Chapter 2. Barriers to market entry. Type of competition No of competitors Type of product. Example. Unique - almost no substitutes

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Shon Lambert
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1 Type of competition No of competitors Type of product Barriers to market entry Example Monopoly One Unique - almost no substitutes Very high / usually blocked Eskom Oligopoly Few Homogeneous Major Cellulay phone operators Monopolistic Many Differentiated with many substitutes Few and not major Home electric appliance companies Perfect Competition Many Homogeneous None Agricultural prods such as soya beans

2 Competitor Analysis Process of identifying an org s competitors, understanding their objectives, and strategies, and assessing their strengths/weaknesses Key quests:- Who are the org s competitors? What are their objectives? What competitive strategies are they pursuing? What are their strengths/weaknesses? How are they likely to respond to competitors actions?

3 Who are the competitors? Two ways :- Industry approach Market approach Industry approach businesses producing prods that are close substitutes Absa, FNB, Std Bank and Nedbank competing firms banking industry Coca-cola and Pepsi soft drink industry Marketing approach competitors providing prods that satisfy the same customer need Quenching of thirst satisfied variety of prods, bottled water, soft drinks, ice tea and fruit juices

4 Who are the competitor s objectives? Pursue a mix of diff objectives these determine the strategies that they take as they compete in the market Common marketing objectives relate to profits, sales, market share and customer orientation Diff marketing objectives for diff markets / market segments Imp to look at not only the overall business obj but also objectives at prod/market segment level

5 What competitive strategies are they pursuing? Compete on low prices or quality Michael Porter identified three generic competitive strategies Cost leadership strategy Differentiation strategy Focused strategy

6 What competitive strategies are they pursuing? Cost leadership strategy Producing prods at lowest possible prices to sell at prices lower than their competitors to a broad target market Game and Shoprite Differentiation strat Products are unique (different to that of competitors) selling to a broader mkt Woolworths Foods emphasizes differentiation rather than low prices

7 What competitive strategies are they pursuing? Focused strat Target a narrow segment of the market excluding others E.g., clothing retailer sell clothing for children between the ages of 3-10yrs Two variants: Focused cost leadership lower its costs sell at lower prices than competitors Focused differentiation uniqueness of prods rather than low prices

8 Competitive Advantage Advantage a business has over competitors Gained by offering consumers same benefits as competitors but at a lower price, Or, delivering more benefits than competitors What are the competitor s strengths weaknesses? To assess collect relevant info re: 1. Competitor s HR marketing personnel, skills of employees, staff deve programmes, 2. Financial/technological resources 3. Supplier and customer info major custs and suppliers, service quality levels 4. Marketing strats planning & control systems, incl, 4 P s strategies 5. Operating results period of time i.t.o sales, marketshare, profit margins and costs

9 Competitive Advantage Info can be collected - variety of sources Annual reports Websites and promo messages Personal interviews staff, custs, suppliers Must be in an ethical manner This info can be used to benchmark a firm against leading firms in the industry

10 Competitive Advantage How are they likely to respond to their competitor s actions? Some competitors respond swiftly and aggressively Some may delay their responses And others may choose to respond to some actions and not to others A competitor interest in maintaining a high market share more likely to respond to the actions of competitors to make inroads in that strategic market Business following cost leadership will respond quickly to price cuts by competitors

11 Determining market attractiveness The different players in the market environ affects a company s level of competitiveness Michael Porter identifies five forces of competition This is used to assess a firms level of competitiveness in a market 1. The threat of new entrants Bring increased competition and can threaten a company s profits and share of the market E.g. budget airlines - Kulula.com and 1Time domestic air travel market SAA lost market share The threat of new entrants is high in industries with low barriers to entry and low where barriers to entry are high

12 Determining market attractiveness Common barriers to entry:- High capital reqts Lack of access to prod resources and distr sources Effective differentiation - increased customer loyalty Economies of scale High switching costs

13 Determining market attractiveness Economies of scale - average cost per production unit decreases as the production run gets bigger fixed costs are shared over an increased no of goods Switching costs once off cost incurred by customers when switching to another supplier E.g decision to use a different software package in business employees will have to be trained to use it

14 Bargaining power of suppliers Higher the bargaining power of suppliers the less attractive that market is Suppliers have more power in a mkt if they can increase the cost of their prods or lower prod quality at will Power of suppliers driven by:- Uniqueness of their product How great the costs of switching are Businesses find a market unattractive if it has an unfavourable supply situation, i.e. too few suppliers offering unique prods with no close substitutes Suppliers will have large amt of bargaining power and can choose who they want to do business with E.g African Oxygen (Afrox) biggest supplier in southern Africa gasses used in manuf. Soft drinks, often has more demand for its prods than it can meet means that it has a strong position to bargain with soft drink manufacturers

15 Bargaining power of buyers Customers more power if they can drive prices down or dictate other terms of sale The higher the bargaining power of buyers the less attractive the market is Driven by a no of factors:- No of buyers relative to the supply Uniqueness of the prod Costs of switching The importance of particular buyers Attractive markets are large nos of unorganised buyers, buying unique prods with no close substitutes, with each buyer buying small quantities and facing high switching costs Many big retailers have so much bargaining power that they can force their suppliers to reduce prices

16 Threat of substitute products E.g margarine / butter, potatoes / rice If the price of one prod increases, consumers will switch to the other this limits the potential for price invcreases Threat of prod substitution increases when switching costs are low, and quality and performance is equal to or higher than its competitor E.g introduction of cellphones to SA put Telkom s landline business under pressure

17 Intensity of rivalry among competitors Affected by a no of factors:- No of businesses competing in a mkt Level of prod differentiation Size of the mkt And whether the market is growing or not High rivals associated with large no of competitors, low levels of prod differentiation and slow of declining customer markets

18 The internal market Consists of actors and forces within an organisation affects its ability to effectively serve its customers Only part of the marketing environment under direct control of the org s management team Analysis of internal environ important helps management better understand the org s strengths and weaknesses Factors that should be looked at:- Organisation s mission and objectives Resources Skills and capabilities

19 The mission Mission statement reason for existence Invisible hand to guide the activities of the employees and how its resources are used Good mission statement customer-oriented - customer satisfaction key to success Def: Business objectives things an organisation wants to achieve over a given period of time

20 Business objectives Directly linked to the mission statement Set at various levels of the org:- Corporate level Strategic business unit level Functional level Corporate level relate to whole organisation E.g Absa Bank - overall objectives apply to whole org

21 Business objectives Strategic business unit level Relate to specific product markets e.g home loan section, private banking section and car financing section each have their own objectives Functional-level - - function areas of the org that support strategic business units and the organisation as a whole These include marketing, finance, production, procurement, and human resource management each have their own objectives

22 Business objectives Objectives must be SMART Specific specify what needs to be achieved - objectives relating to profits, market share, brand awareness Measurable success can be easily traced e.g to increase market share by 10% by the end of the current year Achievable needs to be challenging but achievable too high objectives managers who set too high objectives - cause staff to become discouraged when they fail to reach their targets Relevant should add something useful to the org important to ensure that lower-level objectives aligned with overall organisational objectives Time-bound should be set within a time frame (usually a year, long-term and short- term plans have different timeframes)

23 Business objectives Objectives must be SMART Specific specify what needs to be achieved - objectives relating to profits, market share, brand awareness Measurable success can be easily traced e.g to increase market share by 10% by the end of the current year Achievable needs to be challenging but achievable too high objectives managers who set too high objectives - cause staff to become discouraged when they fail to reach their targets Relevant should add something useful to the org important to ensure that lower-level objectives aligned with overall organisational objectives Time-bound should be set within a time frame (usually a year, long-term and short- term plans have different timeframes)

Exchange is he underlying theory of marketing, and explains why we need to work in order to get the things we want.

Exchange: Def n : Exchange: The act of obtaining a desired object from someone by offering something in return Exchange is he underlying theory of marketing, and explains why we need to work in order to