In this article we will discuss about:- 1. Competition – An Overview 2. Michael Porter’s Five Forces Framework 3. Competitive Market Scenario in India 4. Competitive Strategies 5. Examples.
Competition – An Overview:
Marketing is all about identifying and fulfilling the needs of the customers. Once you understand the needs of the customers and your core competency, you need to understand the competition. Competition is all about current and potential offerings and substitutes that a customer may consider. You need to assess the strengths and weaknesses of the competitors; as it will help out to differentiate your products and services from others.
For Tata Nano, although there was no competition at the price point of Rupees One Lac, but a customer might have thought about buying Maruti 800 instead of Tata Nano LX model, which costs almost Rs 2.15 Lacs on road. Now the scenario is different as Maruti Suzuki has stopped the production of Maruti 800 car; while Tata Nano starts at a price point of Rs. 1.6 Lacs.
In the case of Mahindra Scorpio, the competition was limited due to rival offerings in the market available for more than Rs. 14 Lacs. In the case of Nirma, the competition was from Wheel and for the multiplexes, the single screen cinema halls were the competition. Once you are already there in the market with your product or service offering, a company needs to be careful all the time as the competition can take the fizz away from you.
As it happened in the case of Bajaj Auto, which was the largest two wheeler manufacturer twenty years back. But in the 1990s, with the onslaught of Hero Honda, it slipped into oblivion. In the 100 cc category, Hero Honda Splendor still rules the chart.
But with the identification of the customer needs, it’s back in the business at no. 2 position with clear leadership in above 100 cc segment of motorbikes with Pulsar, Discover and XCD. You might also be familiar with Onida and BPL being one of the key players in TV category in India few years back. Then LG became No.1. Now the television category is primarily LEDs and LCDs; which is dominated by Sony and Samsung. So, beware of competition; it cannot make your business, but it may certainly break your business.
All these above trends require the companies to pay keen attention to their competitors. Generally, Successful companies design and operate systems for gathering continuous intelligence about competitors.
But who are your competitors? The competition is not only about the existing companies, who are trying to satisfy the same customer need that you do, but it is also about the potential competitors, who can come up tomorrow. For example, in the camera business Nikon, Canon, Olympus and Minolta were fighting with one other to grab more market share in the camera business.
Now, they are fighting it out in the digital camera business. But today, who is the largest camera manufacturer in the world. It’s not a camera company, but it is a mobile company. Earlier it was Nokia, now there is Samsung, Apple iPhones and so many other players. It is all due to the advancement in technology that has created a competition beyond the competition.
While Kodak and Fuji was still fighting it out in the market for film, paper and processing, a company called Hewlett Packard so called HP is laughing all the way to the bank with their printer business. Similarly, the business of pagers got wiped out with the advent of mobile technology. Sony’s walkman had to give way to Apple’s iPod in the personal entertainment category.
In the era of internet, bookseller like Barnes and Noble in US had to give the way for amazon.com. In India also, Flipkart, Snapdeal, Indiatimes Shopping, Infibeam etc. has become very popular due to better pricing and excellent delivery not only for books, but also for mobiles, electronics, apparels, consumer durables etc.
Similarly in cars, most of the body parts and engine is made up of steel. Now aluminum is replacing steel for engine and plastics / fibres are on the way to replace steel body parts. So, Maruti Suzuki will not require the likes of Tata Steel, but it will require the likes of Hindalco, Bharat Aluminium Company (BALCO) and Indian Aluminium Company (INDAL) in the near future.
In today’s scenario, you need to see the visible competition and envision the invisible ones. That’s why ‘new competitor intelligence’ is required as told by Leonard M. Fuld in his book ‘The New Competitor Intelligence: The complete resource for finding, analysing and using information about your competitors’.
This book was followed by his another book called ‘The Secret Language of Competitive Intelligence’. In this book, he said that ‘today you need to thoroughly know your competition. Companies like Dell, Wal-Mart, and Google – even a pepperoni company – have rewritten the rule book. Success no longer relies simply on having first-rate products, stellar service, and efficient operations. In this new reality, competitive intelligence, the ability to see through or stay ahead of your competition, is the unspoken, hidden key to success.’
You need to list your competitors and other players, who are offering substitutes of your products. Once you are through with identifying your existing and potential competitors, you need to analyse their capabilities to capture your market. To understand the competitive forces deeper, you need to understand the Michael Porter’s Five Forces Framework.
Michael Porter’s Five Forces Framework:
In the article ‘How competitive forces shape strategy’ in Harvard Business Review in 1979 and subsequently in ‘Competitive Advantage: Creating and Sustaining Superior Performance’, Michael Porter has talked about the following five forces for ‘getting an analytical grasp on the state of competition and the underlying economics within an industry’.
1. The threat of substitute products
2. The threat of the entry of new competitors
3. The intensity of competitive rivalry
4. The bargaining power of customers and
5. The bargaining power of suppliers Porter says that
‘The collective strength of these forces determines the ultimate profit potential of an industry’. The key to growth and survival of any company depends upon understanding these five forces to ‘stake out a position that is less vulnerable to attack from head to head opponents, whether established or new, and less vulnerable to erosion from the direction of buyers, suppliers and substitute goods’.
The company should solidify relationships with profitable customers, by differentiating the product (through either redesign or marketing), by integrating operations or by gaining technical leadership.
In the market, the strategies for success also depends upon the role, the respective company is playing in the target market. A company can be a leader like Airtel in GSM Mobile services and Reliance in CDMA Mobile Services or a company can be a challenger like Vodafone or a company might be the market follower like IDEA and Aircel or it can be a market niche. All these players in the mobile service arena need to have different strategies for the success in the market.
Competitive Market Scenario in India:
Now, the market is not only competitive, but it has become hyper competitive now. With globalization, almost all the markets across the world have been facing the challenge of hyper competition. In Indian market also, you may find that Chinese products is becoming an integral part in every festival like Holi with their pichkaris, Diwali with their Ganapati and Laxmi idol, colourful Diwali lights and Raksha Bandhan with their rakhis besides different gift products, Toys, Mobiles, MP3 players, Digital Cameras etc.
Currently China has become the lowest cost producing country, which is making all the large companies in the world to either source or to have a production facility to take advantages of the benefits.
Similarly India is becoming a small car hub of the world with great domestic demand, low cost and high quality manufacturing facilities. That’s why you see Indian cars, besides two wheelers, buses and trucks selling all across the world. Similarly so many business process outsourcing (BPOs) are working in India having businesses from US, UK and other countries. Now your competitive space has also expanded globally and it has become hyper competitive.
In a hyper competitive market, it becomes difficult for a company to sustain its competitive advantage for a long term. Now a company cannot sit back and relax. It has to be on its toes all the time to give the best value for the consumers.
Similarly the passenger vehicles market in India is also becoming a hypercompetitive market with more than 15 leading car manufacturers present in the segment with more than 500 variants of cars. Maruti Suzuki, with almost 37% market share in cars itself has 14 models and over 150 variants ranging from Alto to stylish hatchback Ritz, A-Star, Swift, Dzire, Ciaz sedan to luxury SUV Grand Vitara.
If you talk about the mobile manufactures and sellers, you will find more than 20 companies operating in the market besides the Chinese mobiles selling in Indian market. Similarly as of 2010, there are more than 515 channels in the Indian satellite channel space, vying for viewer’s attention.
Now let us delve deeper into it by analyzing few market segments, to understand the competition in these markets. We will check out the chocolates, potato chips, noodles, toothpaste, cars and telecom services market in India.
Competitive Strategies:
All these competitive market scenario calls for careful planning and implementation of right marketing strategies to sustain and grow in their respective markets. A company requires a right market strategy to do the same. Depending upon the market share in hand and the ambitions in heart, generally a company follows one of these four strategies to conquer the market.
Market Leader Strategies:
The company with the largest market share in the respective market is called the market leader. Due to its sheer size, volume and revenue, the company enjoys a dominant position in its market, with brand preference, loyalty, and price preference on the one hand to the distribution and promotional muscle on the other. Generally these companies also enjoy higher profits due to economies of scale as well as price premium.
Market leader leads the market through its product offerings and innovations, through its pricing, through the distribution network and through the promotional campaigns. Airtel, Microsoft, Intel, HP Printers, Reebok, Pepsi, HUL, Amul Butter, Nirma, Hero, Maruti Suzuki are few of the market leaders in India. Reebok and Pepsi leads the respective market segment in India, against Nike and Coke, which are the market leaders in USA.
In the cars segment, the market is clearly dominated by Maruti Suzuki, while the two wheeler segment is ruled by Hero. It’s an irony that Suzuki cars are selling like hot cakes in India, while Suzuki motorcycle is begging for buyers.
In the case of market leader, a company like Airtel has the largest market share and it tries to be better off than other players on the account of all the 4Ps – Product, Price, Place and promotion. These companies tend to lead the market with innovations. Just to understand this, you may recall that Apple iPhone was launched in India in association with Airtel and Vodafone and then iPhone4 was launched with Airtel and Aircel. Now iPhone5 is also launched in association with Airtel.
But the life is not so cool at the top. You need to innovate constantly with your product or service offerings; otherwise you will be dethroned by the market challenger, as it has happened in the case of general entertainment channel (GEC) segment in India. Star Plus was the market leader for the last few years and then there was a fight among Sony and Zee TV for the second place.
Star Plus was sitting cool in the market, with the same kind of erstwhile successful Saas Bahu Programming. 9X came in the market and then there was the launch of NDTV Imagine. Both came and stayed in the market without having a presence. Then the real stunner came called Colors on July 21st, 2008.
At that point of time, Star Plus was the leader in the segment and the fight for the second position was still going on between Zee and Sony. Within few months of existence, Colors grabbed the second place with its innovative programming like Balika Vadhu, Uttaran, Khatron Ke Khiladi, Big Boss and satellite premiere of Hindi film blockbusters.
Now in 2014, Star Plus still leads the pack, but it is followed by Zee TV and Colors. While a relatively new entrant Life OK has also entered the general entertainment channel space and grabbed the fourth position with serials like Devon ka Dev Mahadev, Tumhari Pakhi, Shapath and Savdhaan India. Few of the leading programs now are Diya aur Baati Hum (Star Plus), Jodha Akbar (Zee TV), Saathiya Saath Nibhana (Star Plus), Yeh Rishta Kya Kehlata Hai (Star Plus), Mahabharata (Star Plus), Taarak Mehta Ka Ooltah Chashmah (SAB TV) and Comedy Nights with Kapil (Colors) and Dance India Dance (Zee TV).
But the case is not the same in the hindi news segment. You still find Aaj Tak being Nol for the last thirteen years, due to being ‘sabse tej’ in content and programming among the Hindi news channels. Similarly in the hindi business news segment, CNBC Awaaz is on the top for the last nine years.
All these real life scenarios suggest that being on top has not been easy for everybody. It requires a consistent and sustained effort in the form of marketing strategy to keep the position intact. Generally a company can sustain and grow, if it can drive the total market demand or it may increase the market share, even if the market remain equal or it can try to maintain its market share in the current market.
A market can be expanded either though adding new customers or it can be expanded with the increased usage of the product. Being a leader, the first thing a company can do is to expand the market base through new users, new uses and more usage. Once the market is expanded, it will automatically get you the most of additional customers. The same thing is applied successfully in India by the market leader, Cadbury in the chocolate segment.
With more than 70% value market share, Cadbury has expanded the chocolate segment through its innovative promotional campaigns like ‘Kuchh Khas Hai Zindagi Mei’, ‘Kuchhh Meetha Ho Jaye’, ‘Pappu pass ho gaya’ and now ‘Shubh Aarambh’. With these ad campaigns, Cadbury has not only added new customers, but also expanded the segment by new uses as well as more usage.
Before looking out for expanding the market, it’s important for the market leader to also defend its market share. How does a company defend its market? A company can defend its market, if it can provide the best value to the customer. The value derived by the customer, can be in terms of pricing or branding or services or product offerings.
But one thing is for sure, a company needs to innovate continuously and consistently. A company needs to be market driving, rather than market driven to lead the market. Sony, Apple, Google, Tata etc. are the companies, which are regularly following this principle.
The aim of the defensive strategy is to reduce the probability of attack, divert attacks to less threatening areas and lessen their intensity. The defender’s speed of response can make an important difference in the profit consequences.
A dominant company can use the six defense strategies summarized below:
1. Position Defense:
In position defense, a company tries to fortify its image through branding efforts. Fevicol, Nestle, Amul has used this strategy effectively.
2. Flank Defense:
In flank defense, a company tries to protect against potential loss of its market share by strengthening its competitive position there. When Nirma gained market share in the low priced detergent powder category, HUL got its act together to fight out Nirma with Wheel.
3. Preemptive Defense:
Preemptive defense means defending a company by launching a strategy to preempt the moves of its competitors. The strategy has been well implemented by Apple, with preannouncements for its products, whether it is iPod or iPhone or iPad.
4. Counteroffensive Defense:
Counter offensive defense is activated, when a leader is attacked. The leader comes out with a better proposition in the market to fight out the attacker. In the telecom segment, these moves are used by the competitors against Airtel. Where Airtel has come out with counteroffensive strategies to hit the competitors hard.
5. Mobile Defense:
In mobile defense, a company tries to broaden its marketing or it may diversify its operations. In the case of ITC, the company has moved on from a cigarette company to apparel to food processing to stationery to confectionery and so on. Again in the case of Moser Baer has diversified its activities into solar panel from optical disk manufacturing and video marketing company.
6. Contraction Defense:
Sometimes, a company also withdraws from some segments or territories to focus on the core areas. Following this path, Tata Group sold its soaps and detergents business units to Unilever in 1993.
The market leader should not only try to defend its market share, but should also try to expand its market share. But in the era of hyper competition, it becomes very difficult for a company to expand its market share. In some cases, while defending its market share, a company also happens to increase its market share. But this may be a one off case.
On the whole, the market leader should try to expand the market, which in turn will bring more business automatically for the company. But most of the time, we find the leaders like Maruti Suzuki, Nokia, Airtel etc., are struggling to defend their market share.
Market Challenger Strategies:
Market challenger companies are those companies, who are occupying a second or third or some lower position in the market like Vodafone (No. 2 Player in GSM Mobile) and try to be in the aggressive bid for increasing the market share. If the companies choose not to aggressively look out for No. 1 position, then those companies can be called as market followers. Market challenger can either attack the Leader like Colors or it can attack the firms of its own size, as it was happening in the case of Sony and Zee or it can attack smaller, regional firms.
The market challenger may give discounts, offer cheap prices, provide better service or can launch an intense ad campaign to lure the customers. Here innovation can also help a company to challenge the market leader. In the smart phone category, Samsung is leading the path with the right product portfolio of Samsung Galaxy range of mobile phones.
Market Follower Strategies:
Market follower companies prefer to follow the market leader, than to challenge. These companies look out for sustaining their market base with fair share of incremental customers. In the case of capital intensive industries like cement, fertilisers, steel and chemical industries; the scale of product differentiation is minimal. In these industries, the price plays an important role, but the service is not that important.
Till the time, you want a decent turnover in the industry with average profits; everything works fine. But if you have stronger ambition, then you need to promote yourself as a market challenger rather being a market follower. For example, in the cement market in India, the market is led by ACC and challenged by Ambuja, Grasim and Ultratech cement. Still you will find other players like Jaypee Cement and Binani Cement trying to make their mark with their celebrity endorsers like Sachin Tendulkar and Amitabh Bachchan respectively.
Although innovation is essential for any company to survive and grow, Theodore Levitt’s viewpoint is that a strategy of product imitation is as profitable as a strategy of product innovation.
In the case of product imitation, the company does not need to bear the cost of innovation and still has the benefit of selling at a similar kind of profit. It leads to better profitability for the company. But it has been found that the companies, which are market follower generally remains a market follower. All the large and successful companies are those, who are operating as a market leader or market challenger.
Again the image of a company is built by the innovation it does, not on the basis of imitation. For example, the brand names of Apple, Sony, Microsoft, Intel, Tata, Mahindra and Mahindra, Nirma, Infosys are respected a lot due to their philosophy of constant innovation and customer centricism.
Market Nicher Strategies:
The strategy of market nicher has also found to be successful. If you cannot be the leader, you become the challenger or else you become a market nicher. Market nicher specialises in catering to a small segment. Generally these segments are also safe as far as competition is concerned, as these are too small for large companies to get attention to. The strategy of market nichers is also advocated by the positioning guru A1 Ries and Jack Trout.
As market nichers are leaders in their own segment, they can easily expand their operations based on the goodwill and image they have created in the market. Logitech, the famous computer mouse company, has expanded from catering to a niche manufacturer of mice to several computer peripherals like Keyboards, webcams, Speakers, remotes, gaming accessories and laptop accessories.
In India, a company called Intex Technologies started their operations under the leadership of Mr Narendra Bansal and started selling Ethernet Cards, sourced from Taiwan and China. From being a nicher, Intex has now expanded into six business segments- Computer Peripherals, PC, Mobile Phones, Consumer Electronics, Retail and Enterprise Business.
The business segments cover a portfolio of 26 Product Groups spread across 350 items including Mobile TFT-LCD monitors, DVD players, Computer UPS, Mobile Phones (GSM, CDMA, Dual SIM), Desktops, Netbooks, Multimedia Speakers, Home UPS, Cabinets, Headphones and Web Cameras; to name just a few. Now, Intex is the most selling brand in the computer UPS category (IDC Tracker, Q2, 2009) and also enjoys leading market share in many states in India for several other product groups such as Multimedia Speakers, Keyboards, Mouse, Add-on cards, etc.
On the whole, Consumer orientation and competitor orientation is the two most important aspects for the growth and success of any business.
But there should be a good balance between both the orientations. The priority for any company should always be customer orientation rather than competitor orientation, The same has also been echoed by Jeff Bezos, the founder of the largest online bookstore in the world Amazon(dot)com.