LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. How can market leaders expand the total market and defend market share?
2. How should market challengers attack market leaders?
3. How can market followers or nichers compete effectively?
4. What marketing strategies are appropriate at each stage of the product life cycle?
5. How should marketers adjust their strategies and tactics for an economic
downturn or recession?
SUMMARY
1. A market leader has the largest market share in the relevant product market. To remain
2. A market challenger attacks the market leader and other competitors in an aggressive
4. A market nicher serves small market segments not being served by larger firms. The
5. As important as a competitive orientation is in today’s global markets, companies
6. Because economic conditions change and competitive activity varies, companies
normally must reformulate their marketing strategy several times during a product’s
C H A P T E R
11
COMPETITIVE
DYNAMICS
7. Each product life cycle stage calls for different marketing strategies. The introduction
is marked by slow growth and minimal profits. If successful, the product enters a
8. Like products, markets evolve through four stages: emergence, growth, maturity, and
decline.
9. In a recession, marketers must explore the upside of possibly increasing investments,
OPENING THOUGHT
This chapter adds the additional element of the complexity of marketing—competitive
analysis. Care should be taken not to over dramatize the importance of monitoring
competition, however, many firms do not give competitors the attention they merit so some
emphasis is needed.
TEACHING STRATEGY AND CLASS ORGANIZATION
PROJECTS
1. At this point in the semester-long project, students should be prepared to present their
2. Michael Porter’s Five Forces model is as applicable today as it was when it was
introduced. Have the students select a market or market segment (jeans, cell phones,
3. Sonic PDA Marketing Plan: Competitive strategy analysis is an important part of two
areas within the marketing plan. First, in assessing the current situation, businesses
need to identify key competitors and learn about each rival’s strengths and
• What is the strategic group for Sonic?
• Which firm is the market leader, and what are its objectives, strengths, and
weaknesses?
• What additional competitive intelligence is needed to answer the question about
the market leader more completely, and how should Sonic go about getting the
information?
• Which competitive strategy should be most effective for Sonic?
ASSIGNMENTS
Identify the major competitors in the blue jeans market. Who has the leading market
share, whose shares have declined? What segmentation is (has) occurring/occurred in the
blue jeans market and why? Did demographic changes affect the market (from baby
boomers to Gen X or Gen Y)? What competitive signs, symbols, events, or occurrences
did Levi-Strauss miss? What current shifts in competition and channel power is occurring
and what can Levi-Strauss do to minimize the impact from these changes?
In challenging a market leader, the challenger has a number of differing strategies to
employ. Choosing the right one (or wrong one) could result in a larger market share and
increased profits (or disaster) for the challenger. In choosing a specific attack strategy,
END–OF–CHAPTER SUPPORT
MARKETING DEBATE—Do Brands Have Finite Lives?
Often, after a brand begins to slip in the marketplace or disappears altogether, commentators
observe, “all brands have their day.” Their rationale is that all brands, in some sense, have a
finite life and cannot be expected to be leaders forever. Other experts contend, however, that
brands can live forever, and long-term success depends as much on the skill and insight of the
marketers involved.
ongoing success in the marketplace.
Con: Brands meet specific consumer needs and wants and provide specifics for these needs
and wants. As consumer needs and wants change, evolve, or disappear, brands must also
change, evolve, and finally expire. The loss of the brands point–of–difference in the
marketplace or its lack of point–of–parity with other brands will cause its demise. Firms can be
best served to understand and accept the inevitability of brand declines and plan for the
creation of and marketing of newer brands to replace declining brands quickly. If a brand is
MARKETING DISCUSSION
Pick an industry. Classify firms according to the four different roles they might play: leader,
challenger, follower, or nicher. How would you characterize the nature of competition? Do the
firms follow the principles described in the chapter?
Suggested Response:
Student answers will differ according to the industries picked and the role the firms play in
that industry. All answers should contain some of the following:
defense, preemptive defense, counteroffensive defense, mobile defense, contraction defense).
Challengers, followers: can attack the leader for increased market share, (challengers), or
followers (“not rock the boat”), through:
• Frontal attack.
• Encirclement attack.
Marketing Excellence: SAMSUNG
1) What are some of Samsung’s greatest competitive strengths?
Suggested Answer: Responsiveness, low cost structure, quick response to economic
events. For example, Samsung cut costs and reemphasized product quality and
2) Samsung’s goal of $400 billion in sales by 2020 would bring it to the same level as
Walmart. Is this feasible? Why or why not?
Suggested Answer: Student’s answers will vary and of course be opinionated, however,
Marketing Excellence: IBM
1) Few companies have had such a long history of ups and downs as IBM. What were
some of the keys to its recent success? Can its plans to solve some of the world’s most
challenging problems succeed? Why or why not?
Suggested Answer: Student answers will be speculative and opinionated however, some
2) Who are IBM’s biggest competitors today, and what risks do they face with their
current strategy?
Suggested Answer: Today, IBM is the largest and most profitable information technology
company in the world and as a result should consider Microsoft, Apple, Google, and
DETAILED CHAPTER OUTLINE
To be a long-term market leader is the goal of any marketer. Today’s challenging
marketing circumstances, however, often dictate that companies reformulate their
marketing strategies and offerings several times. Economic conditions change,
competitors launch new assaults, and buyer interest and requirements evolve. Different
market positions can suggest different market strategies.
COMPETITIVE STRATEGIES FOR MARKET LEADERS
A market leader has the largest market share and usually leads in price changes, new-product
introductions, distribution coverage, and promotional intensity.
We can gain further insight by classifying firms by the roles they play in the target market:
1) Leader
Marketing Insight: When Your Competitor Delivers More for Less
States that too many companies search within the conventional boundaries of industry
competition (“do battle”) instead of finding unoccupied market positions that represent
real value innovation.
Differentiation
Marketers need to protect areas where their business models give other companies room
to maneuver.
Execution
To compete effectively, firms may instead need to downplay or even abandon some
Expanding Total Market Demand
When the total market expands, the dominant firm usually gains the most.
New Customers
Every product class has the potential to attract buyers who are unaware of the product or
are resisting it because of price or lack of certain features. A company can search for new
users among three groups:
1. those who might use it but do not (market-penetration strategy),
More Usage
A) Marketers can try to increase the amount, level, or frequency of consumption.
D) Consumers use more of impulse products such as soft drinks and snacks when the
product is made more available.
H) Another opportunity arises when consumers’ perceptions of their usage differs from
reality.
I) New ways to use the brand. The second approach to increasing frequency of
consumption is to identify completely new and different applications.
Protecting Market Share
A) While trying to expand total market size, the dominant firm must actively defend its
current business.
Proactive Marketing
A) In satisfying customer needs, we can draw a distinction between responsive
marketing, anticipative marketing, and creative marketing.
B) A responsive marketer finds a stated need and fills it.
C) An anticipative marketer looks ahead to needs customers may have in the near future.
G) Successful companies instead proactively shape the market to their own interests.
Instead of trying to be the best player, they change the rules of the game.
H) A company needs two proactive skills:
1. responsive anticipation to see the writing on the wall, as when IBM changed from a
hardware producer to a service business
H2OH (a soft drink-bottled water hybrid).
I) Note that responsive anticipation is performed before a given change, while reactive
response happens after the change takes place.
L) Companies need to practice “uncertainty management.” Proactive firms:
a. Are ready to take risks and make mistakes
b. Have a vision of the future and of investing in it
Defensive Marketing
Even when it does not launch offensives, the market leader must not leave any major
flanks exposed.
The aim of defensive strategy is to reduce the probability of attack, divert attacks to less-
threatened areas, and lessen their intensity. Speed of response can make an important difference
to profit.
A dominant firm can use the six defense strategies summarized in Figure 11.2
1. Position Defense – Position defense means occupying the most desirable market
space in consumers’ minds, making the brand almost impregnable.
2. Flank Defense – The market leader should erect outposts to protect a weak front or
support a possible counterattack.
Increasing Market Share
Gaining increased share, does not automatically produce higher profits, especially for
labor-intensive service companies that may not experience many economies of scale.
Because the cost of buying higher market share through acquisition may far exceed its
revenue value, a company should consider four factors first:
A) The possibility of provoking antitrust action. Frustrated competitors are likely to cry
“monopoly” and seek legal action if a dominant firm makes further inroads.
OTHER COMPETITIVE STRATEGIES
Firms that occupy second, third, and lower ranks in an industry are often called runner–
up, or trailing firms.
Market-Challenger Strategies
A) Many market challengers have gained ground or even overtaken the leader.
Defining the Strategic Objective and Opponents(s)
A market challenger must first define its strategic objective. The challenger must decide
whom to attack:
A) It can attack the market leader
Choosing a General Attack Strategy
We can distinguish among five attack strategies:
A) Frontal
B) Flank
C) Encirclement
Choosing a Specific Attack Strategy
The challenger must go beyond the five broad strategies and develop more specific strategies.
A challenger’s success depends upon combining several strategies to improve its position over
time.
Marketing Memo: Making smaller better
Shows the eight suggestions on how small brands can compete with larger ones: break with
Market-Follower Strategies
Product imitation might be as profitable as product innovation. Many companies prefer
to follow rather than challenge the market leader.
A) “Conscious parallelism”
B) A market follower must know how to hold current customers and win a fair share of
new customers.
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) Firms with low shares of the total market can be highly profitable through smart
niching.
B) Such companies tend to offer high value, charge a premium price, achieve lower
manufacturing costs, and shape a strong corporate culture and vision.
Marketing Memo: Niche specialist roles
The key idea in successful nichemanship is specialization and some roles are: end-user
specialist; vertical-level specialist; customer-size specialist; specific-customer specialist;
PRODUCT LIFE-CYCLE MARKETING STRATEGIES
A company’s positioning and differentiation strategy must change as the product, market,
and competitors change over the product life cycle (PLC).
A) Products have a limited life.
Product Life Cycles
A) The product life cycle is divided into four stages:
1) Introduction
2) Growth
3) Maturity
Style, Fashion, and Fad Life Cycles
A) A style is a basic and distinctive mode of expression appearing in a field of human
endeavor.
B) A fashion is a currently accepted or popular style in a given field.
C) Fashions pass through four stages:
1) Distinctiveness
Marketing Strategies: Introduction Stage and Pioneer Advantage
A) Profits are negative or low in the introduction stage.
B) Promotional expenditures are at their highest ration to sales because of the need to:
1) Inform potential consumers.
F) Speeding up innovation time is essential in an age of shortening product life cycles.
G) Most studies indicate that the market pioneer gains the most advantage.
H) What are the sources of the pioneer’s advantage?
1) Early users will recall the pioneer’s brand name if the product satisfies them.
2) The pioneer’s brand also establishes the attributes the product class should
possess.
b. Technological leadership.
e. Other barriers to entry.
I) The pioneer’s advantage is not inevitable.
J) Steven Schnaars studied industries where imitators surpassed the innovators. He found
several weaknesses among the failing pioneers:
1) New products were too crude.
2) Were improperly positioned.
K) Golder and Tellis raise further doubts about the pioneer advantage. They distinguish
between an:
1) Inventor: first to develop patents in a new-product category.
L) Golder and Tellis’s five factors underpinning long–term market leadership:
1) Vision of a mass market
2) Persistence
5) Asset leverage
Marketing Strategies: Growth Stage
The growth stage is marked by a rapid climb in sales. Early adopters like the product, and
additional consumers start buying it. New competitors enter, attracted by the
opportunities.
A) Prices remain where they are or fall slightly.
E) Manufacturing costs fall faster than price declines owing to the producer learning
effect.
F) During this stage, the firm uses several strategies to sustain rapid market growth:
1) It improves product quality and adds new product features and improved styling.
G) A firm in the growth stage faces a trade-off between high market share and high
current profits. By spending money on product improvement, promotion, and
distribution, it can capture a dominant position.
Marketing Strategies: Maturity Stage
At some point, the rate of sales growth will slow, and the product will enter a stage of
relative maturity.
This stage normally lasts longer than the previous stages and poses big challenges to
marketing management. Most products are in the maturity stage of the life cycle.
A) The maturity stage divides into three phases:
1) Growth, where the sales growth rate starts to decline
B) The sales slowdown creates overcapacity in the industry that leads to intensified
competition
C) The industry eventually consists of well-entrenched competitors whose basic drive is
to gain or maintain market share
Market Modification
The company might try to expand the market for its mature brand by working with the
two factors that make up sales volume: Volume=number of brand users X usage rate per
user.
A) It can try to expand the number of brands users by converting nonusers.
D) Volume can also be increased by convincing current users to increase their brand
usage:
1) Use the product on more occasions.
Product Modification
Managers also try to stimulate sales by modifying the product’s characteristics through
quality improvement, feature improvement, or style improvement.
A) Quality improvement aims at increasing the product’s functional performance.
B) Feature improvement aims at adding new features that expand the product’s
performance, versatility, safety, or convenience.
1) This strategy has several advantages:
a. New features build the company’s image as an innovator.
2) The chief disadvantage is that feature improvements might not pay off in the long
run.
Marketing Program Modification
A) Product managers might also try to stimulate sales by modifying other marketing
program elements.
1) Prices
2) Distribution
B) Marketers often debate which tools are most effective in the mature stage.
Marketing Strategies: Decline Stage
Sales decline for a number of reasons, including technological advances, shifts in
consumer tastes, and increased domestic and foreign competition. All lead to
Evidence for the Product Life-Cycle Concept
A) The PLC concept helps marketers interpret product and market dynamics, conduct
planning and control, and do forecasting.
B) New consumer durables show a distinct takeoff, after which sales increase by roughly
45% a year, but they also show a distinct slowdown, when sales decline by roughly
15% a year.
Critique of the Product Life-Cycle Concept
A) PLC theory has its share of critics, who claim life-cycle patterns are too variable in
shape and duration to be generalized, and that marketers can seldom tell what stage
their product is in.
Market Evolution
Because the PLC focuses on what’s happening to a particular product or brand rather than
the overall market, it yields a product-oriented rather than a market-oriented picture.
MARKETING IN AN ECONOMIC DOWNTURN
Given economic cycles there will always be tough times, like 2008-2010 were in many
parts of the world.
Here are five guidelines to improve the odds for success during an economic downturn:
A) Explore the Upside of Increasing Investment