LEARNING OBJECTIVES
In this chapter, we will address the following questions:
1. Why is it important for companies to grow the core of their business?
2. How can market leaders expand the total market and defend market share?
3. How should market challengers attack market leaders?
4. How can market followers or nichers compete effectively?
5. What marketing strategies are appropriate at each stage of the product life cycle?
6. How should marketers adjust their strategies and tactics during slow economic
growth?
SUMMARY
2. A market leader has the largest market share in the relevant product market. To remain
3. A market challenger attacks the market leader and other competitors in an aggressive
4. A market follower is a runner-up firm willing to maintain its market share and not
rock the boat. It can be a cloner, imitator, or adapter.
6. Companies should maintain a good balance of consumer and competitor monitoring
and not overly focus on competitors.
7. Technologies, product forms, and brands exhibit life cycles with distinct stages,
8. The introduction stage is marked by slow growth and minimal profits. If successful,
the product enters a growth stage marked by rapid sales growth and increasing profits.
10. In a slow-growth economy, marketers must explore the upside of increasing
C H A P T E R
12
COMPETITIVE
DYNAMICS
investments, get closer to customers, review budget allocations, put forth the most
compelling value proposition, and fine-tune brand and product offerings.
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
competitive analysis. Who are the market leaders for their chosen product or service?
What niche have they identified for their product/service? Is their product or service
going to be a leader, follower, or challenger to well-established products or brands?
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,
etc.) and using Michael Porter’s model, completely define these five forces for the
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
• 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
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?
For a market leader, increased sales must come from expanding the total market through
adding new customers or increasing the usage of the product. Picking a market leader in
an industry (Dell computers for example) explain how your market leader can expand the
total market by adding new customers or increasing the usage of the product. Be as
specific as possible.
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.
Take a position: Brands cannot be expected to last forever versus there is no reason for a brand
to ever become obsolete.
Pro: Brands can last forever as evidenced by a number of brands that are entering their one
hundredth year of existence. For a brand to have immortality, it must continue to have a
competitive advantage in its product differentiation dimensions (product, services, personnel,
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
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:
More usage (level of quantity or frequency of consumption).
Protect its current market share through good defensive action (position defense, flank
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.
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,
good students will note the following facts: Samsung ended 2009 with record-high
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?
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
DETAILED CHAPTER OUTLINE
Opening vignette: To be a long-term market leader is the goal of any marketer. Today’s
challenging marketing circumstances often dictate that companies reformulate their
marketing strategies and offerings several times, like UPS and FedEx. This chapter
examines growth, the role competition plays, and how marketers can best manage their
brands given their market position and stage of the product life cycle.
I. Growth
A. An important function of marketing is to drive growth in sales and revenue
for a company.
B. Growth Strategies
a. Grow by building your market share
b. Grow by developing committed customers and stakeholders
c. Grow by building a powerful brand
C. Growing the Core
a. Growing the core is focusing on a firm’s most successful existing products
and markets
b. Avoid the trap of thinking the “grass is always greener” and
overestimating the upside of new ventures that stretch the company into
uncharted territory.
i. Make the core of the brand as distinctive as possible.
ii. Drive distribution through both existing and new channels
iii. Offer the core product in new formats or versions
g. Growth strategies are not necessarily “either/or” propositions. A focus on
core businesses does not mean foregoing new market opportunities.
II. Competitive Strategies for Market Leaders
A. A market leader has the largest market share and usually leads in price changes,
new-product introductions, distribution coverage, and promotional intensity.
B. Although marketers assume well-known brands are distinctive in consumers’
minds, unless a dominant firm enjoys a legal monopoly, it must maintain constant
vigilance.
C. Expanding Total Market Demand
a. When the total market expands, the dominant firm usually gains the most.
b. Attract New Customers
c. More Usage
i. Increase the amount, level, or frequency of consumption
ii. Boost the amount through packaging or product redesign
iii. Identify additional opportunities to use the brand in the same basic
way
iv. Identify completely new and different ways to use the brand
D. Protect Market Share
a. The front-runner should lead the industry in developing new products and
customer services, distribution effectiveness, and cost cutting.
b. Comprehensive solutions increase competitive strength and value to
customers so they feel appreciative or even privileged to be a customer as
opposed to feeling trapped or taken advantage of
c. In satisfying customer needs, we can draw a distinction between
responsive marketing, anticipative marketing, and creative marketing.
d. A company needs two proactive skills:
i. Responsive anticipation to see the writing on the wall
ii. Creative anticipation to devise innovative solutions
e. Characteristics of proactive companies
i. Create new offers to serve unmet—and maybe even unknown—
consumer needs.
ii. Proactive companies may redesign relationships within an industry
f. The aim of defensive strategy is to reduce the probability of attack, divert
attacks to less-threatened areas, and lessen their intensity.
i. A leader would like to do anything it legally and ethically can to
reduce competitors’ ability to launch a new product, secure
distribution, and gain consumer awareness, trial, and repeat.
ii. In any strategy, speed of response can make an important
difference to profit.
iii. Six defense strategies:
1. Position defense. Position defense means occupying the
2. Flank defense. The market leader should erect outposts to
protect a weak front or support a possible counterattack.
3. Preemptive defense. A more aggressive maneuver is to
4. Counteroffensive defense. In a counteroffensive, the market
5. Mobile defense. In mobile defense, the leader stretches its
6. Contraction defense. Sometimes large companies can no
longer defend all their territory. In planned contraction
(also called strategic withdrawal), they give up weaker
markets and reassign resources to stronger ones.
E. Increasing Market Share: Before 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.
III. Other Competitive Strategies
A. Market-Challenger Strategies
a. Defining the Strategic Objective and Opponent(s)
b. Decide whom to attack:
i. Attack the market leader.
2. Added benefit of distancing the firm from other
c. Choosing a General Attack Strategy
i. Frontal attack
1. Attacker matches its opponent’s product, advertising, price,
and distribution.
3. A modified frontal attack, such as cutting price, can work if
the market leader doesn’t retaliate and if the competitor
convinces the market its product is equal to the leader’s.
ii. Flank attack
1. Identify shifts that cause gaps to develop in the market,
then rushing to fill the gaps.
2. Flanking is particularly attractive to a challenger with fewer
4. With a geographic attack, the challenger spots areas where
the opponent is underperforming.
iii. Encirclement attack
1. Attempts to capture a wide slice of territory by launching a
grand offensive on several fronts.
2. Makes sense when the challenger commands superior
resources.
iv. Bypass attack: Bypassing the enemy altogether to attack easier
v. Guerrilla attack
1. Guerrilla attacks consist of small, intermittent attacks,
conventional and unconventional, including selective price
2. A guerrilla campaign can be expensive, though less so than
a frontal, encirclement, or flank attack, but it typically must
be backed by a stronger attack to beat the opponent.
B. Market-Follower Strategies
a. In “innovative imitation,” the innovator bears the expense of developing
the new product, getting it into distribution, and informing and educating
the market.
b. Patterns of “conscious parallelism” are common in capital-intensive,
c. Followers must define a growth path, but one that doesn’t invite
competitive retaliation. We distinguish three broad strategies:
i. Cloner—The cloner emulates the leader’s products, name, and
packaging with slight variations.
ii. Imitator—The imitator copies some things from the leader but
d. Counterfeiters duplicate the leader’s product and packages and sell them
on the black market or through disreputable dealers.
C. Market-Nicher Strategies—be a leader in a small market, or niche
a. Smaller firms normally avoid competing with larger firms by targeting
small markets of little or no interest to the larger firms.
b. Firms with low shares of the total market can become highly profitable
through smart niching.
i. Know their target customers so well they can meet their needs
better than other firms by offering high value, but they can also
IV. Product Life-Cycle Marketing Strategies
A. To say a product has a life cycle is to assert four things:
a. Products have a limited life
b. Product sales pass through distinct stages, each posing different
B. Product Life Cycles
a. Most product life cycles are portrayed as bell-shaped curves, typically
divided into four stages: introduction, growth, maturity, and decline
b. Introduction—A period of slow sales growth as the product is introduced
acceptance by most potential buyers. Profits stabilize or decline because of
increased competition
e. Decline—Sales show a downward drift and profits erode
C. Style, Fashion, and Fad Life Cycles
a. A style is a basic and distinctive mode of expression appearing in a field
of human endeavor and can last for generations and go in and out of
vogue.
D. Pioneering Advantages
a. What are the sources of the pioneer’s advantage?
i. Early users will recall the pioneer’s brand name if the product
satisfies them.
ii. The pioneer’s brand also establishes the attributes the product class
should possess
b. Double Jeopardy: a small-share brand is penalized twice—it has fewer
buyers than a large-share brand, and they buy less frequently.
i. Implicit in the principle of double jeopardy is the assumption that
brands are substitutable and have target segments in common
c. Successful imitators thrive by offering lower prices, continuously
improving the product, or using brute market power to overtake the
pioneer.
i. They distinguish between an inventor, first to develop patents in a
new-product category, a product pioneer, first to develop a
working model, and a market pioneer, first to sell in the new-
product category.
d. Once brand leadership has been lost, it is rarely regained.
e. Categories with above-average brand leadership persistence are food and
household supplies; those with below-average rates are durables and
clothing.
E. Gaining a Pioneering Advantage
a. Five factors underpinning long-term market leadership: vision of a mass
market, persistence, relentless innovation, financial commitment, and asset
leverage
b. Other research has highlighted the role of genuine product innovation
c. When a pioneer starts a market with a really new product, like the Segway
Human Transporter, surviving can be very challenging.
F. Marketing Strategies: Growth Stage
a. Rapid climb in sales. Early adopters like the product, and additional
consumers start buying it. New competitors enter, attracted by the
opportunities. They introduce new product features and expand
distribution.
d. Profits increase as marketing costs are spread over a larger volume, and
unit manufacturing costs fall faster than price declines, owing to the
producer-learning effect.
e. Firms must watch for a change to a decelerating rate of growth in order to
prepare new strategies.
f. To sustain rapid market share growth now, the firm:
i. Improves product quality and adds new features and improved
styling.
ii. Adds new models and flanker products (of different sizes, flavors,
and so forth) to protect the main product
G. Marketing Strategies: Maturity Stage
a. Most products are in this stage of the life cycle, which normally lasts
longer than the preceding ones
b. The maturity stage divides into three phases: growth, stable, and decaying
maturity.
i. In the first, sales growth starts to slow. There are no new
distribution channels to fill. New competitive forces emerge.
iii. In the third phase, decaying maturity, the absolute level of sales
starts to decline, and customers begin switching to other products
iv. This third phase poses the most challenges. The sales slowdown
creates overcapacity in the industry, which intensifies competition.
Weaker competitors withdraw.
1. A few giants dominate—perhaps a quality leader, a service
2. Surrounding them is a multitude of market nichers,
3. The question is whether to struggle to become one of the
big three and achieve profits through high volume and low
cost or to pursue a niching strategy and profit through low
volume and high margins. Sometimes the market will
divide into low- and high-end segments, and market shares
of firms in the middle will steadily erode.
H. Three ways to change the course for a brand are market, product, and marketing
program modifications
a. A company might try to expand the market for its mature brand by
working with the two factors that make up sales volume, number of brand
users and usage rate per customer
b. Managers also try to stimulate sales by improving quality, features, or
style.
i. Quality improvement increases functional performance by
launching a “new and improved” product.
iii. Style improvement increases the product’s esthetic appeal.
c. Brand managers might also try to stimulate sales by modifying non-
product elements—price, distribution, and communications in particular
I. Marketing Strategies: Decline Stage
a. Sales decline for a number of reasons, including technological advances,
J. Eliminating Weak Products
a. Besides being unprofitable, weak products consume a disproportionate
amount of management’s time, require frequent price and inventory
runs, draw advertising and sales force attention better used to make
K. Harvesting and Divesting
a. Harvesting calls for gradually reducing a product or business’s costs while
trying to maintain sales.
i. The first step is to cut R&D costs and plant and equipment
investment.
ii. The company might also reduce product quality, sales force size,
b. If the company can’t find any buyers, it must decide whether to liquidate
the brand quickly or slowly. It must also decide how much inventory and
service to maintain for past customers
L. Evidence for the Product Life-Cycle Concept
a. New consumer durables show a distinct takeoff, after which sales increase
by roughly 45 percent a year, but they also show a distinct slowdown,
when sales decline by roughly 15 percent a year
b. Slowdown occurs at 34 percent penetration on average, well before most
M. Critique of the Product Life-Cycle Concept
a. Life-cycle patterns are too variable in shape and duration to be generalized
b. Marketers can seldom tell what stage their product is in
N. Market Evolution
a. Affected by new needs, competitors, technology, channels, and other
V. Marketing in a slow-growth economy
a. Five guidelines for improving the odds for marketing success in a slow-
growth economy
i. Explore the Upside of Increasing Investment
ii. Get Closer to Customers
iii. Review Budget Allocations
iv. Put Forth the Most Compelling Value Proposition
v. Fine-tune Brand and Product Offerings
b. Brands and sub-brands targeting the lower end of the socioeconomic spectrum
may be particularly important during slow growth.