BM2207: Dealing with Competition

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Questions and Answers

How do smaller firms typically avoid competing with larger firms?

By focusing on low-cost production

By collaborating with larger firms

By targeting niche markets (correct)

By increasing their product range significantly

What unique feature contributes to the branding of David Tran’s Sriracha hot chili sauce?

A well-known slogan associated with the product

The flavor derived from dried red peppers

The use of organic ingredients only

The rooster symbol representing Tran's astrological sign (correct)

What was a notable marketing strategy used by the Sriracha hot chili sauce?

Partnerships with celebrity chefs

Consistent online advertising campaigns

Lack of formal advertising altogether (correct)

Heavy reliance on social media platforms

Which ingredient is NOT a part of David Tran's Sriracha hot chili sauce?

Red food coloring Signup and view all the answers

What impact did the popularity of Sriracha have on the market?

It attracted numerous imitators in the market Signup and view all the answers

What factor contributes to the supplier's bargaining power?

Uniqueness of their product or service Signup and view all the answers

Which of the following affects the threat of buyers' bargaining power?

Number of alternatives available to buyers Signup and view all the answers

What leads to intense segment rivalry in a market?

Rapid industry growth Signup and view all the answers

What is a potential consequence of intense competitive rivalry?

Advertising and price wars Signup and view all the answers

How do substitute products threaten market leaders?

They usually have attractive prices or better quality. Signup and view all the answers

Which of the following scenarios indicates a high threat of new entrants?

Low barriers to entering the industry Signup and view all the answers

What best describes perfect competition?

Numerous small businesses sell standardized products. Signup and view all the answers

What is a likely effect of high supplier power on prices?

Prices are likely to increase. Signup and view all the answers

What may happen when a dominant firm makes further market inroads according to competitors?

Competitors may accuse it of monopoly and seek legal action. Signup and view all the answers

What does the economic cost of gaining market share depend on?

The loyalty of holdout customers to competitors. Signup and view all the answers

What typically happens to companies that try to increase market share by cutting prices significantly?

They fail to achieve significant gains as rivals respond. Signup and view all the answers

How can too many customers affect a firm's resources?

It can strain resources and hurt product value. Signup and view all the answers

What might occur when a market leader selectively decreases market share in weaker areas?

Increased profitability in stronger segments. Signup and view all the answers

What led to customer dissatisfaction for FairPoint Communications after acquiring Verizon's franchise?

Slow integration and significant service problems. Signup and view all the answers

What is a common misconception regarding gaining market share through aggressive pricing?

Price cuts always result in higher sales volume. Signup and view all the answers

Which of the following firms are mentioned as being large and capable of adopting competitive strategies?

Colgate, Nissan, Sharp, Avis, and PepsiCo. Signup and view all the answers

What is essential for a challenger brand to maintain its success even after becoming a market leader?

Retaining a challenger mentality Signup and view all the answers

Which strategy involves emulating a leader's products with slight variations?

Cloner Signup and view all the answers

What advantage does a follower using an 'innovative imitation' strategy have over a leader?

No burden of innovation expenses Signup and view all the answers

What type of market strategy focuses on low-risk imitation without directly challenging the leader?

Imitator Signup and view all the answers

Which of the following statements about market-nicher strategies is true?

It strives to dominate small markets or niches. Signup and view all the answers

What is the key characteristic of an adapter strategy?

Adapting leader's products for different markets Signup and view all the answers

Which strategy can achieve high profits for followers while avoiding the costs associated with innovation?

Innovative imitation Signup and view all the answers

What is a potential benefit of being a market follower instead of a market leader?

Ability to observe and learn from leaders Signup and view all the answers

What is the primary objective of a market challenger?

To increase market share Signup and view all the answers

Which of the following is NOT a type of attack strategy used by market challengers?

Undercover attack Signup and view all the answers

In a frontal attack, what does the attacker focus on?

Matching the opponent's product and strategies Signup and view all the answers

What common characteristic do many market challengers leverage?

Public perception as an underdog Signup and view all the answers

What should a market challenger do before deciding on its attack strategy?

Define strategic objectives and opponents Signup and view all the answers

Which example illustrates a flank attack?

Steve Jobs launching the iPhone to confront BlackBerry Signup and view all the answers

Market challengers can decide to attack which of the following?

Firms not satisfying customer needs Signup and view all the answers

What is a key risk for market leaders mentioned in the content?

Getting too comfortable with existing methods Signup and view all the answers

Study Notes

Dealing with Competition: Porter’s Five Forces

Supplier Power: Suppliers can influence prices based on their number, product uniqueness, strength, and switching costs. High supplier power leads to potential price increases for businesses.
Buyer Power: Buyers can affect prices by leveraging their importance and the cost of switching suppliers. A few large buyers can dictate terms to suppliers.
Competitive Rivalry: Intensity in a market is influenced by the number and strength of competitors. High rivalry often results in price and advertising wars, negatively impacting profitability.
Threat of Substitutes: Consumers can easily switch to substitute products with better price or quality, increasing competition and threatening market leaders.
Threat of New Entrants: When an industry is profitable and lacks entry barriers, new competitors can enter easily, heightening competition and decreasing profits for existing firms.

Market Structures

Perfect Competition: Numerous small businesses sell a standardized product. Market leaders may face legal challenges if perceived to be engaging in monopolistic practices.
Economic Costs: Gaining market share may involve costs exceeding benefits due to customer loyalty to competitors and legal expenses.
Customer Strain: Rapid customer acquisition may lead to resource strain, damaging service and product quality, exemplified by FairPoint’s difficulties after acquiring Verizon.

Competitive Strategies

Market Challenger Strategies: Focus on increasing market share by defining objectives and identifying competitors to attack, leveraging the underdog perception for advantage.
Attack Strategies:
- Frontal Attack: Matching competitor offerings directly, e.g., Xerox's advancements over 3M.
- Flank Attack: Targeting competitors’ weaknesses, e.g., Apple’s iPhone targeting BlackBerry’s dominance.

Market Follower Strategies

Imitative Innovation: Followers may achieve profitability without incurring innovation costs, leading to different growth paths.
Types of Followers:
- Cloner: Mimics the leader’s product closely with slight variations.
- Imitator: Copies key elements but differentiates through branding or packaging.
- Adapter: Improves on the leader’s products, potentially evolving into challengers.

Market Nicher Strategies

Niche Targeting: Smaller firms can successfully target under-served markets, which may grow into significant markets over time.
Case Study: Sriracha hot chili sauce, known for its unique flavor and packaging, has achieved significant popularity without traditional marketing through quality and consumer loyalty.

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Description

This quiz focuses on Porter's Five Forces framework, which helps analyze competitive pressures within an industry. It provides insights into supplier power, buyer power, the threat of new entrants, substitute products, and competitive rivalry. Understanding these forces is crucial for strategic business planning.