Chapter 3: Competition

Question 1

Monopoly

Answer 1

Only one firm provides product/service

Question 2

Oligopoly

Answer 2

Small group of firms provide differentiated or identical product/service at comparable prices.

Question 3

Monopolistic competition

Answer 3

Many competitors offering products. They try to target different segments and differentiate themselves from others.

Question 4

Pure competition

Answer 4

Many competitors offering the same undifferentiated product at same prices.

Question 5

Porter’s 5 model of competition

Answer 5

1. Threats of new entrants
2. Bargaining power of suppliers
   - Intel’s the sole processor supplier for Dell
3. Bargaining power of buyers - Negotiation
4. Threat of substitutes
5. Rivalry among existing firms

Question 6

Red ocean’s framework for analyzing competitors

Answer 6

1. Identify (Who)
2. Target (How are they a competitor?)
3. Assess own behaviour and competitor’s behaviour (Becnhmark, Predicting, and analyzing)

Question 7

Level of competition

Answer 7

Diet Pepsi (Example)

• Product form competition: Diet colas
• Product category competition: Soft drinks
• Generic competition: Beverages
• Budget competition: Food and entertainment

Question 8

Methods for identifying competitors

Answer 8

1. Levels
   - Forms
   - Category
   - Generic
   - Budget
2. Substitutability
3. Customer judgment
   - Similarity
   - Consideration sets
   - Substitution by use for oral hygiene
   - Opportunity costs
4. Purchase records
   - Switching
   - Cross-elasticity

Question 9

Targeting competitors

Answer 9

Considerations:
- Own and competitor strategies and resoures
- Customer segment
- Time horizon
- Rate of technology change

Question 10

Assessing competitors

Answer 10

Assess their:
1. Objectives
2. Strategies
3. Strengths
4. Weaknesses

Question 11

Assess competitors shares of…

Answer 11

1. Share of Market: Volume, value
2. Share of Mind: Awareness
3. Share of Heart: Preference

Gains in mind share and heart share will inevitably lead to gains in market share

Question 12

How to find out about competitors

Answer 12

1. What they say about themselves
   - Annual reports, SEC filings
   - Press quotes, announcements, speeches
2. What others say about them
   - Talk to customers, distributors, and suppliers
3. What we can observe
   - Triangulate observations

Question 13

Reaction patterns of the competitors

Answer 13

1. The laid-back competitors
   - Slow to respond
   - Do not notice
   - Loyal customers
2. Selective competitors
   - Respond to only specific kinds of attacks, e.g. price cuts, not ads.
3. The Tiger competitor
   - Reacts swiftly and strongly to new entrants, e.g. P&G.
4. The Stochastic Competitor
   - No predictable pattern
   - Small businesses based on affordability

Question 14

Anticipating competitive response

Answer 14

1. Prisoner’s dilemma
2. Number, concentration, and size distribution of players
3. Watch for strategies consistent with the market share
4. Understand nature of buying decision
5. Scrutinize competitors

Question 15

Market leader’s strategy (40%)

Answer 15

To remain the leader:
1. Expand the market (increase the size of the pie)
- Find new users
- Find new uses (new products)
- More usage
2. Protect current market share
- Plug holes
- Build strengths
- Pre-emptive attack against competitors
- Continuous innovation (Improved product quality)
- Increase marketing expenditure
3. Increase current market share

Question 16

Market Challenger (30%)

Answer 16

To increase market share: Who should be attacked?
- Market Leader: High-risk high-return. Good idea if the leader not serving the market well
- Other market challengers: Not doing job-well, under-financed, poor products high prices.
- Small local/regional players: Gobble up local competition

Question 17

Attack strategies of market challenger

Answer 17

• Price-discount: Comparable product, price-sensitive
  buyers, market leader does not cut price
• Cheaper goods: Offer lower quality at a much lower price
• Prestige goods: Offer higher quality at a higher price
• Product proliferation: Launch a wide variety
• Product innovation: Breakthrough and improve
• Intensive advertising: Increasing ad expenditures to gain
  mind share

Question 18

Market Follower (20%)

Answer 18

• Follow the market leader: product imitation
• Low differentiation, do not go for share-grabbing
• Homogenous product industries like chemicals, steel, and fertilizers, capital intensive,

Question 19

Strategies of market followers

Answer 19

1. Adapter: Take market leader’s products and improve -> may become future challenger
2. Cloner: Emulate leader’s products with slight variations.

Question 20

Market Nicher (<10%)

Answer 20

The key idea of market niche is specialization and targeting really specific segments
- Avoid competing with large firms.
- Larger shares of small markets or segment
- Meet customer’s need at best (High value, premium prices, high profitability)
- Logitech & Microbrewers

Question 21

Blue Oceans Strategy

Answer 21

Increase size of the pie
- Focus on needs
- innovate new ways of satisfying existing need
- Blending multiple needs