Coke Zero in 2005 was a classic example of this its
concept being identical to Diet Coke; the great taste of Coca-Cola but with zero sugar and
low calories. Diet Coke was launched more than 30 years ago, and whilst more females
drink it every day than any other soft drink brand, it came to light that young men shied
away from it due to its consequential perception of being a womans drink. With its shiny

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black can and polar opposite advertising campaigns, Coke Zero has successfully
generated a more masculine appeal.

Related Diversification: (NEW Market, NEW Product)

This involves the production of a new category of goods that complements the existing
portfolio, in order to penetrate a new but related market. In 2007, Coca-Cola spent $4.1
billion to acquire Glaceau, including its health drink brand Vitaminwater. With a year-on-
year decline in sales of carbonated soft drinks like Coca-Cola, the brand anticipates the
drinks market may be heading less-sugary future so has jumped on board the growing
health drink sector.

Unrelated Diversification: (NEW Market, NEW Product)

Finally, unrelated diversification entails entry into a new industry that lacks important
similarities with the companys existing markets. Coca-Cola generally avoids risky
adventures into unknown territories and can instead utilise its brand strength to continue
growing within the drinks industry. That said, Coca-Cola offers official merchandise from
pens and glasses to fridges, therefore exploiting its strong brand advocacy through this
strategy.

BCG

Matrix in the Marketing strategy of Dettol

Liquid hand wash are stars. Dettol is the market leader in hand wash category so
command strong hold in the market. But this market has several other strong players
including Lifebuoy.

Antiseptic Liquids is Cash cows although Dettol is the market leader in this product
category but the market is deeply penetrated & and crowded with other competitive brand
offerings resulting into low industry growth rate.

Product categories like bar soaps, Wipes, Kitchen Gel and shaving cream are still
struggling due to low acceptability of these offerings of Dettol in the market and hence
are in question marks.

In the stagnant and small plaster market its main competitor is Johnson & Johnsons
Band Aid therefore it is under Dogs.

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