Pricing/marketing strategies for different competitive positions - Marketing Management

It is suggested that a company’s competitive position in an industry is one of the most important determinants of marketing strategies. A significant contribution to thinking in this area has stemmed from the work of the Arthur D. Little Consultancy Company. They suggest the following alternative categories of competitive position for a company in an industry. Associated with each category of alternative competitive position we have given a brief indication of some of possible implications for strategic marketing:

Dominant: As the term suggests, the dominant competitor in an industry is the company which overtly or tacitly controls all competitors.

Dominance may stem from a number of factors such as size/resources, control of raw materials, control of distribution channels and control of technologies. Needless to say, the dominant company is in a strong position as it can exercise considerable choice over pricing strategies.

Strong: These companies do not dominate the market, but their size and strength enables them to exercise considerable discretion over their marketing strategies. Although other competitors cannot be ignored, strong competitors are understandably treated with caution by other companies. Favourable: These competitors in a market have particular strengths which enable them to compete effectively even though they may not be amongst the largest and strongest companies. Often their favourable position derives from a particular aspect of their marketing such as a strong brand name or a reputation for technological innovation. Often such strengths may be used to lever a stronger position within a market. Companies in this position can in the long run, become strong or even dominant in a market.

Tenable: Although these competitors can make profits and survive, they are often at the mercy of dominant, strong and favourable competitors. Companies in this position have no particular significant differential advantages over their competitors and must follow the market leaders in much of their elements of marketing strategy including pricing.

Weak: These competitors are at a considerable disadvantage in the market. Their weakness may stem from factors such as small size, weak brands or poor quality. Weak competitors must improve in those areas where their weaknesses are significant or they will be driven out of the market. Non-viable: As the term implies these competitors should not be in the market as they are in no position to compete, nor do they have any avenues left that will enable them to improve their position, so they should leave the industry before they are forced out.

An alternative perspective on competitor position and marketing strategies is proposed by Kotler and Keller10 who distinguish between the strategies available to the following types of competitor in an industry:

  • Market leader or a company with the largest market share. This competitive market position can give a company significant cost and power advantages. There is strong evidence that market leaders invariably have the highest rates of return on capital employed. Market leaders may shape prices, industry standards and methods of competing in a market and are often a competitive target for other companies, so they should make every effort to maintain market leadership by, for example, expanding the total market through new uses or more frequent usage. Market leaders tend to benefit disproportionately from increases in overall market size, which strengthens their market share position. The market leader must do everything in its power to defend its market share against market challenges and constantly seek to innovate.
  • Market challengers are companies that market leders need to defend their position against. They might be second in market share terms or lower, but they are distinguished by their desire to become market leaders. Market challengers often take advantage of the potential for complacency by market leaders. Many companies have risen from relatively low market shares to become dominant market leaders. This is particularly pronounced in the case of many Japanese companies. They must seek to outperform the market leader in some way which may involve finding new ways to attract customers in a market and attacking the weaknesses of the market leader.
  • Market followers are companies that do not want to challenge for market leadership, but prefer instead to follow the strategies of the market leader. This does not necessarily mean that they will do exactly the same as the market leader with respect to price, but it means that their strategies are primarily shaped by the market leader. There are disadvantages to being a market follower although many companies have found that this is a viable and profitable strategy.
  • Market nichers concentrate on specialist parts of the market that larger companies have either consciously or unconsciously ignored. This strategy is useful for the smaller company and is called ‘concentrated marketing’.

An interesting development in the formulation of marketing and pricing strategies has taken these notions of competitive market positions, and the importance of building strategies around these and relative competitor strengths, and linked them to some of the concepts and techniques developed by military strategists when considering techniques of warfare. In part, this in itself is recognition of extreme competition in many markets, and the notion that companies must either ‘kill’ or ‘be killed’ by competitors. This notion of marketing as ‘war’ involves using the concepts of military strategists and thinkers such as Carl von Clausewitz11 and Basil Liddell-Hart12 and applying these to marketing plans and strategies As Kolar and Toporisic13 show, the concept of marketing as warfare and the application of principles of battlefield command have now become popular amongst marketing academics and practitioners.

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