Management Help

chapter six

ANALYSING

COMPETITION

INTRODUCTION

All firms have strategic windows and some of these windows open out on to markets that are shared with other firms. Where windows share views over the same market, competition exists. It is important to understand how different firms view the same market since their perceived and actual windows of opportunity will not all be the same.

The nature of competition and the factors which influence it are explored along with how firms identify competitors and how they use product positioning to obtain a competitive advantage. Attention is paid to how firms define their marketing strategies and analyse the competitive positions of rivals. Consideration is given to the various sources of information available to firms that enable them to gauge competitors’ strengths and weaknesses.

Success in the market place depends not only on an ability to identify customer wants and needs but also upon an ability to be able to satisfy those wants and needs better than competitors are able to do. This implies that organizations need to look for ways of achieving a differential advantage in the eyes of the customer. The differential advantage is often achieved through the product or service itself but sometimes it may be achieved through other elements of the marketing mix.

Following a definition of what is meant by competition, attention in this chapter is given to Porter’s five forces model to portray the various factors which influence competition and how this influence is effected.

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NATURE OF COMPETITION AND IDENTIFICATION OF AN ORGANIZATION’S COMPETITORS

Competition is the process of active rivalry between the sellers of a particular product as they seek to win and retain buyer demand for their offerings. The operational definition of competition, however, hinges upon the meaning of ‘a particular product’.

The identification of an organization’s competitors may not be as simple or as obvious as it might at first sight appear. The most obvious competitors are those which offer identical products or services to the same customers. However, substitute products and services highlight the nature of indirect competition which must also be taken into account. Five levels of competition have been suggested: direct competition, close competition, products of a similar nature, substitute products and indirect competition.

Factors influencing competition

Industries have distinctive idiosyncrasies of their own and these idiosyncrasies alter over time. They are often referred to as the dynamics of the industry. No matter how hard a company tries, if it fails to fit into the dynamics of the industry, ultimate success may not be achieved. Porter (1985) sees competition in an industry being governed by five different sets of forces (Figure 6.1).

Citing these five ‘forces’ is rather arbitrary, since a sixth force, government regulation, is often the most significant influence in determining the profitabil ity of an industr y. In fact, when Por ter studied the pharmaceuticals and airline industries he discovered that government regulation

Actually identifying competition may not always be quite straightforward. It is important to be able to correctly identify different types of competitors so that suitable reaction to their marketing strategies and tactics can be put into practice as and when required.

The various bases of competitive advantage are discussed and reference is made to Porter’s strategic thrust typologies. This is then followed by a discussion of the various typologies of competitors that can be identified and the kind of strategy each one employs. Finally, the chapter ends by looking at how to assess competitors’ strengths and weaknesses and the sources of information that should be consulted to make this possible.

Various competitor typologies are considered—leader, challenger, follower, nicher—along with their implications for approach to marketing strategy. Attention is then given to ways and methods of obtaining information about competitors’ actual and planned activities. In particular, attention is given to market signalling actions and their interpretation.

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Figure 6.1 Forces of competition

and deregulation were important factors relating to profitability in both (Porter, 1988). However, we will look at the five forces of the model in more detail.

Rivalry among competitors

Competition in an industry is more intense if there are many comparable rivals trying to satisfy the wants and needs of the same customers in the same market or market segment. Moreover, competition increases where industry growth is slow, costs are high and there is a lack of product differentiation. High exit barriers from a market or industry contribute to increased competition. Firms may find it difficult to get out of a business because of the relationship of the business with other businesses in which they are engaged. An organization may also have considerable investments in assets which are used for the specific business and for which no valuable other use can be found.

Bargaining power of customers

Customers can exert influence on producers. Where there are a small number of buyers, for example, or a predominant/single buyer, the producer’s opportunities for action are limited. In the situation where one customer accounts for a significant proportion of a supplier’s business, then the one customer can exert considerable influence and control over the price and quality of the products that it buys. Such firms can demand the highest

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specification in products, with tight delivery times (for just-in-time manufacturing and hence reducing the cost of raw material inventories) and customized products.

Buyers exert pressure in industries by hunting for lower prices, higher quality, additional service and through demands for improved products and services. In general, the greater the bargaining power of buyers, the less advantage sellers will have. Not all buyers have equal bargaining power with sellers; some may be less sensitive than others to price, quality or service. For example, in the clothing industry, major manufacturers confront significant customer power when they sell to retail chains like Marks and Spencer and Burton. However, they can get much better prices selling to small owner-managed boutiques.

Bargaining power of suppliers

Suppliers can exert pressures by controlling supplies. A powerful supplier is in a position to influence the profitability of a whole industry by raising prices or reducing the quality of the goods it supplies. A firm that has few or only one potential supplier may exert little influence over the prices it pays for bought in materials and components. It may also experience difficulty in influencing the quality of its raw materials and resources. If it is the only purchaser and constitutes an important part of the supplier’s business, however, it can exert a great deal of influence over both prices and quality. Another form of supplier power is ‘lock-in’. This involves making it difficult or unattractive for a customer to change suppliers. It can be put into effect, for example, by offering specific services or product attributes that a competitor finds difficult to match.

Powerful suppliers can have the same adverse effects upon profitability as powerful buyers. Suppliers can exert bargaining power on participants in an industry by raising prices or reducing the quality of purchased goods and services. Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost increases in its own prices.

EXHIBIT 6.1 CUSTOMER POWER IN THE AEROSPACE INDUSTRY

When there is a downturn in the market for planes, supplying firms are affected by the power of their customers. Plane makers, producing for the world’s major airlines, are very dependent on the state of the world economy. When demand is low and margins are tight, they have to look for cost savings, irrespective of production costs. Many companies have large investments in plant and cannot exit from the market. They know, however, that when the economic climate improves, demand will recover, forcing prices back to more profitable levels. The bargaining power of the customer is greater when demand is low and reduces when demand rises.

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Threat of new entrants

The threat of new entrants can increase competitive activity in a market. Outsiders will be tempted to enter a market or an industry if they feel that the opportunity is sufficiently appealing in terms of profitability and sales. Markets which have grown to a substantial size become potentially attractive to large powerful firms provided that the level of competitive activity enables them to achieve the kind of market share and profits and sales volume they expect.

This provides an incentive for the firms already operating in the market to make the prospects appear less attractive to would-be entrants by increasing the level of competitive activity. For example, lowering price levels would increase the competition between firms within the market and it might also deter other firms from entering because it would be more difficult to obtain high profitability levels. Much depends, however, on the cost structure of a would-be entrant.

Where a market is seen to be profitable, it may attract new entrants. Suppliers may expand downstream, or buyers may move upstream. This can cause increased competition and a likely reduction in margins. Methods to discourage entry include raising the cost of entry into a market. This may be achieved by developing new products through R&D which the competition find hard to match, or introducing new marketing initiatives, such as long- term contracts with customers, or raising the cost of entry through economies of scale. Raising the cost of entry has long been practised within many industries. In such cases, larger, more expensive plants are continually built to gain competitive advantage.

Threat of substitute products or services

Substitutes, or alternative products that can perform the same function, impose limits on the price that an industry can charge for its products. The presence of substitutes is not obvious and may not be easily perceived by firms operating in an industry. Substitutes may even be preferred by customers and incumbent firms may only be noticed when it is too late to arrest their dominance.

An example which illustrates the rise of a substitute product is the current increasing proliferation of low-cost microcomputers coupled with low-cost easy-to-use business packages in areas such as accounting, database management and word processing. This ‘product’ has adversely affected the ‘industry’ of specialist programmers and specialist computer bureaux. The threat of substitutes depends on technical comparability of substitutes, the relative price of substitutes, the speed of technological development in ‘substitute’ industries and the cost of switching. Substitute products that deserve the most attention strategically are those that:

1 are subject to trends improving their price-performance trade-off with the industry’s product, or

2 are produced by industries earning high profits.

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Competitive strategy and profitability

A question of considerable general interest relates to how a business can maximize its profitability, or at least become the most profitable performer in its industry. Maximum profitability can, in principle, only be achieved in one of two ways: either by minimizing costs or by maximizing prices. Thus any useful business strategy must aim to follow one or other of these aims: to be the lowest-cost producer or the highest-price seller.

Porter (1988) argues that failure to make the choice between cost leadership and differentiation means that a company is ‘stuck in the middle’, with no competitive advantage. This results in ‘poor performance’. There is no doubt that there is a danger of this happening and it has long been emphasized by many other writers (e.g. Drucker’s (1964) assertion that concentration is the key to real economic results). Moreover, the basic concept of strategic direction seems to suggest much the same thing. Many companies which have a clear direction and a distinct position are also demonstrably either cost leaders or differentiators, but not both. Names like Rolls Royce, Bic, Cartier and KwikSave, for example, can be immediately classified in one camp or the other. Some researchers have even suggested that the most effective strategies for some situations comprise systematic oscillation between cost leadership and differentiation (Gilbert and Strebel, 1988).

When ‘focus’ was introduced initially as a generic strategy it obscured the simple structure of the model which argued that profits could be maximized either by achieving lowest costs or highest prices. Competition reduces profits by the introduction of substitutes, new entrants, etc. as suggested by Porter. Moreover, perfect competition erodes profitability perfectly. Minimizing competitions would minimize erosion of profits and this could be done by focusing on areas of the market where there are the fewest competitors. This in turn is a recommendation for the adoption of the ‘focus strategy’. However, it is debatable as to whether ‘focus’ is really a strategy in its own right—at the end of the day all strategies are focused to some extent. Even Ivory Soap (Clifford and Cavanagh, 1985), which has a very broad appeal, is carefully positioned as a multi-dimensional brand aimed at a fully researched customer profile.

STRATEGY TYPOLOGIES

While Porter’s typologies represent one important way of looking at how firms behave in the market place there are other ways of looking at what firms do. Various suggestions have been put forward to account for the strategies adopted by firms. A commonly adopted framework is to consider firms according to the role they play in a market. The suggestion is that firms act as:

1 market leader 3 market follower, or 2 market challenger 4 market nicher.

These roles are discussed below.

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Leader

The market leader is the enterprise that has the largest market share. Leadership is exercised with respect to price changes, new product introductions, distribution coverage and promotional intensity. Because of their large volume sales, market leaders enjoy the benefits of economies of scale and accumulated experience which helps reduce costs and bolster profits. Not surprisingly, dominant firms want to stay in the leading position and this requires them to:

(a) find ways of expanding total market demand (b) protect market share (c) even increase market share.

The market leader is conscious of economies of scale of operation and is happiest when making inroads into large and substantial markets. Small specialist markets (niches) are not the prime interest of market leaders.

For example, the Ford motor company produces a range of cars for high volume markets, e.g. the Fiesta for the small car market. Ferrari, on the other hand specializes in producing high-performance sports saloons, etc. for a very small market segment that is prepared to pay a very high price for such a car.

Challenger

Another group of competitors are referred to as market challengers. These companies aspire to become market leaders, recognizing the benefits of holding such an exalted position. Challengers attack the leader and other competitors in order to try and gain market share. It is uncommon for market challengers to attack the leader directly. They usually try to gain market share by attacking markets in which the smaller and less efficient firms operate. Such markets, of course, do have to be of a substantial size and not be too small or specialized to deter the larger firms.

There are a variety of strategies that challengers can adopt. One strategy is to produce an enormous variety of types, styles and sizes of products including both cheaper and more expensive models. This was a strategy adopted by the Japanese Seiko company when it attacked the watch market. It accompanied this strategy with another which involved distributing its watches through every possible channel. The wide variety of models it had available (over 2000) meant that it could supply different types of channel with different models and thereby avoid the adverse effects of channel conflict.

Follower

A third role that firms can adopt is that termed market follower. Firms which undertake a good deal of innovation often have to recoup massive investment costs. Market followers are able to copy what the leading firms produce and

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save themselves the burden of massive investment costs. This means that they can operate very profitably at the going price in a market. Such firms will obviously have to forego the market share which comes from being first into the field.

Providing they can stay cost efficient and obtain a reasonable share of the market they can survive. Less efficient ones, however, are open to attack from the market challengers.

Market niching

Most industries include smaller firms that specialize in producing products or in offering services to specific sectors of the market, i.e. in specific segments. In so doing they avoid the competitive thrusts of the larger firms for whom specialization does not offer attractive economies of scale, that is, the segments are too small to generate the kind of return on investment that the larger firms require. This is a strategy called market niching.

Market niching is a strategy that is not only of interest to small firms but is also of interest to the small divisions of larger companies. The latter firms seek some degree of specialization. In cases where the latter occurs the position of small firms is not quite so secure. From a firm’s point of view, an ideal market niche is:

(a) of sufficient size to be profitable to a firm serving it (b) capable of growth (c) of negligible interest to major competitors (d) a good fit with the firm’s skills and resources.

Specialization is the corner-stone of market niching. There is strong evidence to show that a strong brand in a niche market

earns a higher percentage return than a strong brand in a big market. In the case of large markets, competitive threats and retailer pressure can hold back profits even for the top brand.

COMPETITION RESEARCH

Many of the same factors that a firm considers under self analysis are also relevant when looking at competitor analysis. Among these the components of the value chain need to be considered in the context of evaluating competition (see chapter 3). In addition to this the following is relevant to competitor analysis.

UNDERSTANDING COMPETITORS’ STRATEGIES

Understanding competition is central to making marketing plans and strategy. A firm has to be regularly comparing its products, prices, channels of distribution and promotional methods with those of its competitors in order

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to ensure that it is not at a disadvantage. In so doing it can also identify areas where it can gain a competitive advantage.

In order to establish a sustainable competitive advantage in the market place it is necessary to know and understand the strategies adopted by competitors. This is more than noting in which markets/segments the competition is operating and their respective market shares and financial performance. In addition, it is important to consider how competition will develop in the future and thus to ascertain the focus of the strategies that competitors are pursuing.

Firms need to monitor competition continually. The main need is for information regarding:

• sales • market share • profit margin • return on investment • cash flow • new investment • in addition, knowledge of competitors’ financial performances is useful.

Such information enables firms to gain comprehensive impressions of their rivals that may be useful in predicting short-term strategies to be adopted by competitors. A knowledge of competitors’ specific objectives would be very welcome since these would give clues as to future strategies that competitors are likely to pursue. This kind of information may be difficult to obtain but may be inferred from present or past activities.

IDENTIFYING COMPETITORS

The first step, however, is to identify the competition. This may seem a simple question for most firms to answer. For example, at first sight a book publisher’s main competitors might appear to be other book publishers. This is, of course, correct. However, product substitution also has to be considered. This involves looking more broadly at the types of business in which the firm operates. If this is done one can identify many producers of goods and services that people use for leisure, education and other informational needs. Many of these products could be potential competition for the publisher. Many of these products could be used instead of the publishers’ books, i.e. they can be substituted.

SOURCES OF INFORMATION ABOUT COMPETITORS

Decision making can be improved by an adequate supply of relevant information and a knowledge of good sources of information is an important first step. A suitable starting point is to examine what competitors say about themselves and what others say about them. Sources of information fall into four categories:

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• public • government • trade • investors.

Public sources

Advertising, promotional materials and press releases are prime sources of information on what competitors have to say about themselves. Articles and newspaper reports provide a good source of information on what others have to say about them. Nonetheless, one does have to be wary of the information gleaned since it may be biased or even distorted.

Trade and professional sources

Courses, seminars, technical papers and manuals prepared by competitors can give detailed insights into competitors’ activities. However, it can take a considerable amount of time to distil and analyse this information. Distributors, the trade press and even customers can be good sources of information about what others have to say about competitors.

Government

In the UK, firms have to lodge their annual reports at Company House in London and the contents of these reports provide insights into the operations of competitors. In particular, lawsuits, government ministries and national plans are useful sources of information.

Investors

Annual meetings, annual reports and prospectuses are primary sources of what competitors have to say about themselves. Credit reports and industry studies provide an outsider’s viewpoint.

BENCHMARKING

There are several notions about what benchmarking is. Here we will adopt the view that benchmarking is the continuous process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders with a view to stimulating performance improvement. Camp (1989) identified four types of benchmarking:

• benchmarking against internal operations • benchmarking against external operations of direct competitors • benchmarking against the equivalent functional operations of non-

competitors • generic process benchmarking.

These approaches all involve comparison of the performance and management of processes. A fifth category could be added—that of product benchmarking which compares the features and performance of products.

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Competitor benchmarking involves performance comparisons between organizations which are direct competitors. Some competitor comparisons are possible from public sources, but these are often of limited detail and hence limited value.

MARKET SIGNALS

A market signal is any action by a competitor that provides direct or indirect indications of its intention, motives, goals or internal situation. Some signals are bluffs, some are warnings and some are serious commitments to a course of action. Market signals are indirect ways of communicating in the market place and can be interpreted so as to assist competitor analysis and strategy formulation. A prerequisite to interpreting signals correctly is to develop a baseline competitor analysis—an understanding of a competitor’s future goals, assumptions about the market and themselves, current strategies and capabilities. The ability to read market signals rests on subtle judgements about competitors relating to known aspects of their situations with their behaviour.

TYPES OF MARKET SIGNALS

Market signals have two different functions: they can be truthful indicators of a competitor’s motives, intentions or goals or they can be bluffs. Bluffs are signals designed to mislead other firms into taking or not taking action to benefit the signaller. Discerning the difference between the two can often involve subtle judgements. Market signals take a variety of forms, depending on the particular competitive behaviour involved and the medium employed. The important types of market signals are as follows:

Prior announcement of moves

This is a formal communication made by a competitor that it either will or will not take some action, such as instigating a price change. Such an announcement does not mean with certainty that the action will be taken. Announcements can be made that are not carried out, either because nothing was done or a later announcement nullified the action.

In general, prior announcements can serve a number of signalling functions that are not mutually exclusive:

Pre-empting other competitors. They can be an attempt to indicate a commitment to take action for the purpose of pre-empting other competitors. For example, indicating that it is going to launch a new product well before it is ready for the market place, seeking to get customers to wait for the new product rather than buy a competitor’s product in the meantime.

Threats to competitors. Announcements can be threats of action to be taken if a competitor follows through with a planned move. For example, a firm

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might hear that its competitor is about to lower its price. The firm might then announce that it too is to introduce a price reduction below that indicated by its competitor. Such an announcement would indicate that the firm is quite happy to engage in a price war and this may well deter the other firm from making the first price reduction.

Tests of competitors’ feelings. A firm may be contemplating the introduction of a new type of after-sales agreement but is unsure whether competitors will view this with pleasure or displeasure. By making an announcement about the new scheme the firm can test competitors’ reactions to its proposals.

Minimizing the provocation of a forthcoming strategic adjustment. This kind of approach seeks to minimize unwelcome retaliation and warfare resulting from a strategic adjustment. It usually takes the form of announcing the strategic adjustment and providing full information as to why the firm believes that the adjustment is necessary. Caution has to be exercised when interpreting such signals since the firm may simply be trying to disguise an aggressive move.

Internal marketing. Announcements can sometimes serve the purpose of seeking internal support for a move. Committing the firm to do something publicly can be a way of extinguishing internal debate about its desirability.

One of the most difficult tasks is to determine whether a prior announcement is an attempt at pre-emption or a conciliatory move. One can attempt to assess this by studying the lasting benefits that might accrue to competitors from pre-emption. If such benefits exist then it could well indicate announcements prelude pre-emption. Conversely, if the competitor acting in its own narrow self-interest could have done better through a surprise move, then conciliation may be indicated. An announcement that discloses an action much less damaging than it otherwise might have been, given the capabilities of the competitor, may usually be viewed as conciliatory. Announcements much in advance of a move tend to be conciliatory.

Announcements can be bluffs because they need not always be carried out. As such they may simply be viewed as mechanisms designed to produce some response from competitors not to continue with a line of action they may be contemplating instigating. Occasionally, it can be a bluff designed to trick competitors into expanding resources in gearing up to defend against a non-existent threat.

The medium in which a prior announcement appears may be a clue to its underlying motives.

Announcement of results or actions after the fact

These often take the form of announcements about sales figures, additions of capacity and so on. They ensure that other firms know about the data

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released and this may in turn influence the latter’s behaviour. Such announcements can be misleading, though this is not always the case.

Public discussion of the industry by competitors

Competitors often comment on industry conditions and on prospects for the future. These commentaries are often full of signals which testify to the commenting firm’s assumptions about the industry and presumably by implication the strategy they are developing. In addition to commentary on the industry generally, competitors sometimes comment on their rival’s direct moves. Such commentary can signal displeasure or pleasure with a move.

The manner in which strategic changes are implemented

When introducing a new product it can be initially introduced to a peripheral market or it can immediately be aggressively sold to the key customers of its rivals. A price change may be made initially on products that represent the heart of a competitor’s product line, or the price changes can be first put into effect in product or market segments where the competitor does not have any great interest. A move can be made at the normal time of the year or it can be made at an unusual time. Of course there can be bluffs.

Divergence from past goals

If a competitor has historically produced products exclusively at the high end of the product spectrum in terms of quality, its introduction of a significantly inferior product is an indication of a potential major realignment of its goals or assumptions.

Divergence from industry norms

A move that diverges from industry norms is usually an aggressive signal.

The cross parry

When one firm initiates a move in one area and a competitor responds in a different area with one that affects the initiating firm, the situation is referred to as a cross parry. It occurs where firms compete in different geographic areas or have multiple product lines that do not completely overlap. It represents a choice for the defending firm not to counter the initial move directly but to counter it indirectly. In responding indirectly, the responding firm may well be trying not to trigger a set of destructive moves and counter moves in the encroached-upon market but to clearly

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signal displeasure and raise the threat of retaliation at a later date. If the cross parry is towards one of the initiator’s important markets it may be interpreted as a strong warning. If it is towards a lesser market then the warning will be less severe.

The cross parry is an effective way to discipline a competitor if there is a great divergence of market shares. If, for example, a price cut is involved then the cost of meeting this price cut will be greatest for the firm with the largest share. If the firm with the largest share in the cross parry market initiated the first move then this may increase the pressure on the firm to back off.

The fighting brand

A form of signal related to the cross parry is the fighting brand. A firm threatened or potentially threatened by another can introduce a brand that has the effect of punishing or threatening to punish the source of the threat. Fighting brands are warnings or deterrents to absorb the brunt of a competitive attack. They are also introduced with little push or support before any serious attack occurs, thereby serving as a warning. Fighting brands can also be used as an offensive weapon as part of a larger campaign.

Recourse to legal action

Large firms sometimes force smaller ones to yield ground by threatening to take legal action for a variety of patent and other infringements—even if no such infringements actually exist. Such firms force the weaker firm to comply because it does not want to bear the extremely high legal costs which it can incur in order to make its case.

Historical analysis of signals

Studying the historical relationship between a firm’s announcements and its moves, or between other varieties of potential signals and the subsequent outcomes can greatly improve the ability to read signals accurately. Searching for signs that a competitor may have given in the past before making changes can also help to reveal types of unconscious signal unique to that competitor.

QUESTIONS

1 Discuss the usefulness of Porter’s five forces model in helping an organization to develop its business strategies.

2 Porter argues that failure to make the choice between cost leadership and differentiation implies that a company is ‘stuck in the middle’, with no competitive advantage. How can this point of view be reconciled with the success of those firms which apply both of these strategic thrusts?

3 Differentiate between:

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(a) market leader (b) market challenger (c) market follower (d) market nicher

and discuss the various strategies which might be pursued by each one of the four categories.

4 How might a firm set about trying to collect information on a continuous basis about its competitors?

5 Discuss the usefulness of market signals in the context of trying to understand competitors’ moves.

CASE STUDIES

Cyproswim Ltd

A brief history of the company

Even if the swimming pool industry in the US and in Europe has a long history, in Cyprus there were no swimming pools until 1967. The first pools that have been constructed were those of the Ledra Palace (Nicosia), Hilton (Nicosia) and Forest Park (Limassol) hotels, between 1966 and 1967. However, there was no specialized business responsible for the construction and maintenance of swimming pools. Construction of the pools mentioned above was undertaken by air-conditioning businesses.

In the intervening period, the significant increase in tourism has created the need for more hotels to be built. A hotel is now considered not only as a place where people can stay, but also a place of pleasure and entertainment. Moreover, in Cyprus, a swimming pool in a hotel is an essential feature. Fully equipped hotels have played an important role in the increase of tourism and the development of Cyprus’s economy.

The first swimming pool business in Cyprus

The owner of the first swimming pool business in Cyprus saw the high probabilities of success for that business. He decided to establish such a business in order to satisfy the needs of the market. A specialized swimming pool firm was formed under the name Cyproswim Ltd and undertook the construction of the swimming pools at the Apollonia (Limassol), Golden Sands and Salamis Bay (Famagusta) hotels.

The owner specified the main reasons for his decision to establish such a company as follows:

1 the considerable increase in tourism that had led to a considerable increase in the number of hotels

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2 the market potentials were high, as were the probabilities for success 3 it was expected that the government would encourage and support him,

since the satisfaction of tourists was one of the government’s primary concerns during that time.

These expectations were fulfilled. Demand for swimming pools was high, people responded positively and the government created no problems for the import of swimming pool equipment and chemicals.

The first equipment was imported from the US but had European specifications. In addition to the installation of swimming pool equipment, the maintenance and the chemical treatment were among the responsibilities of the owner of the company. However, the chemicals needed for the treatment and purification of water were imported from Spain. According to the owner of the company, the government of Cyprus encouraged the import of equipment and chemicals, and there were no problems in obtaining import licences. The Cyprus Tourism Organization in its attempt to attract more and more tourists encouraged this. Nevertheless, the firm faced a number of problems during the first years of its operations. The lack of availability of skilled labour and the rapid increase in demand, which was too high to be satisfied, were some of the major problems that are discussed below.

The first problems that faced the first swimming pool company

The most important difficulties were as follows: Since the construction of swimming pools was something new, many

problems arose, not only for the firm, but also for the Cyprus market. Electrical and plumbing installations are included in the procedures to be followed for the construction of a pool, and skilled labour is essential. However, there was no labour available and there were no specialists in Cyprus to train unskilled labour. For this purpose, a seminar was held by American specialists at the Ledra Palace Hotel. The seminar was organized under the auspices of the American Embassy, and many Greek Cypriots as well as Turkish Cypriots attended.

Another important problem was the maintenance of equipment and chemical treatment of the water, both of which also required skilled labour. However, this problem could be met by meticulous reading of the instructions when using chemicals, or the booklets and leaflets that the manufacturers sent. Moreover, visiting the various exhibitions in the exporting countries proved to be useful.

Third, problems arose because of the rapid increase in demand accompanying the increase in tourism. In view of the lack of skilled labour, such a high demand was very difficult to satisfy. In addition to the swimming pools of hotels, there was a great response by the private sector and many pools were constructed in private homes.

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The partition of Cyprus

Apart from the above problems, the partition of Cyprus had a very destructive effect on the company which at the time possessed more than 95 per cent of the market. Since most of the swimming pools were in Famagusta and a significant number in Kyrenia, the partition had a negative effect on the financial position of the firm. Machinery that had a value of CP5000 had been delivered to the Dome Hotel in Kyrenia and never been paid for.

This is only one example of how destructive the partition was for the business. Nevertheless, in the aftermath, many hotels were built in Larnaca, Limassol and Paphos and the firm recovered the losses. Most of the problems were overcome and the firm not only survived, but excelled. For many years it was operating in a monopoly market and this enabled the firm to enjoy the advantages of economies of scale.

More businesses in the market

A few years later, another swimming pool business under the name Poseidon entered the market. However, to this day the firm does not undertake the construction of swimming pools but only chemical treatment, and it does not import much equipment. A similar company, Aphrodite Ltd, was established later still and during the past three years it has undertaken the construction of swimming pools together with the chemical treatment. Furthermore, in the late 1980s two other companies were established to market prefabricated pools. Prefabricated pools are often preferred by individuals for houses. However, they are not preferred or recommended by hotel owners. In 1995, there were 12 swimming pool companies in Cyprus. Even though Cyproswim possesses the highest market share, or in other words is the market leader, the threat from the competition cannot be ignored.

The company’s competitors have managed to take a significant market share and this has made Cyproswim’s management sit up and take note. In view of the strong competition, the management has started to consider marketing as a factor that plays an important role in the firm’s success. Every year more and more effort is placed on marketing, and a higher proportion of the company’s budget is absorbed by marketing activities, with the intention of satisfying the company’s customers in the best possible way.

Contributed by Ioanna C.Papasolomou-Doukakis

Question

What kind of competitor analysis would be of most benefit to Cyproswim? How might this analysis be reflected in its marketing strategy?

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Cartech

A firm that innovates can steal a competitive advantage over other firms in its industry. Nevertheless, there are many innovations that fail in the market place. They fail to meet the expectations of the firms that launch them and quite often achieve abysmally low sales by any standard. Some of these products are good whereas others are just gimmicks or fads. However, one thing does seem to be clear, if a new product does not stand out sufficiently well from other existing products in the market place then its chances of success are diminished.

Perhaps the best way to beat competition is to be so innovative that potential customers won’t even see a product as having any potential substitutes. It has long been known, for example, that some people just adore the personification of inanimate objects. Children’s toys are a good example. Barney with its repertoire of songs and sayings is a favourite when displayed in most children’s toy shops and attracts considerable attention from passers by—both young and old. How many older people will squeeze Barney’s hand when asked to do so! There have also been some more practical applications of voice technology in products. Most notable among these have been talking watches which have been a great help to the blind and partially sighted.

Cartech has extended voice technology to car alarms. It has produced a product which can be fitted in five minutes without tools or drilling. The alarm contains a deafening 130dB siren and also literally talks. When the alarm is activated by the remote control key-fob the alarm announces to all and sundry ‘alarm armed’ in confirmation. If someone sets off the alarm’s built-in vibration sensors (with anything from a sharp jolt to a light tap) the alarm will react with the spoken words ‘Stand back! This vehicle is alarmed’. When the alarm detects a change in electrical current (such as that produced by a door opening) the product will again emit an urgent spoken warning, followed by the siren if the words are ignored. Other voice command functions include an emergency panic button, activated by the remote control from either inside or outside the car (‘Please help! Please help!’ plus siren), a handy car finder button for crowded car parks (‘Your car is here’) and step by step vocal instructions for setting the sensitivity of the car alarm sensors.

Cartech feels that it has a unique product which is sufficiently different from anything else on the market to mean that it has no competition. It intends to set a premium price on the product, but before marketing the product is interested to analyse it in the context of competitive offerings just to confirm its own feelings.

Questions

1 Does the product really stand out from what competitors have to offer? Why or why not?

2 If the product is a success what other products might the firm also consider?

120 ANALYSING COMPETITION

3 How should the firm set about marketing the talking alarm so as to maximize its prospects for success?

4 What kind of competitor research should the firm have undertaken prior to considering the development of such a product?