BUSINESS (NO PLAGARISM A+ WORK, ON TIME)

Market segmentation strategy, target markets, and competitors: a resource-advantage theory perspective Dennis B. Arnett

Rawls College of Business, Area of Marketing and Supply Chain Management, Texas Tech University, Lubbock, TX, USA

ABSTRACT Given that marketing managers are taught the significance of pre- dicting and responding to competitors’ actions, comparing their firms’ strategies to those of competitors, and developing sustain- able competitive advantages over competitors, the task of identify- ing competitors emerges as pivotal for effective marketing strategy development. However, a notable challenge lies in the diverse interpretations of what defines a competitor among strategists. This article explicates the nature of competitors by drawing on resource-advantage theory and its focus on market segments. Specifically, it focuses on market segmentation strategy as a mechanism to examine what constitutes a ‘competitor’. In addi- tion, it outlines an approach that can be used to identify competitors.

ARTICLE HISTORY Received 6 September 2023 Accepted 20 July 2024

KEYWORDS Competition; competitor; resource-advantage theory; market segmentation strategy; target market; level of competitiveness

Introduction

Understanding competitive behaviour is central to marketing strategy (P. R. Varadarajan & Jayachandran, 1999). Indeed, marketing managers are explicitly taught the importance of predicting and responding to competitors’ actions, comparing their firms’ strategies to those of competitors, and developing sustainable competitive advantages over rivals (Arnett et al., 2021). However, what characteristics indicate that organisations are compe- titors? A review of the marketing strategy literature reveals numerous studies that use the term ‘competitor’ but very few that provide a clear definition. It seems that researchers often assume that the term is so ubiquitous that it does not need to be defined. This assumption is problematic. The perspectives concerning what constitutes a competitor differ significantly across both marketing theorists and practitioners. Theorists often view rivalry as an environmental factor where managers simply respond to competitive pres- sures, rather than seeing managers as making strategic choices about which competitors to respond to and how to respond (Porac & Thomas, 1990). For practitioners, the complex nature of firms and competition leads them to use a variety of mental models to simplify the task of identifying competitors. For example, Clark and Montgomery (1999) find that managers’ criteria for identifying competitors vary widely, with a greater reliance on supply-based factors (i.e. firm attributes) than on demand-based ones (i.e. consumer

CONTACT Dennis B. Arnett [email protected] Rawls College of Business, Area of Marketing and Supply Chain Management, Texas Tech University, Lubbock, TX, USA

JOURNAL OF MARKETING MANAGEMENT 2024, VOL. 40, NOS. 13–14, 1269–1285 https://doi.org/10.1080/0267257X.2024.2391367

© 2024 Westburn Publishers Ltd.

attributes). Additionally, they find that managers pay little attention to consumers’ perceptions. To provide a grounded approach for defining and identifying competitors this study draws on the resource-advantage theory of competition (hereafter, R-A theory).

R-A theory was initially formulated by Shelby Hunt and Robert Morgan in their 1995 Journal of Marketing article, ‘The Comparative Advantage Theory of Competition’. While accurate, the original label ‘comparative advantage’ was later changed to ‘resource- advantage’ to avoid potential confusion with another prominent theory – the compara- tive advantage theory of trade (see footnote 1 in Hunt & Morgan, 1996). Over the subsequent three decades, Professor Hunt expanded and refined the theory with the collaboration of numerous colleagues. As he often emphasised in his articles, R-A theory remains a work in progress. This article will further explicate and develop the theory and provide insights for researchers and practitioners.1

R-A theory is a general theory of competition that describes the process of competi- tion. It explores the various activities that constitute competition and endeavours to explain how these individual components contribute to the overall phenomenon. This approach offers insights that align more closely with the reality of competition (for a more detailed discussion, see Hunt & Arnett, 2001). The continued interest in R-A theory by scholars underscores its relevance in understanding the evolving landscape of competi- tive dynamics.

R-A theory maintains that ‘Competition is the disequilibrating, ongoing process that consists of the constant struggle among firms for a comparative advantage in resources that will yield a marketplace position of competitive advantage and, thereby, superior financial performance’ (Hunt & Morgan, 1997, p. 78). A key foundational premise of the theory is that demand is both heterogeneous across and within industries, and is dynamic (Hunt, 2000). This heterogeneity in demand arises from variations in consumers’ tastes, preferences, and requirements. This diversity provides a rationale for why companies often find it advantageous to adopt a market segmentation strategy (Hunt & Arnett, 2001).

Market segmentation strategy is a widely accepted concept in marketing (Hunt & Arnett, 2004, 2006). It suggests that to compete successfully, firms should identify market segments, select specific ones for focus, and develop tailored marketing strategies for each targeted segment (Cortez et al., 2021). This concept traces back to Smith (1956) and made its debut in textbooks over five decades ago (see, e.g. Kotler, 1967). It has since become a requisite in marketing courses at both undergraduate and graduate levels and an indispensable component of many firms’ marketing strategies (Hunt & Arnett, 2004). Furthermore, as R-A theory emphasises, market segmentation is integral to competition itself. ‘Competition is the constant struggle among firms for comparative advantages in resources that will yield marketplace positions of competitive advantage for some market segment(s) and, thereby, superior financial performance’ (Hunt, 2000, p. 135). Thus, competition occurs on a segment-by-segment basis (Hunt & Arnett, 2004).

This perspective offers valuable insights into the use of the term ‘competitor’. While conventional wisdom may suggest that companies, such as Ford and Chevrolet are competitors, R-A theory clarifies that these two organisations compete in some segments but not in others. For instance, both manufacturers produce light-duty trucks (Ford F-150 and Chevrolet Silverado) for the US market, but currently, only Ford produces a semi- truck. Consequently, Ford and Chevrolet compete in the light-duty truck category but not

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in the semi-truck category. This nuanced view provides fresh perspectives on marketing strategy development, dynamic inter-firm relationships, and the definition of a competitor. It aligns with the concept of multimarket competition, which involves competition between firms across multiple geographic product-markets (R. Varadarajan, 2023). However, the emphasis here is on market segments rather than geographic markets.

Understanding the actions of competitors is essential in marketing strategy (Arnett et al., 2021; Clark & Montgomery, 1999). Considering the complex nature of competition and the diverse types of information available to managers (e.g. products and services offered, product positioning, geographic scope, and customers’ perceptions of firms), it is not surprising that managers’ concepts of competitors can vary. In addition, as argued by Hunt and Madhavaram (2006), marketing strategy education often lacks an integrative theoretical foundation. Consequently, students may not receive a systematic structure that enables them to frame, understand, and solve marketing problems. This deficiency becomes evident when these students become managers, as they may lack adequate theoretical foundations for establishing criteria for various decisions, including the iden- tification of rivals.

The purpose of this article is to explicate the nature of competitors by drawing on R-A theory and its emphasis on market segments (Hunt, 2000; Hunt & Morgan, 1995, 1996, 1997). Specifically, it will develop a theory-based understanding of what constitutes a ‘competitor’, in the context of market segmentation strategy. First, the article examines the nature of market segments. Second, it explores the concept of competitor and develops a theory-based definition. Third, it outlines an approach that can be used to identify competitors. Finally, it provides guidance to both marketing researchers and practitioners.

The nature of market segments

The belief that market segments can and do exist is widespread among scholars, yet there is some divergence regarding explanations given for their existence. Research influenced by neoclassical economics often interprets market segmentation as an artificial fragmen- tation of the market, driven by suppliers’ efforts to attain monopoly power. In contrast, most marketing researchers view market segments as a natural outcome of the inherent heterogeneity of demand – a pivotal aspect of marketing strategy (for an in-depth discussion, see Hunt & Arnett, 2004).

R-A theory acknowledges that demand is heterogeneous both across and within industries and is subject to constant change (Hunt, 2000; Hunt & Madhavaram, 2020). The objective of a segmentation strategy is to scrutinise markets, identifying niche opportunities where a firm can establish a superior competitive position (Weinstein, 1994). The underlying premise is that in industries with significantly heterogeneous demand (e.g. the consumer automobile industry), the market can be subdivided into smaller, meaningful segments of consumers whose needs, wants, tastes, and require- ments are substantially homogeneous (e.g. the sport utility vehicle segment). This seg- mentation facilitates firms in developing tailored marketing strategies for each targeted segment.2 It’s important to note that the benefits of such targeted strategies extend beyond the firms themselves. Through the competitive process, firms learn to produce

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market offerings efficiently and effectively, providing value to consumers and contribut- ing to societal and economic well-being (Hunt & Arnett, 2006).

Marketing scholars have extensively discussed a range of variables that can be employed to identify market segments, including geographic (e.g. city and region), demographic (e.g. age, income, and ethnicity), psychological (e.g. personality, attitude, and motivation), psychographic (e.g. lifestyle, activities, and values), and behavioural bases (e.g. usage rate, use occasions, and brand loyalty). Managers often employ a combination of these factors to uncover characteristics that inform a firm’s marketing strategy, such as usage behaviour, benefits sought, price sensitivity, shopping behaviour, and selection criteria (Tynan & Drayton, 1987).

Once segments are defined, managers conduct assessments to determine whether a segment presents a viable opportunity for success (Pires et al., 2011). This evaluation often considers multiple segment characteristics, including size, growth potential, level of competition, and actionability. Additionally, management must decide whether the firm possesses (or has access to) the necessary resources to develop a viable marketing strategy that outperforms rivals in meeting the needs and wants of the segment. Effective market segmentation strategies enable firms to occupy advantageous market- place positions – being more effective and/or efficient than rivals by leveraging their resources wisely (Hunt & Arnett, 2004).

When managers target a specific market segment, it is because they perceive it to be a significant business opportunity. They also recognise that targeting a specific consumer group with a tailored marketing strategy does not exclude other consumers outside the segment from making purchases. For instance, if a power tool company develops a marketing strategy to sell a line of tools to professional power tool users, it understands that some non-professional users will also buy the same tools. The strategy enables the firm to concentrate its efforts on key users who are most profitable while not excluding non-segment members from purchasing the same offerings.

Identifying market segments

Descriptions of market segments within an industry often vary among firms, and this diversity is influenced, in part, by the nature of resources. For R-A theory, resources encompass both tangible and intangible entities that a firm can access. However, to be considered a resource, these entities must effectively and/or efficiently contribute to the firm’s ability to produce a market offering valued by members of a segment (Hunt, 2000; Hunt & Madhavaram, 2020). Resources can be broadly categorised into financial (e.g. access to cash and financial markets), legal (e.g. trademarks and contracts), human (e.g. the knowledge and skills of employees), organisational (e.g. competences, structures, and cultures), informational (e.g. knowledge of consumers and competitors), and relational (e.g. relationships with consumers and intermediaries). The imperfect mobility of these resources results in firms developing somewhat distinctive sets of resources, which can be combined to form higher-order resources that often become the bases for firm compe- tences (Hunt & Arnett, 2004).

The combination of heterogeneous, imperfectly mobile resources and the diverse demands within an industry leads to significant differences among firms, including variations in size, scope, strategies, and profitability (Hunt, 2000). This diversity prompts

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firms to view their industry through different lenses. As R. Varadarajan (2010) suggests, one marketing strategy universal is that ‘The marketing strategies pursued by no two competitors in an industry are likely to be identical’ (pp. 134–5). In addition, the multitude of potential segmentation variables makes the identification of market segments a challenging task for managers and analysts (Bock & Uncles, 2002). Consequently, it is improbable that firms within an industry will define their market segments in precisely the same way.

Consider a simple scenario involving two power tool manufacturers. Firm A relies on its engineering competence and views the power tool market through a performance lens. As a result, it directs its efforts towards enhancing the performance of its power tools. During the identification of market segments, it places emphasis on product performance characteristics like power, torque, and battery life. Its characterisation of market segments involves assessing the level of power tool performance required. For example, individuals using power tools for simple home projects are rated low in terms of needed perfor- mance, whereas those working with hard-to-cut materials are rated high. Using a combination of segmentation variables, Firm A identifies two potential target markets: tradespeople (those who use tools daily to earn a living) and specialised careers (indivi- duals working with special materials requiring high-performance tools). It decides that other segments do not align with its strategic vision.

In contrast, Firm B concentrates on understanding how consumers use power tools, centring its approach around its market research competence and adopting a consumer behaviour lens. Firm B recognises the varied ways consumers use power tools, ranging from occasional usage for one-off home projects to daily professional use. Using a combination of variables, Firm B identifies three potential target markets: occasional users (those who use power tools when needed), do-it-yourselfers (people who regular user power tools for extensive home improvement projects), and professional users (individuals using power tools as part of their jobs).

Following a thorough assessment of each segment, Firm A decides to concentrate on both identified segments – tradespeople and specialised careers (see Figure 1). The tradespeople segment, due to its size and the perceived advantage Firm A holds over other manufacturers catering to this segment, is deemed highly attractive. Although the specialised careers segment is smaller, it is characterised by limited competition, and its users exhibit low price sensitivity. This allows Firm A to leverage high margins, making it an attractive segment. In contrast, Firm B chooses to focus on two segments – do-it-yourselfers and professional users (see Figure 1). The do-it- yourselfers segment is substantial and shows signs of growth, with economic fore- casts suggesting a continued interest among homeowners in cost-effective home improvement projects. Meanwhile, the professional users segment has consistently contributed to Firm B’s success, offering high profits, bolstered by the company’s strong and well-known brand. Conversely, the occasional user segment, despite its size, faces stiff competition with many manufacturers employing low-price strategies, making it unattractive for Firm B, which does not believe it can thrive in this segment. Consequently, neither firm defines their target markets in the same way. However, some overlap exists between their segmentation strategies as depicted in the shaded area of Figure 1. The question that arises is whether they should be considered competitors.

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Competitor

As an exercise, examine any undergraduate or graduate marketing textbook to see if it provides a definition for the term ‘competitor’. The author’s experience is that few do. For example, while Kotler and Keller (2012) defines competitors as ‘companies that satisfy the same customer need’ (p. 278), while Marshal and Johnston (2023) do not define the term. The absence of a universal definition for ‘competitor’ in marketing textbooks reflects a broader challenge in marketing education. As Hunt and Madhavaram (2006) assert, marketing strategy education lacks an integrative, theoretical foundation, which suggests a need for a more cohesive framework in marketing education. Ideally, marketing text- books could benefit from incorporating a clear and universally accepted definition of ‘competitor’ to provide students with a foundational understanding of the entities they are analysing in competitive strategy discussions. A well-defined term not only facilitates clearer communication but also aids students in developing a more robust theoretical foundation for strategic decision-making.

What constitutes an adequate definition of competitor? The Oxford English Dictionary (2023) defines ‘competitor’ as ‘One who competes, or engages, in competition; one who seeks an object in rivalry with others also seeking it; a rival’. For firms, this definition would suggest that competitors are firms that are seeking the same ‘object’. So, what do firms seek? For R-A theory, firms develop combinations of resources that enable them to occupy advantaged marketplace positions in a segment, which leads to superior financial perfor- mance (Hunt, 2000). Therefore, one could argue that firms are seeking to occupy advan- taged marketplace positions in particular industry segments. Then, when should firms be considered competitors?

The R-A theory view suggests two factors define a competitor – value delivered, and target market selected. To be rivals, firms must provide similar core benefits through their market offerings (Kotler, 1980). This is consistent with Kotler and Keller’s (2012) definition of competitor mentioned above. For example, Ford’s F-150 truck could be viewed as

Firm A Firm B

Professional Users

Tradespeople Specialized Careers

Do-It-Yourselfers

All power tool users

Figure 1. Overlapping market segments. The size and position of each market segment is for illustration purposes only. The position of each segment would be based on the factors that each firm uses to define its segments.

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delivering similar value to consumers as does Chevrolet’s Silverado (e.g. hauling/towing capacity). However, R-A theory suggests that focusing on delivering the same value as other firms is not sufficient. In addition to delivering similar value, competing firms must target the same general groups of consumers (i.e. market segments) (Hunt & Arnett, 2004). In the case of the Ford F-150 and the Chevrolet Silverado, both firms tend to focus on male, blue- collar workers, who want a truck that is ‘tough’.3 Therefore, they would be considered competitors in this segment. However, if Ford targets its offering to male, blue-collar workers while Chevrolet targets outdoor enthusiasts, they would not be competitors because they are focusing on different market segments. (Note: The key is who the firms target with their strategies, not who can purchase the market offering.) In summary, the R-A theory view suggests that for two firms to be considered rivals, they not only need to deliver similar value through their market offerings but also target the same general groups of consumers (market segments) with their strategies. This dual alignment in value delivery and target market describes the competitive relationships among companies.

Though to date, R-A theory researchers have not provided a specific definition of the term competitor, the above criteria are evident in how the theory defines marketplace positions. Specifically, the theory maintains that a firm’s marketplace position, in a segment, stems from two factors – consumers perceptions regarding the value a market offering delivers them, and the costs associated with producing and marketing the offering (Hunt & Morgan, 1995). Firms focusing on similar sets of consumers can be placed in the same competitive position matrix (see Figure 2). Therefore, firms are competitors if they deliver similar value to a similar set of consumers.

The matrix in Figure 2 represents a single industry segment, which would include all firms whose target markets overlap considerably. What constitutes ‘considerably’ may vary from firm to firm (i.e. it is subjective). Firms occupy advantaged marketplace positions when they are more efficient and/or more effective than rivals (cells 2, 3, and 6 in Figure 2). That is, firms have an advantage over competitors, when their offerings are perceived by consumers in the segment as delivering more value than rivals and/ or when the firm has a cost advantage in producing and marketing its offering as compared to rivals. For firms that focus their efforts on several target markets, they would use multiple competitive position matrices to visualise their various competitive positions as compared to rivals in those segments. The matrix can also serve as a dynamic tool, allowing firms to gauge their competitive positions over time. As competitors change tactics, the matrix can be used to track changes in the relative competitive positions of rivals (see Newaz et al., 2023).

R-A theory posits that firms approach the diversity of demand within an industry differently, driven by their unique sets of resources. As illustrated in the earlier example, each firm in an industry makes decisions about the production and marketing of various offerings (comprising specific attributes and targeted at distinct market segments) based on its available resources (Hunt, 2000). When the segmentation strategies of these firms intersect, signifying a focus on satisfying the needs of similar consumer groups by providing comparable value, they are considered competitors. In the given example (see Figure 1), it is evident that Firm A and Firm B do not compete in the specialised careers or do-it-yourselfers segments. However, there is an overlap between Firm A’s tradespeople segment and Firm B’s professional users segment, suggesting that the two firms may be perceived as competitors by their managers.

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Determining which firms qualify as competitors is not a binary decision, as Easton (2007), p. 34) notes, ‘there is no reason why a company should not perceive competitors as being competitors to a greater or lesser degree’. For instance, a firm might compete with some companies in only a single market segment, while engaging in competition with others across multiple segments. Consequently, from an organisational perspective, a firm may perceive the level of competition with a rival as more intense if it spans multiple segments. This discriminating view shows how managerial reactions to compe- titors’ actions may differ, with some competitors eliciting stronger responses than others during the development and implementation of marketing strategies.

Implications

Clark and Montgomery (1999) highlight that research on the identification of competitors typically follows two main approaches: the supply-based approach, which centres on the

1 2 3

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7 8 9

Lower

Lower

Parity

Parity Superior

Higher

Relative Resource

Cost (e�ciency)

(Indeterminate Position)

(Indeterminate Position)

(Competitive Advantage) (Competitive Advantage)

(Competitive Advantage)(Competitive Disadvantage)

(Competitive Disadvantage) (Competitive Disadvantage)

(Parity Position)

Relative Resource-Produced Value (e�ectiveness)

Figure 2. The competitive position matrix. The matrix represents potential marketplace positions in a market segment. A firm’s position is identified by comparing its efficiency and effectiveness to those of rivals. The matrix assumes that rival firms’ definitions of the target market overlap considerably. Source: Adapted from Hunt and Arnett (2004).

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attributes of firms, and the demand-based approach, which focuses on consumers’ attitudes and behaviours. The perspective discussed in this article offers guidance for selecting attributes in supply-based approaches and draws on insights from research utilising demand-based approaches. For researchers employing a demand-based approach, the R-A view provides a theoretical framework for identifying firms as compe- titors. This has significant implications for scholars interested in exploring industry-level phenomena. Traditionally, firms or strategic business units within the same industry are identified as competitors using tools such as standard industrial classifications, including the United Kingdom Industrial Classification (UK SIC) or the North American Industry Classification System (NAICS) (see, e.g. Park et al., 2014; Zheng et al., 2021). However, R-A theory challenges the appropriateness of such codes, asserting that they lack seg- ment-level information. While these codes may identify organisations that deliver similar value (i.e. the same core offering), they do not reveal the specific consumer groups on which the firms are focusing their efforts. Consequently, firms grouped using these methods may not accurately represent competitors, as discussed in this article. For example, the NAICS code for automobile manufacturers, such as Ford and Chevrolet, is 336.111, indicating establishments primarily engaged in manufacturing complete auto- mobiles or automobile chassis. However, this same code would classify companies like Porsche and Mercedes. None of these firms’ strategies entirely overlap. The use of such classification tools may therefore limit our understanding of competition. Similarly, stu- dies identifying competitors based on attributes such as size, firm behaviour, and offer- ings may encounter similar limitations.

The R-A view of competitors has significant implications for studies exploring public policy and industry dynamics. For instance, adopting an R-A theory perspective, which defines competition as a segment-by-segment process, could fundamentally alter public policy discussions regarding the extent of monopoly within an industry (see Hunt, 1999; Hunt & Arnett, 2001, 2004). Rather than considering competition solely at the industry level, R-A theory emphasises competition as a nuanced, segment-specific phenomenon. In addition, the R-A theory perspective offers an alternative view regarding industry-based strategy, departing from traditional views such as those proposed by Porter (1980, 1985). Instead of concentrating on industry characteristics like the threat of new entrants or substitute products, the R-A theory perspective underscores the vital role of resources in executing segment-based strategies (Hunt & Derozier, 2004). Contrary to the concept that strategic success hinges on industry selection, the focus shifts to firm characteristics, particularly to the development of resource sets that enable firms to outperform rivals. R-A theory suggests that resource sets can empower firms to achieve greater efficiency and effectiveness than their competitors within shared market segments. This perspective challenges conventional industry-centric views and offers a fresh lens through which to understand competitive dynamics and formulate strategies.

For R-A theory, the demand-based approach to identifying competitors plays a crucial role in providing valuable feedback on a firm’s marketplace position and resource utilisa- tion. According to R-A theory, consumers’ perceptions hold the ultimate authority in evaluating a firm’s market offerings (Hunt, 2000). For example, if consumers perceive that Firm A’s offering is superior to Firm B’s, then, from the consumer perspective, it is superior, even if Firm B’s offering incorporates newer technology or offers faster processing. When

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a firm devises a marketing strategy tailored to a specific consumer segment, it aligns its marketing mix with the characteristics of that target market, encompassing the needs, wants, tastes, preferences, and behaviours. A crucial aspect of this strategic process is the adoption of positioning plans for its market offerings (Hunt & Arnett, 2004). The position- ing of a market offering provides consumers with information about its suitability for them. Consumers integrate this positioning information with other knowledge about the offering to form a synthesis (Keller, 2003). Consequently, a firm’s offering becomes positioned in consumers’ minds in relation to offerings from other firms. For example, an automobile manufacturer may use marketing efforts to suggest that its mid-size SUV is an ideal family car, employing advertisements that depict families enjoying the vehicle. Similarly, other firms competing in the same market segment will strive to position their offerings in consumers’ minds. Over time, consumers learn to identify offerings from different firms that satisfy the same needs, such as recognising which automobiles are suitable for family transportation. This dynamic process of positioning and consumer perception is integral to the R-A theory’s explanation of competition and strategic positioning in the marketplace.

Consumer perceptions play a critical role in furnishing a firm with valuable feedback regarding the perceived value of its offerings in comparison to those of competitors. In addition, these perceptions serve as evidence of the success or effectiveness of a firm’s positioning strategy. For example, when choosing among marketing offerings, consumers may develop lists of comparable offerings (i.e. consideration sets) (Hauser, 2014). These sets delineate which offerings in the market align with their needs in specific purchase situations. From a managerial perspective, consideration sets offer insights into which firms (i.e. the manufacturers of those offerings) are perceived by consumers as rivals. Consequently, managers can leverage consumer research as a valuable tool to identify competitors. By understanding how consumers view and compare different offerings, managers gain strategic intelligence that informs them not only about their own market positions but also about the overall competitive landscape. This consumer-centric approach facilitates a more subtle understanding of market dynamics, aiding managers in making informed decisions to stay competitive and meet consumer needs effectively.

Competitor identification process

For management, the R-A perspective provides guidance concerning how to identify competitors. The process involved in identifying competitors should include: (1) listing its firm’s industry/industries (i.e. the different ways in which the firm delivers value to consumers through its market offerings), (2) describing the target markets of each of its market offerings, (3) listing other firms that have market offerings that deliver similar value (i.e. firms that occupy the same industry/industries), (4) specifying the target market(s) these firms focus on with their market offerings, and (5) identifying competitors (i.e. firms that deliver similar value to the same general market segment(s)).

Addressing step one, listing one’s industry is a fundamental aspect of strategic deci- sion-making, and it has long been recognised as crucial in the field of industrial marketing. This recognition dates to the early developments in strategic thinking. For example, Frederick (1934) identifies listing one’s industry as a key factor in defining a market. Despite its apparent simplicity, as Levitt (1960) points out, firms often face the challenge

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of defining their industries too narrowly, succumbing to a form of myopia. Returning to the simple scenario involving Firm A and Firm B, the choice of how broadly or narrowly to define their industries becomes focal. Instead of narrowly defining their industry as ‘power tools’ used for specific purposes like drilling holes or sawing, they might opt for a broader definition such as ‘tools’ in general. In this case, firms manufacturing hand tools could be perceived as competitors if they target similar market segments. Conversely, they could choose to define their industry more narrowly, such as ‘power tools used to bore holes in specific materials’ like titanium or tungsten. This narrower definition might lead managers to identify a different set of firms as competitors. As this example illustrates, how managers’ define their industries can significantly affect the identification of rivals. It is ultimately up to management to decide how it characterises its industry.

Addressing step two, describing the target market for each market offering is typically straightforward for firms employing market segmentation strategies, as it constitutes a fundamental step in developing such a strategy (Hunt & Arnett, 2004). These firms are well-equipped to articulate the characteristics of their target market for each marketing offering. However, it’s worth noting that some firms may opt for ‘mass market’ strategies, vigorously promoting standardised offerings and choosing to overlook the inherent heterogeneity of demand (Hunt, 2011). For these firms, describing the characteristics of their ‘key customers’ for each market offering becomes more relevant than outlining ‘target markets’. This might involve applying principles such as the 80/20 rule or customer lifetime value calculations to identify and prioritise important customers. Though these firms may not use market segmentation strategies, per se, their most profitable customers represent key sources of future revenue. As a result, identifying other firms that are focusing on their key customers with offerings that deliver similar value is important for strategy development and long-term success. In this context, management can leverage data analytics to identify key consumers, employing various data types and techniques (see Wedel & Kannan, 2016). Even in the absence of traditional market segmentation, recognising competitors who share a focus on key customers ensures that these firms can safeguard and enhance their position in the market by understanding and responding to the needs and preferences of their most valuable consumers.

Addressing step three, once management has gained an understanding of the industry or industries their firm operates in and has identified the target market(s) it focuses on, the assessment of other firms in the same industry becomes feasible. Listing other firms in one’s industry can be a relatively straightforward process. Many industries have estab- lished professional associations that allow firms to leverage the collective strength of their memberships to influence regulations, government policies, and public opinion on behalf of the industry (Rajwani et al., 2015). These industry associations often provide valuable industry-based data, including details about the firms operating within the industry. Another effective method involves soliciting input from consumers to define firms that deliver similar value. As highlighted by Clark and Montgomery (1999), managers some- times overlook how consumers perceive firms. Seeking input directly from consumers can, therefore, be a valuable exercise. Consumers’ perspectives on which firms provide them with comparable value offer unique insights that complement internal assessments, contributing to a more comprehensive understanding of the competitive landscape. This dual approach, combining industry data from associations and consumer input, enhances the accuracy and depth of the identification of competitors in the marketplace.

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Addressing step four, management should actively engage in competitive intelligence activities, as suggested by Jaworski et al. (2002), to shape the firm’s strategic decisions. Competitive intelligence is defined as the process and forward-looking practices used to produce knowledge about the competitive environment, ultimately improving organisa- tional performance (Mandureira et al., 2021). Given that firms typically do not keep their marketing strategies secret, management can glean insights regarding the targeted segments (or key customers) of other firms in the industry by deconstructing their marketing efforts. By examining each firm’s marketing communications, one can discern the intended target audience (Narayanan & Manchanda, 2009). This analysis involves examining the sources used, the messages conveyed, and the chosen communication channels – all of which provide valuable indicators of the target audience (Kumar & Gupta, 2016). Additional evidence of targeting can be extracted from various sources, including company reports, published materials, and websites (Wright et al., 2009). Collectively, these sources allow management to develop a general understanding of the character- istics of a firm’s targeted consumers.

Addressing step 5, management must evaluate, for each potential rival within the same industry, whether there is significant overlap between the firm’s target market strategy and that of its potential competitors. As suggested by Clark and Montgomery (1999), competitor identification can be likened to a categorisation process, where a firm’s managers observe other organisations to determine if they qualify as rivals. Managers develop cognitive taxonomies summarising the similarities and differences among these organisations (Porac & Thomas, 1990). The process outlined in this article provides the foundational framework for competitor identification. However, managers need to estab- lish criteria for assessing whether the target markets of potential rivals significantly over- lap with their own. For example, employing marketing research, firms can examine the likelihood that potential rivals’ market offerings occupy the consideration sets of their targeted consumers (Roberts & Lattin, 1991). Yet, managers’ mental models concerning competitors may also encompass other factors such as a firm’s size, historical success, and competitive behaviour (Clark & Montgomery, 1999). Ultimately, management must decide whether a particular firm should be deemed a competitor in a given segment.

While the focus here is on segment-level competition, organisations may gauge the overall level of interorganisational competition by scrutinising the degree to which their target markets overlap with those of other firms. Those with more similar target markets (i.e. greater overlap) might be perceived as more significant threats than those with less overlap. Alternatively, organisations may assess the number of segments in which they compete with other firms as an indicator of the level of competition. For example, Ford and Chevrolet compete in a broader array of segments than do Ford and Tesla. Consequently, corporate-level strategists at Ford might view Chevrolet as a more impor- tant competitor (i.e. a competitor to a greater degree) than Tesla, influencing future strategic decisions.

Discussion

Developing an understanding of competitors is a prerequisite for developing successful marketing strategies. However, before delving into comprehending competitors’ beha- viours, the initial step is to identify which firms qualify as rivals. This article asserts that

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competitors are firms striving to secure advantageous positions in the same market segment. A marketplace position of competitive advantage is attained when a firm’s market offerings are perceived to provide more value to consumers than those of rivals and/or when the firm has cost advantages in producing and marketing its offerings. For R-A theory, competition occurs on a segment-by-segment basis (Hunt, 2000). As per the definition here, firms are deemed competitors if they deliver similar value to the same general set of consumers. Consequently, firms can be competitors in one industry seg- ment but not in another. In addition, given the varied definitions of segments from one firm to another, the degree to which rivals are perceived to be competitors may vary in different segments. Management might perceive firms competing across multiple seg- ments as more important competitors than those that do not. This article outlines a systematic process that managers and researchers can employ to identify competitors. The process involves listing a firm’s industry/industries (i.e. the different ways in which the firm delivers value to consumers through its market offerings), describing the target markets for each market offering, listing other firms with market offerings delivering similar value (i.e. firms in the same industry/industries), specifying the target market(s) these firms focus on with their market offerings, and ultimately identifying competitors. This structured approach facilitates a comprehensive understanding of the competitive landscape, setting the stage for effective strategic decision-making.

The development of a theory-based concept of what constitutes a competitor holds significant implications for both managers and academics. For managers, adopting a segment-by-segment perspective on competitors provides a nuanced understanding of marketplace dynamics, facilitates the analysis of strategic challenges, and enables the development of more finely tailored marketing strategies. This approach is particularly valuable for comprehending the complexities of competition within and across various market segments. For researchers, identifying which firms qualify as competitors is crucial for gaining insights into industry structures and interfirm dynamics. Embracing the definition presented here may pave the way for new and enriched understandings of competition, contributing to advancements in marketing theory. Moreover, the definition has implications for public policy, notably in the realm of antitrust policy, as viewing competition on a segment-by-segment basis challenges traditional industry-centric per- spectives (Hunt & Arnett, 2001).

For academics, the benefits are twofold. First, by establishing a theory-based definition of competitors, marketing educators can impart a more comprehensive understanding of competition and competitors to students, enhancing their ability to analyse and solve marketing problems. Second, it offers a new perspective for future research on competi- tion and marketing strategy. For example, discussions around market segmentation strategies, such as the segmentation, targeting, and positioning (STP) model, often over- look explicit considerations of competitors. However, incorporating the concept of com- petitors into these discussions becomes decisive. Firms developing market segmentation strategies should not neglect potential competitors, and the decision of which segments to target should involve a thorough examination of other firms that will operate as competitors in those segments.

Embracing the R-A theory perspective opens several promising avenues for future research (see Table 1). First, researchers can examine the influence of managers’ percep- tions of competitors on market segmentation strategy and subsequently on corporate

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strategy. Second, studies can be designed to examine industry dynamics through a segment-based lens. Third, research efforts can focus on developing and validating competitiveness measures that encompass competition within individual market seg- ments as well as across them. It is important to note that R-A theory continues to be a work in progress. Through the ongoing refinement of its concepts, terms, and processes, it is expected that R-A theory will continue to generate valuable insights, thereby contributing to the continual progression of marketing knowledge and strategy.

Notes

1. I had the opportunity to work on R-A theory with Shelby. The ideas presented here are the result of the many conversations we had regarding the theory and its application.

2. It is recognised that consumers in a segment will never be completely homogenous regard- ing needs, wants, and requirements. However, they will be similar enough to allow a firm to develop a targeted marketing strategy.

3. Each firm would have a much more detailed definition of their target consumers, which may include characteristics such as shopping behaviours, monetary resources, and preferences.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes on contributor

Dennis B. Arnett is the John B. Malouf Professor of Marketing at the Rawls College of Business, Texas Tech University. Dr. Arnett holds a B.S. in Mathematics from Occidental College, a M.A. in Education from Alliant International University and a Ph.D. in Business Administration from Texas Tech University. Dr. Arnett’s research focuses on two interrelated areas: (1) competition theory and its implications for marketing theory and practice and (2) relationship marketing theory. His research appears in the Journal of Marketing, Journal of Public Policy & Marketing, Journal of Retailing, Journal

Table 1. Research agenda. Research area Research question

Market segmentation strategy

(1) How do managers’ conceptualisations of what constitutes a competitor affect seg- mentation decisions?

(2) How does the perceived degree of competition with a rival affect market segmenta- tion strategy?

(3) Does a segment-based view of competition enhance market segmentation strategy? (4) How does a segment-based view of competition inform corporate strategy? (5) How do concepts such as direct competitors, indirect competitors, and replacement

competitors fit into the R-A perspective? Industry (1) What role does segment-based competition have on industry dynamics?

(2) How can a segment-based view of competition enhance our understanding of industry structures?

(3) How do consumers (through their varying wants, need, and desires) influence industry characteristics?

Identification/ Evaluation

(1) What are appropriate measures for the level of competition among firms? (2) What factors should be considered when evaluating market segmentation strategy

effectiveness? (3) What are suitable measures of a firm’s relative competitive position within a market

segment? (4) How will the use of artificial intelligence and big data change how firms identify and

select market segments?

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of Marketing Theory and Practice, Journal of Business Research, Journal of Business and Industrial Marketing, Journal of Personal Selling and Sales Management, Industrial Marketing Management, and others.

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