Competitor considerations - Marketing Management

It is increasingly recognized that in today’s competitive environment, effective strategic marketing plans are as much about being competitor-oriented as customer-oriented, as evidenced in the following quote from Porter:5

Competition is at the core of the success or failure of firms. Competition determines the appropriateness of a firm’s activities that can contribute to its performance, such as innovations, a cohesive culture, or good implementation. Competitive advantage is the benefit derived through competitive strategy aimed at establishing a profitable and sustain able position against the forces that determine industry competition.

Business can be compared to running a competitive race, with all the awards going to the winner. It behoves the marketing manager to make a careful analysis of the company’s competitors before devoting resources to marketing strategies. This involves examination of competitors so the planner can develop and sustain superior competitive performance. This deceptively simple statement belies the fact that to do this we must establish where competition stems from now and in the future. We also have to consider and appraise competitors’ present and likely future objectives and strategies as well as their likely reactions to the competitive moves we might make.

The marketing strategist must also widen the focus to include in the analysis not only ‘competition’ in the more traditional sense, but also the competitive structure of the industry. This includes the assessment of factors such as barriers to entry and exit and hence, for example, the threat of new entrants; the assessment of potential substitute products or services; the bargaining power of suppliers and the bargaining power of buyers. In short, competitor analysis is complex and multifaceted. Consider how we might seek to conceptualize the competitive structure of an industry, starting with the more traditional approach based on the number of sellers (competitors) and degree of product differentiation in a market.

No pricing decision can be taken in isolation from the nature and extent of prevailing or latent competition in any industry. The most important considerations with regard to competitor pricing include:

  • competitors’ prices, including discounts, credit terms and terms of trade;
  • competitors’ resources, especially financial;
  • competitors’ costs and profit margins;
  • likely competitor responses to our pricing strategies and decisions;
  • likely potential competitors and barriers to market industry entry;
  • substitutes from other industries;
  • competitor marketing strategies, especially targeting, positioning and product differentiation.

Three of the most important competitor considerations which directly affect the extent to which an industry will be price competitive are:

  • the number of competitors;
  • the degree of product differentiation between competitors;
  • freedom of entry.

For example, where there is only one supplier, i.e. a monopoly, then the pricing decision maker has substantial discretion over price. On the other hand, where products are undifferentiated, price competition is likely to be fierce. Finally, where competitors can enter an industry with relative ease, then the price setter will have less discretion over price and may be forced to set lower prices than might otherwise be the case in order to deter new entrants.

We have outlined four key inputs to pricing decisions: company, cost, customers and competitor factors. There are many other considerations, ranging from those involving distributor and channel arrangements to possible legal considerations in price setting. We now consider how prices might be set, i.e. pricing methods.

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