PPT_II_F-Marketing Strategies in Declining & Hostile Markets_Page 21.pptx

Strategies to Win in Hostile Markets

“A ship in the harbor is safe. But that’s not what ships are built for”.

Presented by: SHRAVAN KUMAR POONAM PANDEY SACHIN ANIRBAN BHATTACHARYA DHRUVA PATEL JHILMIL BHARGAVA

Hostile Markets - Meaning

HostileMarkets

Definition:Markets with:i) Overcapacity ii) Low marginiii) Immense

competitioniv) Management in

disarray

CAUSES:1. Decline in

demand2. Competitive

expansion3. Excess Output

FEW EXAMPLES:1. Airline Industry due to

overcapacity2. Telecom industry due to

intense competition3. Smartphone manufacturer

due to low margins4. E-Retail due to low margins

Even growing industries can become hostile such as Smartphone manufacturers which proves that “Most industries are either hostile or in danger of becoming hostile”.

Hostile Markets - Phases

Phase 1

•Margin Pressure (Margins get eroded due to competitive pressures)

•Example: Online retail Flipkart selling at lower margins due to intense competition.

Phase 2

•Market share shift (Losing market share due to ‘Flight to Quality” or reluctance to pric lower

•Example: IBM and Compaq pricing higher and losing market share to Dell.

Phase 3

•Product proliferation (To recapture market or prevent share shift)

•Example: No frills products or services or product upgradation

Phase 4

•Self-defeating cost reduction (Recapture market and maintain margins simultaneously)

•Example: General motors had experienced this

Phase 5

•Consolidation and shakeout (Bt M&A, JV’s to reduce expenditure and be cost effective)

•Example: Kotak bank buying ING vyasya

Phase 6

•Rescue (Agree on pricing and market sharing can make markets come out of hostility)

•Example: Ajay singh buying entire stake in spicejet.

Strategies That Win in Hostile Markets

Focus on large customers

Differentiate on reliability

Cover broad spectrum of price points

Turn price into a commodity

Have an effective cost structure

Strategies in Hostile Markets

Market leaderMarket challenger

Market followerMarket nicher

Hypothetical Market Structure & Strategies

40%

MarketLeader

Expand MarketDefend Market ShareExpand Market Share

Market Leader Facts

Many industries contain one firm that is the acknowledged market leader. This firm has the largest market share in the relevant product market, and usually leads the other firms in price changes, new-product introductions, distribution coverage, and promotional intensity.

Some well-known market leaders are Microsoft (computer software), Intel (microprocessors), Gatorade (sports drinks), Best Buy (retail electronics), McDonald's (fast food), Gillette (razor blades), UnitedHealth (health insurance), and Visa (credit cards).

Leader ThreatsRies and Trout argue: that well-known products generally

hold a distinctive position in consumers' minds. Nevertheless, unless a dominant firm enjoys a legal monopoly, its life is not altogether easy. It must maintain constant vigilance.

A product innovation: may come along and hurt the leader.

Spending: The leader might spend conservatively whereas a challenger spends liberally.

Misjudging Competition: The leader might misjudge its competition and find itself left behind . The dominant firm might look old-fashioned against new and peppier rivals.

Costs: The dominant firm's costs might rise excessively and hurt its profits, or a discount competitor can undercut prices. "Marketing Insight: When Your Competitor Delivers More for Less" describes how leaders can respond to an aggressive competitive price discounter.

Leader Actions Remaining number one calls for action on three fronts. First, the firm must find ways to expand total market demand.

The dominant firm normally gains the most when the total market expands.

Example Maggi Noodles from Children to adults & health noodles Second, the firm must protect its current market share through

good defensive and offensive actions.

A. While trying to expand total market size, the dominant firm must continuously defend its current business.

B. For a market leader do to defend its terrain. The most constructive response is continuous innovation. The leader leads the industry in developing new product and customer services, distribution effectiveness, and cost cutting. It keeps increasing its competitive strength and value to customers.

Example Apple from IPod, MAC to Ipod Third, the firm can try to increase its market share, even if

market size remains constant.

Defense Strategies

Attacker

(3) PreemptiveDefense

(4) Counter-OffensiveDefense Defender

(1)PositionDefense

(5)MobileDefense

(2) Flank Defence

(6) ContractionDefense

Defense Strategies Position defense - Position defense involves occupying the

most desirable market space in the minds of the consumers, making the brand almost impregnable. Thus building superior brand strength- Colgate Toothpaste in various varieties, Tide laundry detergent with cleaning and Pampers diapers with dryness.

Flank position - the market leader should also erect outposts to protect a weak front or possibly serve as an invasion base for counterattack. When Heublein's brand Smirnoff, which had 23 percent of the U.S. vodka market, was attacked by low-priced competitor Wolfschmidt, Heublein actually raised the price and put the increased revenue into advertising. At the same time, Heublein introduced another brand, Kelska, to compete with Wolfschmidt and still another, Popov, to sell for less than Wolfschmidt. This strategy effectively bracketed Wolfschmidt and protected Smirnoff's flanks.

Defence Strategies Preemptive Defence: A more aggressive maneuver is to attack

before the enemy starts its offense.

A company can launch a preemptive defense in several ways. It can wage guerrilla action across the market—hitting one competitor here, another there— and keep everyone off balance; or it can try to achieve a grand market envelopment.

Bank of America's 13,000 ATMs and 4,500 branches nationwide now provide steep competition to local and regional banks. It can send out market signals to dissuade competitors from attacking. It can introduce a stream of new products, making sure to precede them with preannouncements—deliberate communications regarding future actions. Preannouncements can signal to competitors that they will have to fight to gain market share.31

SBI Teaser home loan. If Microsoft announces plans for a new-product development, smaller

firms may choose to concentrate their development efforts in other directions to avoid head-to-head competition.

Counteroffensive Defense: When attacked, most market leaders will respond with a counterattack. Counterattacks can take many forms.

A. In a counteroffensive, the leader can meet the attacker frontally or hit its flank or launch a pincer movement.

B. An effective counterattack is to invade the attacker's main territory so that it will have to pull back to defend the territory.

After FedEx watched UPS successfully invade its airborne delivery system, FedEx invested heavily in ground delivery service through a series of acquisitions to challenge UPS on its home turf.

C Another common form of counteroffensive is the exercise of economic or political clout. The leader may try to crush a competitor by subsidizing lower prices for the vulnerable product with revenue from its more profitable products;

D The leader may prematurely announce that a product upgrade will be available, to prevent customers from buying the competitor's product; or the leader may lobby legislators to take political action to inhibit the competition.

Defense Strategies

Defense Strategies Mobile Defense: In mobile defense, the leader stretches its

domain over new territories that can serve as future centers for defense and offense through market broadening and market diversification.

Market broadening involves shifting focus from the current product to the underlying generic need. The company gets involved in R&D across the whole range of technology associated with that need.

Thus "petroleum" companies sought to recast themselves into "energy" companies. Implicitly, this change demanded that they dip their research fingers into the oil, coal, nuclear, hydroelectric, and chemical industries. Market diversification involves shifting into unrelated industries.

When U.S. tobacco companies like Reynolds and Philip Morris acknowledged the growing curbs on cigarette smoking, they were not content with position defense or even with looking for cigarette substitutes. Instead they moved quickly into new industries, such as beer, liquor, soft drinks, and frozen foods.

Indian Example ITC (Recently purchased J & J ,Shower to Shower & Savlon)

Defense Strategies

Contradiction Defense: Large companies sometimes recognize that they can no longer defend all of their territory. The best course of action then appears to be planned contraction (also called strategic withdrawal): giving up weaker territories and reassigning resources to stronger territories.

Voltas AC business sold to Tata’s, Careffour Cash & Carry business sold to Walmart.

Hypothetical Market Structure & Strategies

40%

MarketLeader

30%

MarketChallenger

Expand MarketDefend Market ShareExpand Market Share

Attack LeaderStatus Quo

Challenger StrategiesA market challenger must first define its strategic objective. Most aim to

increase

market share. The challenger must decide whom to attack:

A. It can attack the market leader. This is a high-risk but potentially high-payoff strategy and makes good sense if the leader is not serving the market well. The alternative strategy is to out-innovate the leader across the whole segment. Xerox wrested the copy market from 3M by developing a better copying process. Later, Canon grabbed a large chunk of Xerox's market by introducing desk copiers.

B. It can attack firms of its own size that are not doing the job and are underfinanced. These firms have aging products, are charging excessive prices, or are not satisfying customers in other ways.

C. It can attack small local and regional firms. Several major banks grew to their present size by gobbling up smaller regional banks, or "guppies."

Many market challengers have gained ground or even overtaken the leader.

Toyota today produces more cars than General Motors and British Airways flies more

international passengers than the former leader, Indigo in India

Choosing a General Attack Strategy

Attacker Defender

(3) Encirclement Attack

(4) Bypass Attack

(2) Flank Attack

(5) Guerilla Attack

(1) Frontal Attack

Attack Strategies Frontal Attack:

I. In a pure frontal attack, the attacker matches its opponent's product, advertising, price, and distribution.

II. The principle of force says that the side with the greater manpower (resources) will win.

III. A modified frontal attack, such as cutting price visa-vis the opponent's, can work if the market leader does not retaliate and if the competitor convinces the market that its product is equal to the leader's.

Helene Curtis is a master at convincing the market that

its brands—such as Suave and Finesse—are equal in

quality but a better value than higher-priced brands.

Capital foods Smith & Jones range

Attack Strategies

Flank Attack : An enemy's weak spots are natural targets. A flank attack can be directed along two strategic dimensions—geographic and segmental.

A. In a geographic attack, the challenger spots areas where the opponent is underperforming. For example, some of IBM's former mainframe rivals, such as Honeywell, chose to set up strong sales branches in medium- and smaller-sized cities that were relatively neglected by IBM.

B. The other flanking strategy is to serve uncovered market needs, as Japanese automakers did when they developed more fuel-efficient cars.

C. Flanking is in the best tradition of modern marketing, which holds that the purpose of marketing is to discover needs and satisfy them.

D. Flank attacks are particularly attractive to a challenger with fewer resources than its opponent and are much more likely to be successful than frontal attacks.

Attack Strategy Encirclement Attack: It involves ‘encircling’ the target competitor.

It involves launching a grand offensive on several fronts. Encirclement makes sense when the challenger commands superior resources and believes a swift encirclement will break the opponent's will.This can be done in two ways…

You could introduce a range of products that are similar to the target product. Each product will liberate some market share from the target competitor’s product, leaving it weakened, demoralized, and in a state of siege. If it is done stealthily, a full scale confrontation can be avoided.

Alternatively, the encirclement can be based on market niches rather than products. The attacker expands the market niches that surround and encroach on the target competitor’s market. This encroachment liberates market share from the target.

In making a stand against arch rival Microsoft, Sun Microsystems licensed

its Java software to hundreds of companies and millions of software

developers for all sorts of consumer devices. As consumer electronics

products began to go digital, Java started appearing in a wide range of

gadgets.

Erstwhile LG in consumer goods segment expansion a decade back with formidable challenge to Indian brands

Attack Strategy Bypass Attack : The most indirect assault strategy is the

bypass. It means bypassing the enemy and attacking easier markets to broaden one's resource base. This strategy offers three lines of approach:

Diversifying into unrelated products, Diversifying into new geographical markets, Leapfrogging into new technologies to supplant existing products.

Pepsi used a bypass strategy against Coke by purchasing: (1) orange juice giant Tropicana for S3.3 billion in 1998, which owned almost twice the market share of Coca-Cola's Minute Maid(2) The Quaker Oats Company for $14 billion in 2000. (The Quaker Oats Company owns Gatorade Thirst Quenchers, which boasts a huge market share lead over the Coca-Cola Company's Powerade.

Attack Strategy Technological leapfrogging: is a

bypass strategy practiced in high-tech industries. The challenger patiently researches and develops the next technology and launches an attack, shifting the battleground to its territory, where it has an advantage.

Challenger Google used technological leapfrogging to overtake Yahoo! and become the market leader in search.

Attack Strategy Guerrilla Warfare: consists of waging small,

intermittent attacks to harass and demoralize the opponent and eventually secure permanent footholds.

The guerrilla challenger uses both conventional and unconventional means of attack. These include selective price cuts, intense promotional blitzes, and occasional legal action.

Normally, guerrilla warfare is practiced by a smaller firm against a larger one. The smaller firm launches a barrage of attacks in random corners of the larger opponent's market in a manner calculated to weaken the opponent's market power.

Specific Attack Strategies

Price-discount Cheaper goods Prestige goods Product proliferation Product innovation Improved services Distribution innovation Manufacturing cost reduction Intensive advertising promotion

Hypothetical Market Structure & Strategies

40%

MarketLeader

30%

MarketChallenger

20%

MarketFollower

Expand MarketDefend Market ShareExpand Market Share

Attack LeaderStatus Quo

Imitate

Market Followers The innovator bears the expense of developing the new

product, getting it into distribution, and informing and educating the market.

The reward for all this work and risk is normally market leadership.

However, another firm can come along and copy or improve on the new product.

Although it probably will not overtake the leader, the follower can achieve high profits because it did not bear any of the innovation expense.

Market Followers Follow closely Follow at a distance Follow selectively

Market Followers….

S& S S&S Cycle is the biggest supplier of complete

engines and major motor parts to more than 15 companies that build several thousand Harley-like cruiser bikes each year. These donors charge as much as $30,000 for their customized creations. S&S has built its name by improving on Harley-Davidson's handiwork. Its customers are often would-be Harley buyers frustrated by long waiting lines at the dealers. Other customers simply want the incredibly powerful S&S engines. S&S stays abreast of its evolving market by ordering a new Harley bike every year and taking apart the engine to see what it can improve upon.

Hypothetical Market Structure & Strategies

40%

MarketLeader

30%

MarketChallenger

20%

MarketFollower

Expand MarketDefend Market ShareExpand Market Share

Attack LeaderStatus Quo

Imitate

10%

MarketNicher

Specialise

Market Niche StrategiesPossess the following characteristics:· Are of sufficient size and purchasing power to be profitable;· Have growth potential;· Do not interest the major players;· Have the requires skills/knowledge to be effective;· Can defend itself from predators through the goodwill network.

LOGITECH INTERNATIONAL Logitech has become a $1.3 billion global success story by making everyvariation of computer mouse imaginable. The company turns out mice forleft- and right-handed people, cordless mice that use radio waves, miceshaped like real mice for children, and 3-D mice that let the user appear tomove behind screen objects. It sells to OEMs as well as via its own brand atretail. Its global dominance in the mouse category enabled the company toexpand into other computer peripherals, such as PC headsets, PC gamingperipherals, and Webcams

Quote-2

“"The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is not getting the right questions."

Dr Ravindra Pratap Gupta

Questions

Q10. Discuss what leads to performance decline. Discuss

the strategic options for declining markets?

Q11. Discuss various defense strategies?

Thanks