Competitive Tactics - Principles of Management

The competitive tactics of an enterprise are actions that managers take to try to outmaneuver rivals in the marketplace. Whereas the business-level strategy of an enterprise represents its basic competitive theme and tends to be pursued for a long time, tactics are individual actions taken to gain advantage over rivals or even to inhibit rivals from emerging in the first place, thereby making it easier to attain competitive advantage.

Competitive tactics can be short-term maneuvers or longer-term actions, but they are always about gaining a better market position relative to actual or potential rivals. Tactics include decisions about pricing and product offerings. We review some here to give you an idea of what tactics encompass.

TACTICAL PRICING DECISIONS

Managers can make a number of different tactical pricing decisions. Launching a price war to gain share from competitors is one example of a tactical pricing decision. This is what Dell Computer did in 2000–2001 when it took advantage of its low cost structure to drive down the prices of personal computers and gain share from its major rivals. A variant of this tactic is price signaling, such as cutting prices when new competitors enter the market to send a signal to potential rivals that they will have a tough fight if they wish to gain share.

When discount airlines such as Jet Blue started to expand into profitable routes served by American Airlines, American responded by slashing prices. Not only did this make it more difficult for Jet Blue to gain a foothold; it also sent a signal to other discount airlines that American would not give up its market share easily. American’s hope, of course, was that such actions would deter future entry.

Another common tactical pricing decision is razor and razor blade pricing, so called because it was pioneered by razor manufacturer Gillette. Gillette’s idea was to price razors low (at cost) to sell them to consumers, then make money from the sale of blades, which were priced high. Today Hewlett-Packard uses this tactic in the market for ink jet printers and supplies. HP prices its ink jet printers low (some can be purchased for under $100) and makeslittle profit on these sales.

However, the company charges a high price for ink cartridges forthe printers (often over $30) and makes high profit margins on these. The strategy works because once consumers have purchased the ink jet printers they are tied into those products by high switching costs (the cost of buying a printer from another company) and so are likely to continue buying HP ink cartridges.

TACTICAL PRODUCT DECISIONS

As with pricing, managers can pursue a wide range of tactical product decisions to gain an advantage over rivals. One tactic, known as productproliferation, has been successfully pursued by the manufacturers of laundry detergent. Walk down the aisle of your local supermarket and you will see many different laundry detergent brands. Most of these brands are produced by just two firms, Unilever and Procter &Gamble.

They produce a wide range of different brands to supply any variant of laundry detergent consumers might wish to buy— powdered detergent, liquid detergent, colorfast detergent, detergent with fabric softener, and so on—and thus occupy all of the shelf space in a supermarket, limiting the opportunities for market entry by new rivals.

Thus product proliferation is an entry- deterring tactic; and to the extent that it has been successful, Unilever and Procter &Gamble can charge higher prices than would otherwise be the case, which improves their performance. A similar strategy has been pursued by manufacturers in the cereal industry.

Another common product strategy is known as bundling. The idea behind a bundling strategy is to tie together a set of related products and charge a single price for them, which is marginally lower than the price of each product when sold separately. This can appeal to consumers, who wish to pay only a single bill and deal with a single provider, and it can raise demand far beyond what could be attained if the firm sold each item separately.

The cable company Comcast is currently pursuing this strategy. In addition to cable TV, Comcast now uses its cable into the home to provide high-speed Internet access via a cable modem, video on demand, digital video recording capabilities, and long-distance telephone service. By bundling these services together Comcast hopes to be able to gain market share and revenues from rivals that sell just one of these services.


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