52. Competitive Strategies

Understanding the drivers, objectives and strategies of competitors will help you position and formulate new strategies so you can either (1) take advantage of opportunities competitors don’t pursue or don’t yet realize, or (2) learn how to out flank them.

Your competitive analysis in Section II, evaluated and compared competitors based upon their size, customer base, market share, distribution channels, and other areas outlined on the Competitive Tracking Information worksheet in Chapter 26, “Competition: Keep Your Friends Close and Your Enemies Closer.” You will now expand this information to create effective strategies to win market share. If you are in a highly competitive market, effectual competitive strategies are critical to win or maintain market share. You can create offensive competitive strategies in a highly competitive market, or defensive strategies in response to hostile competitors.

Pick Your Battle Position

Attack

A company that intends to compete with a market leader can choose this strategy to attack the market leader in one or more of the following ways:

• Value Pricing: A low price or short-term promotional discount gives your competitor’s customers an incentive to either try your product or switch brands entirely.

• Improved products and/or services: Customers who seek the latest technology may respond to a “new and improved” version of an old product.

• Geographical: A customer may choose to do business with one company over another because it does a better job of serving local market needs. The flipside of this is to appeal to a customer’s desire for convenience by offering several locations within a geographic market, or by winning their business by promoting powerful global capabilities.

• Need Fulfillment: If competitors have outdated solutions, poor service, inferior products, or otherwise fail to adequately serve customer needs, customers will flock to a business that offers a better solution.

• New Distribution Channels: Distribution through new channels provides access to new customers and increases product availability. Large, well-known distributors can also strengthen a company’s brand simply by selling the product. When Target began to sell Method products, the brand gained instant credibility and visibility. Method attracted a new consumer audience that was not previously interested in “buying green,” so customers were won at the expense of well-entrenched consumer products companies.

Most strategies are a combination of several factors. For example, Frontier Airlines is one of the few profitable airlines remaining. After emerging from Chapter 11 in 2008, the company announced they were profitable again in January 2009. Frontier is a regional airline that serves the Western United States, typically in secondary markets. The company has been successful in taking on United Airlines for several reasons. Frontier’s regional focus and operational efficiency by using only Airbus planes reduces maintenance and training expenses. Frontier operates primarily on a regional basis, so routes are more profitable than United, and they typically match United’s fares. Not surprising, however, Southwest has decided to enter Frontier Airlines’ market and is primarily competing based on lower prices.

Flank

A flanking strategy identifies a gap in a competitor’s ability to serve a market, or a weakness in a competitor’s ability to reach a particular target market or geographic segment. For example, Apple’s ongoing television campaign attacked Microsoft’s operating platform—first Vista, then Windows 7—playing on the operational issues that plagued the company.

Enterprise Rent-A-Car focused on car rentals to individuals that needed quick, short-term access to a car. In highly fragmented markets, even market leaders can be challenged by a smaller competitor’s strategy to offer a better product that meets the needs of a target segment.

Defend

When a company is attacked, the competitor usually responds with a direct defensive strategy. A typical defensive strategy is to lower prices, increase advertising and promotion, or add product features that directly compete with a competitor’s solutions. Microsoft’s defense against Apple’s flanking maneuver was to defend Windows Vista and Windows 7 as the hip choice of a diverse majority with the “I’m a PC” campaign. The two companies continue to duel it out (with the bespectacled nerd and laid back guy in a T-shirt) in Apple’s very public advertising campaign.

Preemptive

A preemptive strategy seeks to either establish a market position or attack a competitor before it can make a big impact with their product. Companies deploy this strategy to dissuade competitors from introducing a new product or diffuse the impact that competitors may make. For example, when Apple introduced the iPod, the company announcement was made long before its arrival. Car companies are also famous for deploying this strategy in the fall to attract new car buyers.

Substitute Product

Companies that offer an alternative solution for a specific need at a lower price provide a substitute to other category solutions. The product is usually positioned as a better value, or is perceived as a better alternative because it offers greater convenience and saves consumers valuable time. For example, the airline JetBlue offers short-distance commuters on the east coast as an alternative to driving or taking a train. During tax season, software companies will battle it out with H&R Block and other professional services firms to vie for your business.

Retreat

Sometimes the best strategy to aggressive competitive action is to retreat from a market leadership position in a geographic market, target market segment, or industry vertical market. This strategy should not be perceived as defeat, but as a smart move against larger, well-entrenched competitors that simply have more resources and staying power. If the decision to retreat is made early enough, then valuable time, money, and resources can be saved, and energy can be redirected toward better opportunities. Fast-growing companies know that it is much smarter to play offense than defense.

Intel, a dominant player in the memory chip market, began to get hammered by Japanese chip manufacturers who could make the product much cheaper. In a bold move, Intel decided it would be wiser to lose this battle and focus on winning the war, so they closed this business to focus on new opportunities. Intel’s microprocessor business was small at the time, but Andy Grove saw this was going to be the market of the future. Intel’s microprocessor business is now a $270 billion business, and Intel has the largest market share at 12.2 percent.

The Downside of Winning

It may not be obvious from the outset of devising a competitive strategy, but there are potential risks to winning a competitive battle. The most obvious are the increased expenses and bottom-line impact from fighting a long battle. This is caused by increased advertising and promotional spending, increases in operational costs resulting from serving more customers in expanded markets, and/or reduced brand equity following an ugly competitive war.

A competitive battle may result in price cuts, which likely impact margins and profitability, and perhaps consumer buying once prices inch their way back up. The best way to fight off competitors and avoid a bloody battle is through differentiation and positioning. As Kotler says: “Companies that forge a unique way of doing business gain lower costs, higher prices, or both. While their competitors increasingly resemble each other and are forced to compete on price, strategically positioned companies avoid the bloodbath by following the beat of a different drummer.”¹

Amen. As you read the remaining chapters in this section, you will learn several other strategies that can be parlayed into competitive differentiation.

Review the information that you gathered about competitors in Chapter 26. What areas present problems or challenges because competitors are pursuing the same target market or the same strategies? In what areas can you differentiate and innovate to create competitive advantage?