Competitive Analysis

In developing the firm's marketing strategies and plans for its products and services, the manager must carefully analyze the competition to be faced in the marketplace. This may range from direct brand competition (which can also include its own brands) to more indirect forms of competition, such as product substitutes. For example, when Lay's introduced Baked Lay's low-fat chips, the product ended up taking away sales from the regular Lay's potato chip brand. At the same time, new consumers were gained from competing brands of potato chips.

In addition to having direct potato chip competitors, Lay's faces competition from other types of snack foods, such as pretzels and crackers. One might argue that other low-fat products also offer the consumer a choice and compete with Lay's as well (e.g., fruits). The sale of bagels has declined in recent years as competitors have introduced breakfast bars (Nutri-Grain and Quaker Oats) and breakfast snacks such as Chex Morning Mix.

At a more general level, marketers must recognize they are competing for the consumer's discretionary income, so they must understand the various ways potential customers choose to spend their money. For example, sales of motorcycles in the United States had declined significantly in the late 1980s and early 1990s. This decline reflected shifting demographic patterns; aging baby boomers are less inclined to ride motorcycles, and the number of 18- to 34-year-old males has been declining. The drop in sales could also be attributed to the number of other options consumers could spend their discretionary income on, including Jet Skis, dirt bikes, home fitness equipment, spas, and home entertainment systems such as large-screen TVs and stereos. Thus, motorcycle marketers like Honda and Harley-Davidson had to convince potential buyers that a motorcycle was worth a sizable portion of their disposable income in comparison to other purchase options. Through successful marketing strategies, the industry was effective in reversing the downturn, increasing sales by over 25 percent by the late 1990s.3

An important aspect of marketing strategy development is the search for a competitive advantage, something special a firm does or has that gives it an edge over competitors. Ways to achieve a competitive advantage include having quality products that command a premium price, providing superior customer service, having the lowest production costs and lower prices, or dominating channels of distribution. Competitive advantage can also be achieved through advertising that creates and maintains product differentiation and brand equity, an example of which was the long-running advertising campaign for Michelin tires, which stressed security as well as performance. For example, the strong brand images of Colgate toothpaste, Campbell's soup, Nike shoes, Kodak, and McDonald's give them a competitive advantage in their respective markets (Exhibit 2-2).

Recently, there has been concern that some marketers have not been spending enough money on advertising to allow leading brands to sustain their competitive edge. Advertising proponents have been calling for companies to protect their brand equity and franchises by investing more money in advertising instead of costly trade promotions. Some companies, recognizing the important competitive advantage strong brands provide, have been increasing their investments in them. Capital One and McDonald's are just two of many examples. Capital One used public relations,

direct marketing and $96 million in media spending on a new branding campaign designed to show the protection offered by their credit cards (Exhibit 2-3).

Companies must be concerned with the ever-changing competitive environment. Competitors' marketing programs have a major impact on a firm's marketing strategy, so they must be analyzed and monitored. The reactions of competitors to a company's marketing and promotional strategy are also very important. Competitors may cut price, increase promotional spending, develop new brands, or attack one another through comparative advertising. One of the more intense competitive rivalries is the battle between Coca-Cola and Pepsi. A number of other intense competitive rivalries exist in the marketplace, including Hertz and Avis and Ford and GM among others.

A final aspect of competition is the growing number of foreign companies penetrating the U.S. market and taking business from domestic firms. In products ranging from beer to cars to electronics, imports are becoming an increasingly strong form of competition with which U.S. firms must contend. As we move to a more global economy, U.S. companies must not only defend their domestic markets but also learn how to compete effectively in the international marketplace.

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