Lecture 15: Competitive Strategy & Summary

Dealing with the Competition

Surprisingly, competition is good for us !

Dealing with the Competition

Competition is good for us We can choose whom to attack and how to attack We should anticipate attacks and have some responses pre-planned

Competition is good
Not just for the economy as a whole, but also for us as a firm Promotes
Innovation Cost cutting and efficiency 90 80 70 60 50 40 30 20 10 0

Examples:
WWF acquires WCW French Post Office Camionnettes
Peugeot Citron Renault

East West North

1st Qtr

3rd Qtr

Choosing where and how to attack

In the schoolyard at recess, do you want to pick a fight with?
Probably not the class bully

General Rules for Managing Competition

1. Identify Competitors
Existing
Their exit barriers Their personality (history) Competitive strengths and weaknesses

Likely future competitors (or substitutes)

Entry barriers How attractive is our market?

2. Be Clear about our position

Market share (and hence our position)
Market leader, (Campbells soup 70%) Challenger (Avis), or Follower (DHL)

Competitive strengths
Are they sustainable or can they be cloned?

Do you believe in The Rule of Three? Hypothetical Market Structure & Strategies
Market nicher Market follower

Market leader

Market challenger

40%
Expand Market Defend Market Share Expand Market Share

30%
Attack leader Status quo

20%
Imitate

10%
Specialize

Why would profitability drop if we go after a very large market share?

Profitability
Optimal market share

0%

25%

Market share

50%

75%

100%

3. Define the Competition

Good versus bad competitors Microsoft Starbucks Close versus distant

Does it affect Haas if DVC adds a course on Insurance Management? (Should we match?) Strong vs. Weak Should American Airlines try to kill UA or Delta?

4. Choose whom to attack

Which markets we enter
Geographic and other segmentations (e.g. stay out of hospital customers)

Which lines of business to be in (stay, divest or enter) Which products to imitate (or leap-frog) And, of course, competitors will try and do this to us too!

Defensive Strategies
Be prepared for an attack Assess its seriousness Take action:
Withdraw, abandon
E.g. UPS and Eastern Europe E.g. UA withdraws from Ontario, consolidated SFO E.g. e-Bay vs Amazons auction business

Defend in part Defend to the death

Possible Defensive Actions

Reinforce our position
Product superiority Channel locked up Keeping our loyal customers

Broaden the market Counter-offense:

Go after their home market (or loyals) Beat you at your own game (SBC + Dish Network)

Summary
The key to competitive strategy
Be very self-aware as a firm Be paranoid about competitors Anticipate competitor moves

Seven Great Truths of Marketing

1. Focus on the Customer Benefit

Make sure you have a defensible value proposition Give customers a reason to buy Avoid the trap of a Product Mentality Dont focus on Product Features
BMWs i-drive was not a customer benefit

2. All Markets are Segmentable

Markets are made up of people (not competitors products) Most segments can be sub-segmented for profit if you meet their needs well
Example: Steinway Crown Jewels

In any market . . .
some people want to pay more (Corollary) some people can only afford to pay less

3. Have a Clear Strategy

Expand the product line over each of the next three years beats: Build to a $1 Billion company

4. Make sure theres a Return on Marketing

If everything worked as planned,
What would the payoff be? How would we know?

5. Live and die by your brand

Make sure that the brand has meaning
Underlying product benefits are a real value to consumers

Manage all of the images and associations Above all, consistency Nothing succeeds like success

6. Be good to your channel and your channel will be good to you

Nurture channel memberswalk in their moccasinstry to think what motivates them Think win-win: Develop appropriate incentives Dont be afraid to reconfigure the channel A little bit of transparency will go a long way Its nice to be nice

7. Cute ads win competitions, not customers

Theres much more to promotion than mass media advertisingquestion the media plan Ask: Whats the promotional task?