CHAPTER 5

Competitive Analysis
 The learning goals of the chapter

• Understand the issues of price competition: the essense of price

competition, conditions for price competition

• Understanding competitor issues: the information needed to

implement a competitive pricing strategy

• Applied in choosing the method of price competition for businesses

 Concept of competition

Competition is competition between sellers to achieve goals by

creating competitive advantages in product, price, distribution, and
promotion.

Price competition is a competition between sellers to attract

customers based on the price factor.
 The essence of competitive pricing

Direct competition
• Competitive price: the price is lower than the price of direct competitors in
the market
• The basis of direct competitive pricing: Low-cost advantage
• Note: Buyers realize a competitive price when they can compare
Indirect competition
• Competitive pricing that is relatively low relative to competitors' prices
supported by other factors (not necessarily low prices)
• Indirect competitive basis: Product advantage, distribution, promotion
 The essence of price competition

• Competing on price using price as the fastest tool of competition

• Price competition based on competitive advantages
• Competitive pricing must provide additional benefits to the customer,
usually in the form of money or savings
• Price competition is profitable when the sum of the gains and losses is a
positive-sum game (negative-sum game), the stimulated demand must be
large enough, and the costs are significantly reduced.
• Price competition does not mean using price element alone
• It is an important part of the business and marketing mix
 Sustainable competitive pricing management

• Accurately assess the gains and losses in competitive pricing to achieve

business goals
• Anticipate the effects of price policy in the long run to balance short-term
benefits
• Use the support of other elements
• Managing competitive information, planning and choosing the right
confrontation strategy
Conditions for implementing a competitive pricing strategy

• Based on low cost advantage

• Buyers rely mainly on price to decide to buy a product
• There is financial support from other products
• Do not violate anti-dumping laws
 Competitive analysis

• Competitor identification

• Analysis of products, costs, competitive product prices

• Analyze competitor's strengths and weaknesses

• Analyze competitor price behavior and reactions

• Analyze competitor's goals and strategies

 Competitor identification

Based on the product Based on the

Based on competitive
substitution in satisfying relationship between
position in the market
needs product and market

• Generic
• Market leader
Competition/Desire
• Direct competitors • Market challenger
Competition
• Potential • Market follower
• Form Competition
competitors • Market specialist
• Industry Competition
or nicher
• Brand competition
Identify competitors according to the relationship
between product and market

Direct competitors
Competitors have the same market, the same product type to satisfy
customer needs in the market with the business

Potential competitors
Competitors in the same market but offering different products than the
enterprise, or providing the same product but entering a different market
than the enterprise.
Analyze competitors' products, prices, and production costs

• Analyzing the correlation between the enterprise's products and

competing products in terms of quality, type, and external characteristics:
size, design, packaging, utility, reputation and brand image.
• Analyze the level and structure of the costs of producing competitors'
products in relation to maintaining the current price level, and cost
changes and fluctuations according to changes in output.
• Determine the low and high limits of competitive product prices, the
relationship between the price level and the quality of competitors
perceived by customers.
Analyze competitor's strengths and weaknesses

• Ability in finance, labor, technology.

• Management and marketing skills.
• The ability to produce, invest and reserve.
• Ability in establishing relationships inside and outside the business.
• In addition, analyze a number of indicators as a result of capacity: such
as sales, market share, sales volume and profit.
Identify current competitors' pricing strategies and goals

• Determine competitor's marketing goals: Revenue, profit, market share.

• Price strategy, price strategy will be implemented.

• Ability to successfully execute pricing strategy

• Ability to change business strategy and pricing strategy

• Allocate type of competitor: direct, potential, newcomer…

Analyze potential competitors

• Analyze the barriers and resources that prevent or support the ability to
move from a potential competitor to a direct competitor

• Changes in the potential competitor's strategy to become a direct

competitor

• How to limit changes? If not, how to deal with it?

Analyze competitor reaction

Determine competitors' reaction to the business's price decisions, and

competitors' ability to change prices.

Effecting factors:

• Market structure

• Product industry characteristics

• The position of the competitor in the market

• Business philosophy, corporate culture and leadership portrait

• Resource conditions of the enterprise

Analyze the consequences of competitive behavior

Impacts on businesses: revenue, market share, profit

Solutions taken by enterprises to limit and adapt to competition.

Set a pricing plan to achieve the target profit

Competitive factor analysis and prediction

Set pricing policy and strategy

 Competitive factor analysis and prediction

Phase 1 Phase 2 Phase 3 General strategy

Company

Competitor A

Competitor B

Customers

Market segment
attractiveness
Set up the suitable pricing policy and strategy

Price policy: fixed

• Price is determined by the Board of Directors
• Support by pricing strategy: differentiated price by segment, buying
volume, customer type according to buying purpose
Flexible pricing policy: negotiation.
• The price is soft regulated according to the price range, employees
can negotiate depending on the relationship and execution conditions
to sell the goods.
Competitive pricing strategy
Choose the method of competition through price

• Looking for a competitive advantage

• Avoid cost-effective confrontation

• Compete with a higher starting point

• Use non-price measures to support competition

• Using information to reduce competition
Looking for a competitive advantage

Cost advantage: low price strategy

Quality, value, brand advantages – adding value to customers: high

price strategy.

The key for a business to achieve sustainable profitability is to target

the customers that the business is most likely to satisfy.

Some businesses provide high quality products and services while

some provide low quality services, low prices and profits of the
business are always guaranteed.
Avoid cost-effective confrontation

Firms should not initiate price reductions unless the short-term competitive

performance is significant or likely to be effective in the long-term.

A business should also not react to a competitor's price reduction unless its

pricing and non-price tactics call for lower costs than competitors.
Compete with a higher starting point

Two ways of reacting the price of a business to a competitor's price attack to

avoid the possibility of reducing profits
• Reacting to competitors by influencing distributors
• Respond to competitors by shifting competition to product categories

Use non-price competition to increase power

Discounts are not effective due to reduced profits, businesses can use:
• Keep the same prices, increase quality: increase efficiency for customers
• Increase price, increase quality: guarantee relatively low price
Communicate selectively to minimize competition

Use information to support competitive pricing

Minimize price competition
• Notice of price increase
• Support price competition by information
• Respond to competitor price competition with information
Notice of price increase

Price increases affect customers, competitors, distributors

The price increase must be announced before the time of price increase and
explain the reason for the price increase across the industry because:
• Letting competitors see if raising prices is in their interests
• If competitors do not respond to the price increase, the firm may be
cancel the decision to increase prices and find appropriate measures
Support price competition by information

Enterprises actively compete on price

Price competition doesn't always work:
• Profit reduction
• Lower customer price expectations
• Reduce product image
• Destroy the relationship between the loyal seller and buyer
Price competition can be successful if supported by information: Convince
competitors to surrender quickly through:
• Information about the low cost basis of the business
• Information about enterprise resources
• Information about the support of marketing variables
Respond to competitor price reductions with information

• Information about a business's readiness and ability to defend itself

against opportunistic competitors helps to stop competitors' actions and
preserve market share
• Explaining to competitors' customers the reasonableness of prices helps
to reduce competition
• Show customers the current price is reasonable because they get greater
value
Chapter 5 exercises
The Heublein Company specializes in the production of alcoholic beverages,
including their flagship S brand vodka which holds a 23% share of the US alcohol
market. The brand's wine S is currently priced at $10 per bottle and the company has a
strong business performance. However, a new wine called W has been introduced by
a competitor that claims to be of comparable quality to S, yet priced lower than $10.

To address this challenge, the company is considering several options:

1. Lowering the price of S to $9 in order to maintain market share.

2. Maintaining the current price of S but increasing advertising expenditure.
3. Maintaining the current price of S and allowing market share to decrease.
4. Introducing a new premium brand R, priced higher than Smirnoff, while also
launching a lower-priced brand P that competes with W.
Question:
As a Marketing expert professionally trained by NEU, would you analyze and choose
the option?
 References of chapter 5

Hal R. Varian, “Intermediate Microeconomics- A modern

Approach”, Chapter 23, 24, 26, 27

John L. Daly, “Pricing for Profitability – Activitty-based pricing

for competitive advantage”, Chapter 2

Nagle, T.T. Holden, R.K, “The strategy and tactics of pricing- A

guide to profitable decision making”, Chapter 5

Vũ Minh Đức, “Quản trị giá trong doanh nghiệp”, NXB Đại học
Kinh tế Quốc dân, 2019, Chapter 5