Offensive and Defencive strategy

● The primary purpose of defensive strategy is to make a possible attack

unattractive and discourage potential challengers from attacking another firm.
● Incumbents try to shape the challenger’s expectations about the industry’s
profitability and convince them that the return on their investment will be so low
that it does not warrant making an investment in that industry

● an incumbent needs to take timely action to discourage a challenger from making

any substantial commitment, because once the commitment is made, it is more
difficult to dissuade the challenger from following through with the attack
especially if exit barriers are high.
● Pre-entry defensive strategies are actions taken by firms intended to persuade
potential entrants to believe that market entry would be difficult or unprofitable.
● Such actions include
1. Signaling: Companies often use signaling to announce their intention to
take an action. Announcements can be made through interviews with the
press, press releases, speeches, trade journals, newspapers, and other
means.
2. Fortifying and defending: This strategy attempts to build barriers to entry
for competitors. The purpose of defensive marketing strategies is to lower
the inducement to attack. The most common barriers to entry include
economies of scale, product differentiation, capital requirements, switching
costs, experience curve cost reductions, proprietary technology or patents,
access to raw materials and other inputs, access to distribution channels,
and location.
3. Covering all bases: Covering all bases, also called product proliferation,
entails introducing new products to ensure a full product line or to fill gaps
in the market. Covering all bases may involve introducing multiple
versions of a product in terms of models or product types.
First, some firms, especially the small ones, may not have the resources
to offer a full product line.
Second, product proliferation may cause a firm to spread its resources too
thinly, violating the principle of concentration of forces at the decisive
point. Covering too many markets and overextending itself, leaves a firm
vulnerable to competitor attacks, as it makes for an easy target.
Third, this strategy cannot fully protect a company from attacks by other
competitors who wish to enter the industry. Even if a firm was able to
cover the major segments, it is impossible to cover every possible niche in
the market. This allows small companies to enter the market and occupy
 these niches. These niches, although small and unattractive at the time,
often explode into large segments posing a threat to established firms.

4. Continuous improvement: A continuous improvement strategy calls for a

relentless pursuit of improvements in costs, product quality, new product
development, manufacturing processes, and distribution.
A low cost competitor continuously tries to find ways of decreasing costs
through economies of scale, cutting costs and introducing new production
methods.
A differentiated company looks for ways to maintain its competitive
advantage through innovation, quality improvements, and new features
among others.
Product innovation may involve offering superior features or benefits.
Price innovation could include offering better sales terms and other
incentives.
Distribution could become more effective by looking for new channels,
making existing channels more effective, and seeking strategic alliances.
Promotion can become more effective by improving positioning, execution,
using different media, and increasing emphasis on public relations and
publicity.
The sales promotion function could be examined to see if improvements
could be made in the way the firm uses free samples, coupons, bonus
packs, frequent buyer programs, and refunds.

5. Capacity expansion: Capacity expansion is a credible deterrent strategy

if capacity costs are very high. Otherwise, if the cost of adding capacity is
low or capacity can be utilized for other purposes, it would be relatively
easy for rivals to enter.

Post-Entry Defensive Strategies

1. Defend Position Before Entrant Becomes Established Incumbents
often defend themselves by embracing and improving the intruder's
technology, attacking the upstart’s reputation as a product reliable source
of supply, and hiring some of the best people of the attacking firm.
2. Introduce Fighting Brands Fighting brands are introduced by
organizations to fight a competitor’s brand that threatens one of their
major brands. Competing brands are typically lower priced versions of the
firm’s premium brands that claim equal quality at a much lower price.
There is the risk of cannibalization as the fighting brand may take sales
away from other company brands. Also, the cost of producing and
 marketing the fighting brand may be too high, making it a losing
proposition.
3. Engage in Cross-Parry: Cross-parry is used when a firm that is
challenged by a competitor in one area chooses to challenge this
competitor in another area. For example, if a company is attacked in one
of its core markets or products, instead of retaliating at the point of attack,
it counter-attacks in the challenger's area of strength.
The objective of a cross-parry strategy is often to avoid involving the core brand
in a price war. The larger firm stands to lose more than the smaller firm. In
addition, such a price war not only leads to lower profit margins but it could
permanently tarnish a premium brand’s image. Cross parrying may be also used
to send a signal to the challenging firm that it will suffer more than the cross-
parrying firm.

Offensive Strategies Offensive strategies include direct and indirect attacks or

moving into new markets to avoid incumbent competitors.
1. Launch a frontal attack
Frontal attack is an offensive strategy that involves attacking a competitor
head-on. Frontal attacks can be pure frontal attacks by going after the
customers of the attacked firm with similar products, prices, promotion,
and distribution.
Modified frontal attacks can be price-based where the attacker matches
the rival’s product in terms of features and quality but it offers a lower
price. Modified frontal attacks may also be value- or quality-based
involving challenging rivals with products that offer superior value or
quality at competitive prices.
2. Launch a flanking attack
A flanking attack is an offensive marketing strategy used to exploit an
opponent’s weaknesses while avoiding the risks associated with other
offensive marketing strategies such as frontal attacks. Flank attacks are
based on the principle of the path of least resistance, attacking
competitors in areas which they are least capable of defending.
Competitors being flanked may retaliate by attacking the flanking firm in its
niche. The flanking firm needs to assess the odds of such a counter-attack
and how it could best respond if this happens. Also, firms successfully
pursuing flanking attacks eventually find themselves in direct competition
with their larger rivals making a direct confrontation inevitable. As
explained earlier, this happens because as the flanking firm extends its
product lines, it starts to encroach on the market segments occupied by
the market leaders.
3. Launch a guerrilla attack
 Guerrilla attacks are used against market leaders by challengers who are
small and have limited resources. Guerrilla strategy is less ambitious in
scope than other offensive marketing strategies and it often aims at
harassing, demoralizing, and weakening an opponent through random
attacks intended to keep it off-balance and continuously guessing about
where the next attack will take place.
A guerrilla strategy may be manifested in raiding competitor sources of
supplies and attacking specific products or segments with sales promotion
initiatives including coupons, rebates, and temporary price cuts or
customer deals in selective geographical areas and then quickly
retreating.
Guerilla marketers often attack competitors in areas where they are
overextended and vulnerable with short-duration and random raids using
tactics such as lowballing on price to steal their customers.
4. Engage in strategic encirclement
Encirclement essentially involves surrounding a competitor with several
brands and forcing it to defend itself on many fronts at the same time. This
way, the defender’s attention and resources will be spread over many
products and markets making it harder to defend all of them successfully
at the same time. Also, by attacking the rival with many products in many
markets, the attacker is capable of blocking whichever moves the attacked
firm is attempting to make. This strategy is often employed by a larger firm
against a smaller firm that is perceived as a threat to the larger firm or to
the industry as whole.
5. Engage in predatory strategy
A predatory strategy typically entails accepting lower profits for the
purpose of keeping new competitors out, or inflicting damage on existing
rivals and forcing them to exit the market. This strategy often takes the
form of predatory pricing - cutting prices below costs to eliminate a rival,
with the expectation that prices will be raised again, after competitors have
exited the industry.
A predator operating in many markets may cut prices selectively in
markets with intense competition, and use profits from less competitive
markets to finance the price cuts. If successful, low pricing by the predator
can induce the rival to exit the market. In order for predatory pricing to
work, the opponent must be financially weak.
However, it may be difficult to use predatory pricing to eliminate and keep
competitors out of an industry forever. Once prices are restored back to
profitable levels, many companies enter the industry attracted by the
higher profits. Also exiting competitors are often purchased by powerful
companies that provide the predator with more competition than they
 previously faced. Large companies price aggressively to drive competition
out of business and also run the risk of inviting government intervention.
One non-price predatory technique is to impose contractual terms on the
users of its products. Other forms of exclusionary practices include tying
or bundling.
Cash cows are vulnerable to challengers offering products of superior
value or quality. A successful attack on a competitor’s cash cow can cut
off the competitor’s source of cash and may hamper its efforts to finance
new product development or enter new markets.
6. Seek undefended markets
Seek undefended markets entails avoiding head-on confrontations with
entrenched rivals that often lead to aggressive price-cutting, advertising
wars, or costly efforts to outspend or out differentiate their products. Its
aim is to by-pass competitors altogether and be the first to move into
markets that are not currently served by existing suppliers, or to develop
radically new technologies to leapfrog the competition, making existing
products obsolete and creating new markets.
First, firms using this strategy need to make sure that they have the skills
and resources needed to successfully develop new products and enter
new markets. Second, by entering new product markets, a firm may in fact
end up conceding part of its existing business to competitors. By
concentrating its efforts on developing the new business, the firm may
take its eyes off the ball and allow its competitors to strengthen their
position in the firm’s core business and then use that strength to attack the
bypassing firm.
7. Engage in underdog strategy
An underdog strategy involves a small and, usually, young firm taking on a
much larger competitor. It is, in many respects, similar to the classic battle
between David and Goliath. It is often employed by an upstart company
that doesn’t hesitate to get into a fight with much bigger opponents in
order to break their monopoly and offer the market better products, lower
prices, or both.
8. Engage in Judo strategy
Judo strategy is an offensive marketing strategy suitable for small
companies willing to take on larger opponents. It is similar to the martial
art of judo where the smaller opponent uses the weight and strength of the
larger opponent to its advantage.
● Attack weakness with strength. The principle of attacking weakness
with strength calls for avoiding frontal attacks and attacking the
competitor in markets where the challenger has an advantage or the
 competitor is ill- prepared to fight or most uncomfortable about
defending.
● Flexibility. The principle of flexibility requires yielding when attacked by
a superior competitor to avoid being crushed.
● Leverage. The principle of leverage is about finding ways to turn the
strength and strategy of an opponent against him. The judo strategist
then must find the factors that make it hard for the larger competitor to
react and use them as leverage to launch his attack.
●

9. Engage in the pivot and the hammer strategy

Multisided Platforms
These challenges are the following:
● The number of sides to bring on board;
More sides lead to potentially larger cross-side network effects (as with
Windows), larger scale and potentially diversified sources of revenues

First, it may not be economically viable for one (or several) sides to exist
independently. As described above, console hardware production cannot be
profitable as a separate entity in the video game industry, which means that it
has to be integrated with the same entity as the console operating system.
 Second, even if attracting many sides is possible, doing so carries the risk of
creating too much complexity and even conflicts of interest between the multiple
sides and the MSP.
Adding more sides can also cause a “lowest common denominator” issue, in
that the need to please many different and heterogeneous platform constituents
greatly constrains an MSP’s ability to innovate by introducing truly
groundbreaking features.
Finally, even if it makes sense to attract more sides in the long run, some MSPs
find it easier to solve the initial chicken-and-egg problem by starting with fewer
sides and at least partially vertically integrating into some of the “missing” sides.

● Design
MSPs must be ready to make sacrifices with direct short-term revenue impact in
order to not alienate the participants whose utility is decreased by the design
features in question. In particular, it would be a mistake to assume that design
decisions should be made in favor of the side that brings in the largest share of
current revenues. A better principle would be to consistently solve trade-offs in
favor of the participant group that is most important to the MSP’s long term
success.

● Pricing structures
The pricing principles most useful to business executives are summarized below:
1. For each group, charge a higher price when the group in question has less
price sensitivity.
2. If there is no priced transaction between the sides, then charge more to
the side that stands to benefit more from the presence of the other side or
sides.
3. If there is a priced transaction between two sides, then charge more to the
side that can extract more value from the other side.
● Governance rules.
MSPs can regulate their various customers by resorting to nonprice governance
rules, which fall into two major categories:
1. Rules regulating access to the MSP: Who is allowed to join?
2. Rules regulating interactions on the MSP: What are the various sides
allowed to do?
At a high level, an MSP’s choice of tighter governance rules reflects a trade-off of
quantity in favor of quality.
The benefits of higher quality have to be weighed against the costs of
implementing tighter governance rules. These costs can be technological (such
as designing and including security chips for video game consoles to lock out
unauthorized games) or operational (such as analyzing the profiles of individual
 applicants to eHarmony’s service). Thus, if quantity “crowds out” quality to a
limited extent, some MSPs might find it optimal to do away with costly
governance rules or to “outsource” their enforcement to users.

There are three potential sources of market failures that warrant active
governance by the MSP.
1. First, insufficient information and transparency in the market with respect
to the quality of the goods and services exchanged through the MSP may
lead to a “lemons market failure,” in which low-quality suppliers drive out
high-quality ones and the market breaks down.
2. The second potential source of MSP market failure is the risk that too
much competition within one side of an MSP might reduce the incentive to
invest in developing high-quality products or services.
3. Third, without some form of strict governance by the MSP, each
constituent might fail to take actions or investments that would have
positive spillover effects for the MSP and its other constituents.
. There are three main obstacles that trip up most MSP candidates:
1. The chicken-and-egg problem inherent in launching an MSP business;
2. Resistance from key potential MSP constituents, who do not want to be
beholden to a new and powerful MSP; and
3. The sheer complexity of running an MSP business with conflicting interests to
satisfy

An important feature of most MSPs is that the value to customers on one side of a
platform typically increases with the number of participating customers on another side.
This is known as the presence of cross-side network effects,” sometimes referred to
as “indirect network effects.”

1. Advantage: creates entry barrier

2. Disadvantage: chicken-and-egg problem
• Entry barriers are not sufficient; businesses need to develop high switching costs
• Usually high economies of scale due to skewed fixed costs and negligible variable costs
 Clusters
Clusters are geographic concentrations of interconnected companies and institutions in
a particular field.
Clusters and Productivity
1. Better Access to Employees and Suppliers.: lowering their search and
transaction costs in recruiting it can also be easier to attract talented people from
other locations, a decisive advantage in some industries.
2. Access to Specialized Information. 81 These conditions make information more
transferable.
3. Complementarities.
The most obvious is when products complement one another in meeting
customers’ needs, as the tourism example illustrates.
Another form is the coordination of activities across companies to optimize their
collective productivity.
 Other complementarities arise in marketing
Finally, complementarities can make buying from a cluster more attractive for
customers.
4. Access to Institutions and Public Goods.
5. Better Motivation and Measurement.
Clusters and Innovation.

Clusters and New Business Formation.

ence with government and with public and private